October 24, 2018 by Jason Contant
Employer medical cost inflation in Canada is trending lower than global averages, which is “welcome news for employers providing employee benefits in Canada,” commercial brokerage Aon said Tuesday.
For the second year in a row, medical cost inflation in Canada is trending lower than both the global and North American averages. According to Aon’s analysis of extended healthcare plans, medical costs in the country are expected to rise by 6% in 2019, essentially the same increase expected during 2017. Assuming an annual general inflation rate of 2.1% for 2019, the net medical trend rate is expected to be 3.9%.
The trend of lower medical cost inflation in Canada is a reversal from multi-year trends earlier in the decade that had seen inflation approach global norms (approximately 8%).
While a medical inflation rate lower than the overall global trend is good for employers providing employee benefits in Canada, the future is uncertain, Aon noted in its 2019 Global Medical Trend Report.
“Canadians are still exposed to some of the highest prescription drug costs in the world,” Aon said. “A move is afoot to explore a National Prescription Drug Plan, but no one is sure what form that plan could take, when it could be launched or whether all provinces would be participate. There are still many unknowns about this initiative, as it is only in the consultation phase at this point.”
Plan sponsors should continue with their current benefit and drug plan strategies, and start to contemplate changes only when more concrete information about any national program is released, Aon advised.
While Canadians are fortunate to have access to new and emerging levels of care, that access comes with a price. “In Canada, cost inflation is largely driven by expensive prescription drug therapies, since many core healthcare services are provided through provincial programs,” said Greg Durant, senior vice president and chief actuary of health and benefits with Aon in Canada. “These therapies, while expensive, are also often game-changers in that they can keep employees active and productive to a degree that would be impossible otherwise.”
Continued moderate cost inflation is good news, but it’s typically only achievable through good governance and close scrutiny of plan design and cost drivers. “In our experience, employers looking to mitigate control cost increases and ensure sustainable utilization – all while balancing employees’ access to care – must examine the key characteristics of their employee population and determine the best solutions and plan management options going forward,” Durant said.
Globally, medical plan costs paid by employers are set to rise nearly 8% next year, far outpacing average general inflation of nearly 3%. Countries in the Middle East/Africa and Latin America regions will experience the highest average medical premium rates of any region at 13.7% and 13.2%, respectively. By contrast, Europe and North America are projected to see average medical premium rate increases in the single digits, with Europe seeing the lowest rate of increase at 5.1%.
Aon’s report reflects the medical trend expectations of employer-sponsored medical plans in 103 countries based on reported data from Aon professionals, clients and carriers represented in the portfolio of Aon medical plan business in each country.