Bad Habits, Rising Drug Prices And Aging Populations Drive Health Care Costs Higher In 2020

OVERVIEW

First, the good news: In 2020, the rate at which global health care costs rise will increase slightly – by only 0.2 percentage points – from 2019.

The bad news: Health costs still are forecasted to grow at almost three times the pace of general inflation.

Average general inflation rate worldwide is projected to be 3.1 percent in 2020. Aon’s 2020 Global Medical Trend Rates Report shows that the global average medical trend rate – the percentage change in medical plan costs – is 8 percent. Core drivers of the costs are increased chronic health conditions and higher prescription drug prices.

Around the world, employer-sponsored medical plans are growing both in number and scope. All the while, employers – and employees –continue to feel the pinch. In the U.S., for example, over the past decade, health insurance costs for employees have increased more than twice as fast as wages.

Unsurprisingly, employers are looking to manage health care costs better while improving the health of employees at the same time. As such, Aon’s findings show that wellbeing initiatives are on the rise.

“As a large portion of our waking hours are spent on the job, the workplace is a logical place to create a healthier culture and change behaviors,” says Tim Nimmer, global chief actuary for Health Solutions at Aon. “Employers are playing a more critical role in helping individuals actively manage their own health, including by participating in health and wellbeing activities and better managing chronic conditions.”

IN DEPTH

Employer health-benefit costs increase across the globe, but experiences differ by region.

In North America, the pace of increased costs will hold steady from 2019 to 2020 at 6.4 percent. Asia-Pacific is seeing a slight increase, from 8.6 percent in 2019 to 8.7 percent in 2020, and in Europe it will increase from 5.1 percent in 2019 to 5.7 percent.

Meanwhile, the trend rates are expected to drop slightly in Latin America and the Caribbean (LAC) and the Middle East and Africa.

In LAC, the 2020 trend rate is 13.1 percent, down slightly from 13.2 percent in 2019. In the Middle East and Africa, the 2020 trend rate is projected to be 12.2 percent, down from 2019’s 13.7 percent.

“A growing number of companies are looking to deploy strategies aimed at both cost reduction and prevention,” says Violetta Ostafin, chief executive officer of Health and Retirement Solutions for Aon Latin America. “These include programs aimed to manage chronic health conditions as well as education. When we look at LAC in particular, we’re seeing that such steps are critical to employee health and wellbeing, and in managing overall health plans.”

Egypt and South Africa, in particular, are contributing to the regional decrease. For instance, government reforms in Egypt aim to tackle the effects of a currency devaluation between 2016 and 2017 and to grow awareness of health and wellness efforts. And South African insurers’ efforts are containing costs by extending network arrangements to direct individuals to managed care arrangements.

Poor Personal Habits Driving Top Health Risk Factors

Globally, the five medical conditions making the largest impact on health care claims are cardiovascular, cancer, diabetes, high blood pressure and musculoskeletal/back.
The top health risk factors worldwide reflect the impact of poor personal habits, including:
• High blood pressure
• Physical inactivity
• High cholesterol
• Bad nutrition
• Poor stress management

In the U.S., substance abuse ranks among the top five risk factors, with smoking on Europe’s top five list as well.

The top elements contributing to medical plan costs, according to the report, include hospitalization, clinics and labs, prescription drugs, physician services and maternity.

Countering Costs With Robust, Tailored Wellbeing Efforts

While poor lifestyle habits, rising drug prices and aging populations are becoming more common in every part of the world – especially in emerging markets – employers can consider focusing on:
• Providing quality health care treatment when needed
• Facilitating the management of chronic conditions
• Preventing and reducing the risk of accidents and illness
• Helping employees understand their health risks and educating them on how they can improve their health
• Encouraging healthy behaviors

“Cost containment strategies are no longer enough to address medical inflation. Organizations must introduce comprehensive programs that address the physical, emotional, social and financial wellbeing of their employees,” says Tim Dwyer, chief executive officer for Health Solutions at Aon Asia-Pacific. “A proactive people strategy focusing on all these factors will lead to a healthier, engaged and more productive workforce.”

As workforces vary demographically, tailoring strategies and messaging for different segments of the employee base is also important. “The workplace is increasingly diverse, and the communication and engagement approach should mirror this,” says Matthew Lawrence, chief broking officer of Health Solutions at Aon EMEA. “A one-size-fits-all approach is destined to disappoint. Employees need help to understand their specific lifestyle risks and their responsibility to self-manage some of them, as well as what their employer is doing to support them. A more tailored approach based on employee segment gives employers the best chance of achieving sustainable behavior change toward better wellness.”

Globally, employers are taking a number of steps to control escalating medical plan costs.

Key Company Factors Informing A Strong Mitigation Strategy

“A good place for employers to start addressing these challenges is the optimization of the plan design, financial strategy and delivery mechanisms of their medical plans around the world,” says François Choquette, executive vice president of Global Benefits at Aon. “Step one for a sound mitigation strategy is building a deep understanding of the specific factors driving a company’s medical plan costs.”

As high health care costs look more and more like the new normal, employers will continue searching for ways to bend the cost curve while also helping employees achieve a healthier lifestyle.

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