Rising Health Costs

Rising Health Costs

Original by: Kathryn Mayer 1/19/2016

Average cost increases for global employer-funded medical plans are expected to reach 9.1% this year, according to new research by consulting firm Aon Hewitt. That’s 5.5 percentage points higher than the global average projected inflation rate of 3.6%.

The report is significant as it points to rising costs and the increased prevalence of chronic conditions — including high blood pressure, obesity and high cholesterol — as chief contributors to what Aon Hewitt calls a “global phenomena.”

In the United States specifically, the medical rate increase is 5.7% for 2016, Aon Hewitt says.
Though the annual increase for the United States is smaller than the global average, it’s still greatly affecting U.S. employers.
“For multinational companies, aside from significant benefit cost increases, medical trend rates are highly correlated to losses in productivity due to illness and disability,” says Wil Gaitan, senior vice president and global consulting actuary at Aon Hewitt.

Health care costs continue to be a major concern for employers. In fact, a recent survey from consulting firm Deloitte found that more than half of executives at mid-market companies (53%) cite rising health care costs as the No. 1 obstacle to U.S. growth, and more than one-third (34%) refer to it as the No. 2 issue for company growth, behind the uncertain economic outlook.
The Aon Hewitt report is a wide-reaching one, reflecting the medical trend expectations of employer-sponsored medical plans in 90 countries based on reported data from Aon professionals, clients and carriers represented in the portfolio of Aon medical plan business in each country.

Aon says the projected trend rates are expected to vary significantly by region. Both Latin America and the Middle East are expected to see double-digit average medical trend rates in 2016, while Europe and North America will experience trend rates just below 6%. Regardless, average trend rates for all regions are expected to exceed average regional inflation levels by at least 4 percentage points.

The reasons for continuing escalating medical costs are many, Gaitan says. These include global population aging, overall declining health, poor lifestyle habits (particularly in emerging countries), continued cost shifting from social programs and an increase in utilization of employer-sponsored health plans.

Aon Hewitt’s report found that cardiovascular issues, cancer and gastrointestinal issues were the most prevalent health conditions driving health care claims around the world. The top global risk factors cited by the report are: high blood pressure, obesity, high cholesterol, physical inactivity and poor stress management.

“Regardless of the underlying medical insurance system, employers around the world are continuing to experience added organizational cost and lost workforce productivity as a result of these factors,” he says.

The good news is that employers can take action to combat the increase. Aon suggests that employers analyze the root causes of their medical claims and then work to improve their situations in the future. Wellness plans, in particular, are one way to do this. More employers globally are beginning to offer wellness aspects, the report shows, including detection (including physical check-ups, vision screenings and mammograms) and interventions (including tobacco cessation programs, employee assistance programs and physical activities).
Cost mitigation also is being undertaken by employers, Aon says.

“Companies need to increase their efforts to educate employees about efficient use of their medical programs, as they are often unaware of the relationship between utilization and cost,” Gaitan says. “Companies should invest in local education and support programs that promote healthy habits in terms of nutrition, exercise and mental health and other wellness programs.”

Further research by Strategic Benefit Alliance, Inc. has found that the current scope of “wellness plans” are failing due to the employee’s lack of knowledge and understanding of their own health metrics, ie. Blood Pressure readings, Cholesterol numbers, BMI and Blood Sugar. Less than 1/3 of all employees know their key health metrics, and even less know the significance of their numbers and how those numbers relate to their personal health.

Strategic Benefit Alliance, Inc. utilizes both education and engagement to promote participation in the services contained within APEX Membership. It is important that employees understands any wellness program an employer offers. It is significantly more important that employees have the desire to participate!
Employee participation in APEX Membership benefits saves money!

Independent research conducted over a 3 year analysis period by Harvard University found that wellness plans being offered today produce less than a 30% ROI for each dollar spent on wellness plans. The reason for this low ROI is simple, the increasing utilization and rising costs of medical plans far outpace the savings created by healthier employees.

The solution to increasing wellness plan ROI is having the ability to shift a portion of the medical claims associated with wellness away from the core employer benefit program. Utilization of APEX produces a ROI in excess of 100% (between $752 and $1,118) in the first year for the employer. While highly engaged employees have reported reductions in their own healthcare spending between $916 and $1,238 in 2014.

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