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Aon: Global medical costs expected to increase in 2018 as local rates of inflation rise
1/30/2018
 
Global inflation rates are projected to rise around the world in 2018, and cost increases for employer-sponsored medical plans are likely to follow suit, according to a new report from Aon. Global average cost increases are projected to be 8.4% in 2018, nearly three times the projected rate of inflation of 3.1%.

Aon’s report reflects the medical trend expectations of employer-sponsored medical plans in 99 countries based on reported data from Aon professionals, clients and carriers represented in the portfolio of Aon medical plan business in each country.

Projected medical trend rates for 2018 are expected to vary significantly by region. For example, countries in the Middle East/Africa and Latin America regions should continue to see the highest average medical premium rate increases of any region, at 15.3% and 13.9% respectively. In contrast, Asia Pacific, Europe and North America are projected to see average rate increases in the single digits, with Europe seeing the lowest rate of increase at 5.8%.

Despite variations in regional trend rates, all regions are expected to exceed average regional inflation levels by nearly four percentage points. According to Aon, the gap between average global medical trend rates and average general inflation rates have remained above 5 percentage points over the past five years, leading to a nominal cumulative increase of 69% from 2013 to 2018.

“Medical cost trend rates continue to increase due to many factors, including global population aging, poor lifestyle habits in emerging countries, cost shifting from social healthcare programs and the increased prevalence and utilization of employer-sponsored health plans in many countries,” said Wil Gaitan, senior vice president and global consulting actuary at Aon. “Today’s multinational employers are experiencing the increased costs and complexities across their organizations with lower employee productivity levels due to the aforementioned factors.”

Poor Health Habits Primary Driver of Cost Increases
Aon's report revealed the increasing impact of non-communicable diseases worldwide on healthcare costs. Cancer, cardiovascular ailments such as high blood pressure, diabetes and respiratory conditions were the most prevalent health conditions driving healthcare claims around the world. Aon’s report also confirms the growing prevalence of risks from unhealthy personal habits around the world – such as physical inactivity, poor stress management, bad nutrition and obesity.

"Many of the global risk factors often lead to chronic conditions with long medical cost tails that make them expensive to treat and result in long-term medical cost increases,” noted Tim Nimmer, chief healthcare actuary at Aon. “Employers can play a key role by motivating individuals and their families to take a more active role in managing their health, including participating in health and wellness activities and better managing chronic conditions that are fueling medical cost escalation around the world.”

Employer Strategies for Alleviating Medical Costs
To mitigate costs, Aon’s report revealed a growing number of companies are moving away from traditional strategies such as tweaking plan designs and negotiating with carriers and focusing more on impacting the root causes of high healthcare costs. This includes targeted programs to reduce chronic conditions and more education tools to help consumers better use their healthcare benefits.

Organizations across the country are seeking innovative ways to address the high cost of healthcare in the U.S. In another example, last week, three giants of industry, Amazon, Berkshire Hathaway, and JP Morgan, announced the formation of an independent healthcare company for their U.S.-based employees. This announcement was on the heels of CVS’s recent announcement that it would merge with health insurer Aetna. Both developments may be seen as signs of things to come as the need to control health costs is driving business to shift the paradigm on how healthcare is delivered.

For more information on the services available through TRA GSC and Aon, please contact Adam Allen, chief operating officer at TRA GSC, at adamallen@theriskauthority.com.