SOURCE: Aon Hewitt

Aon Hewitt

January 14, 2016 08:00 ET

Global Medical Cost Increases in 2016 Expected to Be 2.5 Times Higher Than General Inflation

New Aon Analysis Projects Average Cost Increases to Top 9% Globally

TORONTO, ON--(Marketwired - January 14, 2016) - A new report from Aon Hewitt, the global talent, retirement and health solutions business of Aon plc, estimates that the average cost increases for employer-sponsored medical plans globally will be 9.1 percent in 2016. This is 5.5 percentage points higher than the global average projected inflation rate of 3.6 percent.

Aon Hewitt's report reflects 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.

According to Aon, 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 percent. Still, average trend rates for all regions are expected to exceed average regional inflation levels by at least 4 percentage points. In Canada specifically, Aon Hewitt's analysis suggests that the average cost increase is estimated to be as high as 8 percent, exceeding the projected general inflation rate of 2 percent by 6 percentage points. For Canada, that is the largest projected medical cost increase since the mid-2000s.

"We expect medical costs to continue to escalate around the world due to 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," said Wil Gaitan, Senior Vice President and Global Consulting Actuary at Aon Hewitt. "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."

Average Medical Trend Rates by Region

 
    2015   2016
    Medical trend
rate
  Annual general
inflation rate
  Medical trend
rate
  Annual general
inflation rate
Asia Pacific   10.4%   4.2%   9.4%   3.2%
Europe   5.7%   1.6%   5.9%   1.6%
Latin America and Caribbean   16.7%   6.9%   20.0%   11.0%
Middle East and Africa   13.3%   6.6%   11.6%   6.3%
North America   5.3%   1.6%   5.8%   1.5%
Global   8.7%   3.2%   9.1%   3.6%
                 

In Canada, Aon Hewitt's analysis of extended health care benefit programs suggests that both gross and inflation-adjusted cost increases are expected to significantly outpace the North American average, reversing a more recent medical inflation trend below 3 percent.

The most significant factor in the upward growth rate is the cost pressure that newly marketed specialty drugs to treat chronic Hepatitis C, heart failure and certain types of cancers are expected to have on drug benefit programs in 2016 and beyond. Also, new high-cost biologic drugs to treat more common conditions (such as high cholesterol) are expected to impact costs in 2016, overshadowing the low-cost drug trend Canadian plan sponsors have enjoyed over the last few years due to generic pricing regulation and patent expiry. Furthermore, increased paramedical practitioner usage continues to be a factor in the climbing medical cost trend. This challenging environment will create additional incentives for plan sponsors to adopt more cost management features, for both the short and long term.

"Organizations will need to react to the new reality of medical cost inflation through sound plan management," said Shawn O'Brien, Vice-President, National Business Analytics Leader, Health & Benefits, Aon Hewitt Canada, "but they cannot lose sight of longer-term, structural changes in the medical cost landscape -- for instance, the aging workforce and the impact of non-communicable conditions like obesity and high blood pressure. Plan sponsors must not only respond today, but also prepare for tomorrow."

Global Factors Impacting Medical Trend Rates
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 global risk factors expected to drive future claims-and contribute to the adverse experience driving high medical cost increases-were primarily non-communicable diseases: high blood pressure, obesity and high cholesterol, followed by physical inactivity. In Canada specifically, the largest contributors to adverse experiences will be obesity, physical inactivity and aging.

"Many of the factors driving global cost increases are directly linked to modern lifestyles and their incidence can be significantly reduced if individuals modify their behaviors," said François Choquette, Global Benefits Practice Leader at Aon Health. "Employers in every country need to accelerate their efforts at helping employees both understand their own health risks and motivate them to take steps to improve their health."

About Aon
Aon plc (NYSE: AON) is a leading global provider of risk management, insurance brokerage and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 72,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative risk and people solutions. For further information on our capabilities and to learn how we empower results for clients, please visit: http://aon.mediaroom.com.

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