Amidst Global Growth, Medical Trends Lift Insurance Costs
In a world of increasing wealth, a remarkable statistic has surfaced. Almost unnoticed, the majority of humanity passed a tipping point about a year ago, when the Brookings Institution calculated that “just over 50% of the world’s population, or some 3.8 billion people, live in households with enough discretionary expenditure to be considered ‘middle class’ or ‘rich.’ … For the first time ever, the poor and vulnerable will no longer be a majority in the world.”
This good news has many implications, not the least of which is that as more people build wealth through their work and their benefit programs, the cost of health insurance continues to rise.
Yes, several industries are helping organizations optimize employee benefit plan costs to ensure sustainability into the future, but more is called for.
Medical trends continue to outpace inflation by almost three times — the average global medical trend rate for 2018 was 9.7%, with a similar increase expected for 2019 and an even higher rate for 2020.
That’s a key finding of Mercer Marsh Benefits’ most recent Medical Trends Around the World report, which surveyed 204 insurers across 59 countries (not including the U.S., a unique health care market) earlier this year. It tells us that at a time when the global workforce is demanding a broader set of rewards and more engaging program delivery, employers that don’t use active plan management strategies may have to allocate more and more of their remuneration budgets toward benefits.
Constants and Progress
How, then, are health conditions, supplier factors and consumer habits driving cost? Certain conditions are annual constants. The Mercer Marsh Benefits survey shows that cancer and diseases of the circulatory system remain the top two highest cost-based causes of claims, while the top three health risk factors remain metabolic and cardiovascular, dietary, and emotional/mental risk.
Despite that, and despite the unrelieved rate of medical inflation, the industry is making progress toward better employee health and cost reduction, and organizations can enhance their results.
For example, the number of insurers investing in initiatives to enable quality-focused care — essentially, the right care at the right time in the right place — has more than doubled since 2018. Now, 29% of insurers indicate quality-focused care as a top strategic investment area. That’s a natural evolution of insurers’ recent investment in data analytics, the top strategic focus for insurers determined to identify abnormalities in costs and medical practices. In Europe, an increasing number of insurers (15% more than in 2018) are delisting health providers as a result.
For organizations, enabling more quality-focused care means engaging with benefit advisers, other employers, insurers and internal resources to make sure plan members have greater knowledge, the latest digital tools to personalize their experience and the incentive to change their buying habits, promoting consumer as well as provider accountability.
Knowing when to choose a walk-in or on-site care clinic over a hospital emergency room or a telephonic or video provider visit can make a major difference.
Indeed, what had been, in past years, a tentative exploration of such virtual care options to contain medical costs and encourage consumer-based behavior is increasingly shifting to execution.
Now, 78% of insurers globally are considering or supporting virtual health consultations, with the highest percentage (88%) in the Middle East and Africa. Employers can embrace this digital disruption to make health care more available and affordable across the spectrum of providers, including mental health care providers and physical therapists.
While U.S. health benefit cost growth remained moderate in 2018, at 3.6%, an increase of 4.4% is projected for 2019.
Meanwhile, lifestyle factors continue to drive increases in medical costs. Insurers report that circulatory, gastrointestinal and respiratory conditions largely related to lifestyle choices — from smoking to obesity- and diabetes-promoting dietary or sedentary habits — remain the top claims by cost and frequency.
Employers face challenges in bending that curve, but can make progress by making health a business imperative. They can support employees with programs that emphasize physical, emotional, financial and even social well-being. A culture of health with demonstrative business support, healthy workplace policies and a range of motivational approaches can play important roles.
Mental Health and Rx Challenges
Significantly, the issue of mental/emotional health continues to grow. While less than 10% of insurers globally reported mental conditions as one of the top three causes of claims cost, there’s an increase in insurers in Asia and Latin America reporting it compared to last year.
Limited access to mental health care is a nagging and pervasive factor, but employers are putting pressure on insurers to remove mental health exclusions, driven by organizations awakening to diversity and inclusion philosophies and recognition of how mental health impacts physical health. The increased recognition of the importance of treating behavioral conditions goes hand in hand with a lowering of stigma and cultural barriers to accessing help for mental health.
Statistics underscore the extent of mental/emotional problems and their hidden costs. Research by Oliver Wyman and the city of Hong Kong reveals that 37% of professional services employees in Hong Kong have experienced poor mental health.
That’s in line with findings in the U.K., where a Mercer Marsh Benefits survey of Mental Health at Work shows that one in three people in the workforce has been formally diagnosed with a mental health condition at some point. Oliver Wyman estimates that the tangible cost to professional service employers in Hong Kong could be between $0.7 and $1.6 billion per year, which is 40 to 90 times the current spend on employee assistance plans.
Not surprisingly, the 2019 medical trends survey shows that high-cost pharmaceuticals and biologic drugs are the top supplier-driven reason for cost increases globally, most notably in Latin America and Asia. The number two reason is new and expensive medical technology, most pronouncedly in Europe.
The world market is bursting with ultra-expensive specialty drugs for rare diseases and targeted therapies for cancer, which could easily send costs upward of $1 million per year. Controlling pharmacy spend demands coordinated effort. In Canada, for example, employers are evolving drug plan management strategies that rely on advanced analytical skills, stringent plan design, up-to-the-moment knowledge of Canadian legislation and partnerships with providers that offer a “lowest price in Canada” guarantee.
Unknowns and Solutions
Then there’s the great unknown posed by Brexit. The British Medical Association expects that the U.K.’s imminent withdrawal from the European Union will significantly affect the quality of care received by patients due to workforce shortages of EU nationals and reduced funding for health care research, with the cost of medical supplies expected to increase. Greater reliance on private health treatment over the National Health Service would also contribute to rising plan costs.
As for U.S. health trends, they are drawn from Mercer’s National Survey of Employer-Sponsored Health Plans. While U.S. health benefit cost growth remained moderate in 2018, at 3.6%, an increase of 4.4% is projected for 2019. The trend is slowly moving upward again, as specialty drugs drive U.S. costs significantly — above the Consumer Price Index and workers’ earnings growth.
Ultimately, the strategic future of health care will face not only rising costs but more demanding customers and a changing insurance industry landscape. Disruption and digital transformation are sweeping the insurance and health care systems, from digital startups to big data and supply chain integration. Today’s employees expect online engagement and a seamless consumer-grade digital experience for claims submission, dealing with health care providers and accessing medical records.
This rise of digital health fosters innovation and challenges for insurers and the organizations that rely on them. This is an era of high demand for value-added services that help plan members make smarter health care decisions.
Clearly, the future of work demands healthy, focused employees, and as medical trends continue to rise, now is the time for employers to proactively evaluate their strategies through the lenses of cost optimization and employee engagement.