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Jan 2023

Rising healthcare costs a challenge for insurers

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Source: Asia Insurance Review | Jan 2023

With healthcare costs constantly on the rise, 2023 will see a spike to pre-pandemic levels as global inflation rates soar. Insurers are expecting greater challenges in keeping healthcare costs manageable, according to surveys by WTW and Marsh. We take a deep dive into the issue.
By Ahmad Zaki
 
 
According to the latest Mercer Marsh Benefits (MMB) global research, insurers anticipate Asia 2022 and 2023 medical trend rates (the year-over-year cost increase for claims under a medical scheme on a per-person basis) to reach 10.7% and 11.5% respectively. The rates have returned to pre-pandemic levels (2019: 10.2%) after a drop to 3.5% during 2020. In 2023, the rate of growth is generally expected to remain steady at 2022 levels.
 
Meanwhile, WTW’s Global Medical Trends survey found very similar results, with insurers expecting healthcare benefit costs in Asia Pacific to increase by 10.2% next year. The survey found little relief in sight with close to three-quarters of insurers (73%) in the region anticipating higher or significantly higher increases in healthcare benefit costs in Asia Pacific over the next three years.
 
MMB’s survey found that changes in claims utilisation are the main drivers of increasing medical trend rates. Although the claim cost pattern is consistent with pre-pandemic years, insurers are reporting that deferred care and diagnosis has increased the volume of claims, with more diagnoses being made at a later stage, further driving up premium costs.
 
Soaring inflation rates in the general economy have been a source of concern for individuals and employers. As employers design their 2023 benefits plan offerings, including medical insurance and wellbeing programmes, the impact of inflation will inevitably be an important factor.
 
Eima Azim“It is important to note that global inflation has not affected medical trend to the same extent as energy, commodity or food prices and will continue to have an impact on the non-medical related costs, including the cost of raw materials, labour, supply chain, affiliated care and other operational costs,” said MMB regional consulting leader, ASEAN and Hong Kong Eima Azim, during an interview with Asia Insurance Review.
 
However, the bottom line is that these large increases are unsustainable, said WTW. Employers and insurers will need to develop strategies and solutions to rein in costs to more manageable levels.
 
Leading causes
According to WTW, the leading driver of medical costs, according to insurers, continues to be overuse of care (81%) due to medical professionals recommending too many services or overprescribing.
 
Insured members’ poor health habits (58%) is the second leading driver. The underuse of preventive services (46%) is also a significant cost driver and increased year-over-year due to, in part, the avoidance of medical care during the pandemic.
 
Insurers in Asia Pacific identified cancer, cardiovascular and musculoskeletal as the top three conditions by cost, identical to last year’s findings. Cancer continues to be the leading condition in terms of incidence of claims and cost.
 
Mental health conditions such as anxiety and depression continue to take a toll on employees. Insurers expect mental and behaviour disorders to be among the top five fastest-growing conditions by incidence of claims in this region in the next 18 months.
 
“In our 2022 study, mental and behavioural disorders were ranked among the top five conditions by cost but not by incidence of claims,” WTW said, in its executive summary. “Respondents expect mental and behavioural disorders to be among the top five fastest-growing conditions by both incidence of claims and cost in the next 18 months.”
 
Insurers have also ranked treatments related to the reproductive system as one of the top five conditions that is affecting medical costs this year.
 
Sustainability and ageing populations
Against the backdrop of ageing population, longer life spans and rising incidence of non-communicable diseases, employers should look for advisory and solutions around managing healthcare cost, said Ms Azim.
 
“An effective way to contain such costs is to detect health issues earlier. Therefore, employers should consider promoting regular health screenings and providing benefits, including digital health tools, that allow employees and families to manage their health and wellbeing. Doing so will allow employers to develop effective, value-based cost-containment strategies that provide access to quality and affordable care to their employees, while managing people risk.”
 
Sustained inflation and the ongoing war for talent are pushing people costs up the boardroom agenda, making it timely for employers to think about financially sustainable strategies. Employers are recommended to prioritise the benefits and programmes that are most favoured by each segment of employees, assessed through formal employee listening activities and create a scalable strategy to manage employee benefits plan and costs over the long term, including recurring plan review to identify high-value solutions.
 
Medical trends in Singapore driving medical cost inflation
Singapore’s core and headline inflation figures continue to rise with projected 2023 medical inflation roaring to 9.8%, WTW said.
 
As a premier medical tourism hub, Singapore being one of the first few Asia countries to lift the travel ban, experienced a large influx of overseas patients seeking previously deferred elective treatment. The fast-ageing workforce coupled with heavier chronic disease burden remained key contributors to the rise in healthcare costs.
 
Other contributing factors include overuse of care by insured members, as well as over-treatment or overprescribing by medical practitioners.
 
Though not expecting to benefit from short term results, organisations are now more open to preventive care and wellbeing programmes, adopting a more strategic and longer-term view to tame their medical cost increases with more employers requesting to integrate wellbeing as a core component of their healthcare benefit programmes.
 
Managing the costs
Seventy per cent of insurers called contracting with provider networks the most effective way to control costs.
 
“A notable shift over prior year occurred in the area of preapprovals for scheduled inpatient services, which dropped from number two (67%) last year to number five (52%) this year,” according to WTW.
 
In addition, telehealth moved from number three to number two as one of the best cost-cutting techniques, even though the percentage dipped from year to year. Last year, 63% of respondents said telehealth was a good cost-cutting tool, while this year that figure dropped to 60%. A 
 

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