How To Respond To Rising Global Medical Costs

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Around the world, a combination of aging populations and overall declining health is pushing up medical costs every year – according to Aon’s 2018 Global Medical Trend Rates survey.

The physical challenges of old age and unhealthy lifestyles in working age people have led to an increasing prevalence of non-communicable diseases and chronic conditions. These, in turn, have increased the need for expensive, long-term treatments. Beyond the financial impact of rising medical insurance costs, employers are likely to experience increasingly unhealthy employees, which can affect productivity if steps aren’t taken to mitigate the impact of these medical trends.

Aon’s survey suggests some companies are heeding the need for action, with health programs – from screening and education, to active wellness intervention programs – becoming increasingly common all over the world. These programs are key to helping decrease overall medical costs. Health issues impact not only businesses, but individuals and societies as well. “In order to contain health care costs, you have to get to the root cause – and that is people’s health,” says Stephanie Pronk, Senior Vice President, U.S. Health Transformation Team Leader, Aon.


In Depth

Overall Inflation Trends

The cost of health care is rising much faster than inflation. This means that medical costs are increasing at an even faster rate than other goods and services – making medical treatment noticeably more expensive than other items.

According to the report, in 2017, the global average increase in medical costs was 8.2 percent against a worldwide inflation rate of 2.8 percent – giving a net trend rate increase of 5.4 percent. Next year will most likely see these trends begin to reverse, but only slowly.

This new trend is not because of a decline in the cost of health care, but rather a predicted increase in inflation. So while gross medical rate increases will hit 8.4 percent, a strengthening global inflation rate of 3.1 percent will cause the net increase to fall very slightly to 5.3 percent.

Regardless of the overall trend or its predicted change of course, some countries faced particularly steep cost increases – with Honduras, Costa Rica, Venezuela, Brazil, Lithuania, Slovakia, Lebanon, Egypt, Pakistan, Vietnam, Malaysia, and Indonesia all facing double-figure rates of medical inflation.

Inflation And Medical Costs: Regional Trends

North America and Europe faced the lowest rate increases in 2017 – with North American countries seeing net medical costs increase by 4.7 percent, while Europe saw even lower rate increases, of net 4.1 percent.

The Latin American region saw the highest net trend rate increases in the world, at 8.2 percent. One of the highest national increases in the region was reported by Brazil, which saw costs increase by net 11 percent. This figure is likely to hit 14.7 percent in 2018, making Brazil the costliest country in the region, outside of the exceptional case of hyperinflationary Venezuela. Brazil’s difficulties stem in large part from its long struggle with a major recession, heavily squeezing government health care funding.

The Middle East and Africa showed the second highest net growth rate in the world overall, at 7.6 percent, well above the global average of 5.4 percent – although South Africa saw a comparatively lower net increase of 4 percent. Unlike the rest of the world, where non-communicable diseases are the leading cause of mortality, in South Africa it is infectious diseases, specifically HIV/AIDS, that are the leading cause of mortality. Virulent diseases that can mean lifelong treatment pose substantially different challenges.

Despite high medical cost increases in Asia, China saw figures well below the regional average. In fact, China’s medical trend rates compared favorably with Western Europe’s. China’s ability to keep a lid on rising costs is made all the more remarkable by the fact that it achieved universal health care coverage (for a population of 1.3 billion people) in 2011. However, it faces challenges ahead stemming from a large aging population.

Conditions Driving Costs

The Global Medical Trend Rates survey revealed that the top three conditions driving adverse claims experiences were all non-communicable diseases: cancer, cardiovascular disease and high blood pressure. In turn, the risk factors expected to drive future claims scenarios were all related to unhealthy lifestyles: high blood pressure, physical inactivity and obesity.

Although the trend is concerning, the good news is that these risk factors are preventable. Evidence suggests that as lifestyle-related health conditions proliferate, people are becoming aware of the need to take care of themselves – particularly the younger generation. A recent survey showed that U.K. university students are spending four times more on their health and fitness – including gym memberships and exercise classes – than students who graduated in the 10 years preceding them.

Prioritizing Wellness In The Workplace

While uptake of activities such as going to the gym is positive, physical wellness in the workplace can often be overlooked. As Aon’s Pronk explains: “The United States leads other countries with health care costs and obesity rates.” At the same time, however, Pronk says that U.S. employers have been prioritizing various wellness programs with a historic focus on physical wellness. “What we’re seeing now is a shift to overall wellbeing: To look at health holistically. Because there isn’t a simple answer or one-size-fits-all approach to health and wellness, a holistic view can produce better outcomes across a variety of issues: emotional, financial, social and physical.”

As the health of a workforce is connected to not only employer-sponsored health care programs but also connected to workforce productivity, businesses are well-placed to help their employees take preventative action.

To address these challenges, firms are turning to other methods to cut costs. These include redesigning the health plans so that the employee is given a choice between a healthier lifestyle or more expenses to cover. They can also support day-to-day business practices that get people locked into healthier lifestyles, like standing desks, walk-and-talk meetings, and cycle-to-work programs.

An Increasing Focus On Wellness For Employers

Close to 70 percent of respondents to the Global Medical Trend Rates survey said that their firms were now providing in-house wellness programs. There are five commonly provided types of program:

1. Detection programs (provided by 83 percent of respondents), such as physical checkups, screenings and mammograms.

2. Education programs (72 percent), such as wellness kits, fitness education and web services.

3. Wellness interventions (69 percent), such as providing back care and advice on smoking cessation.

4. Advanced assessment programs (64 percent), such as nutrition and substance abuse assessments.

5. Coaching programs (55 percent), such as incentive programs and access to specialists.

Promoting employee wellness isn’t just about keeping medical costs down, it’s about driving value and productivity across the workforce in other ways. Robin Bouvier, Vice President of Aon’s Innovation Group and Health Transformation Team, says: “It’s time to think beyond the cost of health care into the things that really matter: Retaining top talent, driving higher levels of engagement, better customer satisfaction, more sales, better-quality output. All of these things drive business success.”


Talking Points

“I enjoy health and fitness, and I’m a strong believer that a healthy workforce is a more productive workforce, and we should focus more on our employees’ wellness. I do believe there is a wave of employers who are getting a little more into promoting and providing their employees with incentives and opportunities to engage in physical fitness” – Emma Schwartz, President, Medical Center of the Americas Foundation

“As an employee, I love that we have a nature trail right outside of our office. The company is very encouraging to people to make use of that nature trail during the day. Everyone, from the senior leadership team on down, make use of it. We also have an onsite gym, yoga and personal training classes. You see the CEO of the company making use of those, you’ll see her in the classes. These resources are here to be used” – Tom Williams, Content Marketing Specialist, Hubb, a firm named joint “Healthiest Company – Small Employer, 2017” by the Vancouver Business Journal


Further Reading