What's the outlook for medical costs in 2022?

Utilization levels expected to return to pre-pandemic levels by 2022

What's the outlook for medical costs in 2022?

Looking ahead to 2022, Canada is expected to see a “medical trend rate” of seven per cent, similar to 2021.

That’s largely because COVID-19 lockdowns have resulted in reduced utilization levels, especially in dental and out-patient non-emergency services, with prescription drugs remaining similar to pre-pandemic years, according to Aon’s 2022 Global Medical Trend Rates Report.

“That seven-per-cent trend rate is going to be influenced by prescription drug costs, which continue to increase by the typical factors -- new drugs being released, utilization changes in the demography,” says Joey Raheb, senior vice president of health solutions at Aon.

“In addition to that, paramedical expenses will add to the driver of costs [which] saw maybe the biggest decline in the health spend realm in Canada, with practitioner shutdowns in 2020, and then people returning back to paramedical practitioners, not to the same levels that we would have expected previously. So, as we look into 2022, that rampup will continue, we expect, and so that will drive some of that utilization and training costs.”

The medical trend rate averages are based on a weighting process for each country’s average private health care insurance expenditure per person (with arbitrary adjustments for some countries to prevent over or under weighting) and a geometric averaging mechanism. The survey was conducted among 108 Aon offices worldwide involved in employer-sponsored medical plans.

The global average medical trend rate for 2022 is 7.4 per cent, compared to 7.2 per cent in 2021.

Benefits plan utilization

Around 60 per cent of the countries surveyed reported 2020-21 plan utilization levels that were lower than those of the 2019 pre-pandemic year.

However, medical costs are expected to continue rising significantly above general inflation due to population aging, overall declining health, poor lifestyle habits and increased prevalence of chronic conditions, says Aon, “as these continue to be global phenomena that are further exacerbated by the potential long-term health impacts of the deferred treatments and routine checks that resulted from the multiple pandemic related lockdowns.”

Looking ahead to 2022, more than 70 per cent of countries are expecting utilization level to be higher or much higher than the observed during 2020-21, with less than 30 per cent expecting the same.

As for a return to normal, that will be contingent on how the evolution of the pandemic happens, says Raheb.

“If we see continued spikes in numbers, we will see again a depression in claims with regards to paramedical practitioners or dental visits, because people will re-evaluate the necessity of having a massage or getting their teeth cleaned, versus being exposed potentially to the COVID virus. So I think it'll all change as the Delta and other variants play their way through the population and see how that goes.”

Amid the ongoing labour shortage, employers should pay more attention to the kinds of benefits they provide workers, judging by the results of an RBC survey. More than two-thirds (68 per cent) of Canadians would rather take a job with a good benefits plan over one that pays more but does not have a benefits plan.

Takeaways for HR

Looked at in isolation, that trend rate of seen per cent may feel high but it’s important to couch that number in looking at the 2021 budget in comparison to actuals.

“That expectation of spend in 2022 is actually lower than if you went back to pre-pandemic levels and trended it forward to 2022.  So I think you have to think about the gap, in where the run rate spend might have been in 2022, in comparison to what the actual 2022 number might be, based on 2021 utilization, which is lower than expected.”

“So that's item number one is not to overreact in terms of spend, because in terms of budget spend, it may not be substantially different than what the run rate projection might have been in your five year plan.”

In addition, employers are in different positions, with some performing substantially better financially than they were before the pandemic because of their essential nature, while others have struggled.

“So it’s about re-evaluating your benefits philosophy and strategy, like what is core and foundational in terms of you as an organization, what you want to provide to your employees, and then take that lens to your employee benefits program and see if there are things that need to happen -- whether that's plan design changes, employee cost sharing,  whatever the situation might be, to reevaluate from that perspective.”

Top conditions, risk factors

According to Aon, the top medical conditions driving medical plan costs in Canada are:

  • autoimmune disease
  • cancer
  • cardiovascular
  • mental health
  • diabetes

“In support of a broader wellbeing strategy, and recognizing some of the challenges that have taken place in the pandemic, we've seen more employers increase maximums on mental health practitioners or adding a broader, more diverse range of mental health practitioners that are eligible to be claimed against in their plan,” says Raheb.

And the top risk factors are:

  • poor stress management
  • lack of health screening
  • physical inactivity
  • bad nutrition
  • aging

In response, the top mitigation methods used by employers globally are: wellness initiatives (86 per cent), cost containment (78 per cent), plan design changes (59 per cent), access and delivery restrictions (49 per cent) and flexible benefit plans to cap overall benefit costs (59 per cent), finds Aon.

With the COVID-19 pandemic, Canadian employers have needed to make difficult decisions regarding employee benefits, particularly in the areas of mental health, medication and retirement plans, according to a recent report by the International Foundation of Employee Benefit Plans (IFEBP).

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