Employer medical costs expected to rise 6.5 percent next year

The increased use of specialty drugs and other trends will cause U.S. employer’s medical costs to rise faster than inflation next year – but the increase will be slower than what many employers elsewhere across the globe will face, according to Aon’s 2020 Global Medical Trend Rates Report.

U.S. employer medical costs, or “medical trend,” will rise 6.5 percent in 2020, the same increase as in 2019, though the rate will outpace inflation by 3.8 percent, Aon brokers predict. The stable rate of increase in the U.S. medical trend will be due mainly to moderate price increases, coupled with flat or decreasing utilization rates that will likely decline even further in the next few years, albeit slightly.

Related: The top drivers of medical costs in 2019

“Additionally, pharmacy trends continue to have significant volatility, but we see gross trends remaining elevated — driven mainly by specialty drugs, while net trends remain lower as a result of aggressive negotiations and management of pharmacy costs through formulary design and utilization monitoring,” the report’s authors write.

The global medical trend rate will rise even higher, by 8 percent, up from the 7.8 percent growth this year. The highest increases will be in Latin America and Middle East/Africa regions, with average medical premium rates forecasted at 13.1 percent and 12.2 percent, respectively. Europe will see the lowest average medical premium increase of 5.7 percent.

The increases across the globe will be due in part to a slight increase in global inflation, as well as more employers sponsoring plans with expanded benefits, including more procedures covered, larger maximum lifetime benefits, higher allowances for maternity benefits, fewer exclusions from plan coverage and more lenient participation plan requirements, according to the report.

In both nominal and real terms, medical trend rate levels across the world will remain “extremely high” for the foreseeable future, Aon brokers predict.

“In fact, we expect continued medical plan cost escalation due to global population aging, overall declining health, poor lifestyle habits becoming pervasive in emerging countries, continuing cost-shifting patterns from social programs and heavy utilization of employer-sponsored plans,” the authors write.

Rising costs and the increased prevalence of chronic conditions are a “global phenomena,” they add.

“Employers will continue to face the prospect of added organizational cost and employee productivity losses unless the controllable factors contributing to these patterns are effectively addressed,” the authors write.

Aon brokers recommend that employers think “long term” and actively promote a healthy workforce. The first step should be offering a “robust” benefits package for both employees and their families that provides quality health care treatment when needed; facilitates the management of chronic health conditions; prevents or reduces the risk of accident and illness; helps employees understand their health risks and educates them on steps to improve their health; and encourages healthy behaviors.

Read more: 

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