By Grant Cameron, Chief Executive Officer, Trafalgar International Ltd
Health care costs in the U.S. and around the globe have been on the rise for many years. These cost increases have outpaced wage growth, general inflation and the consumer price index for medical services, to name but a few barometers. Employers can generally see such impact by the increasing annual cost of their group employee benefits programmes.
So, what is claim trend?
Many times, trend is used as a replacement for inflation, but the two are not equal. Trend is the forecasting means by which a population’s historical claims experience is adjusted to predict future claims expectations. Inflation is just one component that comprises trend.
The main components of health care trend are:
- Price inflation or deflation
- Aging of and declining health of the population
- Increasing / decreasing utilisation of services
- Improvements in technology, treatment patterns and therapies
- Leveraging effect of the benefit design
- Changes in national or state legislation
- Cost shifting from public to private payers
- Consolidation of health care delivery systems
Why is trend important to understand?
While there are several items that comprise a group’s renewal calculation, claim trend is complex and can have the most significant impact on how premiums may increase.
Since most of the determinants are outside an employer’s or plan sponsor’s direct control, it is vital that the employer focuses on a culture of health and makes employee well-being a key criterion of the organization.
Trend will also differ by product. Pharmacy trends can run higher than medical, usually due to large price increases, greater utilisation and rapid development of new drugs and therapies. Dental trends tend to be lower than medical or pharmacy due to a lack of catastrophic claims, less impact by an aging population and no cost shifting from government plans.
Industry Shifts That May impact Trend in the Next Couple Years
The health insurance market continues to evolve at a very rapid pace. As such, there are many developments shaping the industry that could impact health care trend in some fashion. Some of them are:
- How quickly more medical providers agree to accept reimbursements based on quality rather than volume.
- Possible changes in the pharmaceutical industry, legislative or other change that could impact specialty medications and overall pricing.
- Greater scrutiny on the prices charged by hospitals and doctors, as is currently happening in Thailand.
- Any increases in utilisation of medical services, due to an improving economy and lower unemployment.
Health care trend has varied little over the past few years, even with the environmental shifts witnessed in the industry. Every employer will need to approach the subject of trend differently, but all will benefit from injecting creativity into the determinants that they can impact and control. Speak with your own or an independent insurance broker ahead of your next programme renewal for their professional advice and insight.
Grant has headed up Trafalgar International, one of Thailand’s leading brokers, since 1999. Trafalgar International is also a partner firm in Assurex Global, the world’s 5th largest insurance broking group with over $29 billion in premium volume being serviced annually, employing almost 20,000 insurance professionals and with over 600 offices on 6 continents.