I recently sat down with Francis Coleman, Managing Director, Health and Benefits, Global Services and Solutions, Willis Towers Watson to discuss their recent Global Medical Trends Survey results.
HR Daily Advisor: Your report shows that while health care benefits costs are rising significantly in some places, it might actually go down in America in 2019. Has the U.S. finally figured it out? Should we begin celebrating?
Coleman: Not yet. Other research we conduct shows the United States still has a significant price problem with rates of health care cost increases running two to three times general inflation. Providers are consolidating at a rapid clip and that is unquestionably a cost driver. At the per employee per year dollar amounts – even at lower historical trends – we are destroying our prosperity at a very rapid pace.
HR Daily Advisor: Whether heath care benefits costs rise or fall within the U.S. seems to be based on region. Why is that? Which regions should be the most worried?
Coleman: There are some regional differences partly driven by local market issues – degrees of consolidation, network structure, rural versus urban mix and lifestyle are good examples. But the broader issues are still at the national level. The Industrial Organization of health care is a national failure and needs a mix of government intervention and employers banding together to disrupt at the local level.
HR Daily Advisor: What other factors are at play in that slight projected decrease in the U.S.?
Coleman: I don’t think a projected decrease is the story. It’s short-term if anything. Call it a blip. The only factor potentially driving a smaller increase in costs is migration to account-based health plans and perhaps an expansion of performance networks (highly doubt the latter). However, we believe the migration to account-based plans is a short-term phenomenon. Trends will pick up again but at a lower cost base.
HR Daily Advisor: Do you think that rises in health care benefit costs overseas will influence markets in the U.S.?
Coleman: If we are talking about labor markets, this comes down to how companies manage their global compensation budget. Rising health care costs in other markets could increase the cost of doing business and make companies think twice about their sourcing strategies. However, it is doubtful that it would change labor strategies in the U.S. and push U.S. employers to hire more employees stateside as opposed to lower cost environments in Asia and Latin America. The absolute dollar cost of healthcare in the U.S. is still more than five times the average cost outside of North America, and so despite the higher rate of medical trend outside of the U.S., it will take a long time to catch up to U.S. costs.
HR Daily Advisor: Were there any surprises in your report?
Coleman: We continue to see the similar rates of medical trend in Asia, Latin America and Europe. Europe continues to have lower trend due to the influence of the integrated government health systems and their ability to negotiate lower pharmaceutical costs. The bigger surprise this year was the rate of increase in the Middle East and Africa.
Another surprise was the rise of mental health related illnesses. While cardiovascular conditions and cancer are generally expected to cause the highest incidence of claims around the world, excluding maternity, the incidence of mental and behavioral disorders are expected to increase over the next five years. The cost of mental conditions is already rising steeply. A paper presented at the World Economic Forum estimated these to have cost £2.5 trillion in 2010 and projected them to rise to six trillion by 2030, an increase of 240%. This suggests that they may yet conspire to force worldwide costs higher as more employees rely on their health insurance to help them manage new diagnoses.