Insurers' claims trend increases at more than double rate of actual costs

Even though most Canadian plan sponsors can expect to see 3% to 5% increases in drug claims based on actual 2018 claim trends, insurance providers’ addition of a “market inflation” factor will see an increase of nearly 11%, according to a study from HR consultancy Buck.

The overall blended healthcare trend factor – which incorporates prescription drugs, services and supplies, and dental – has remained relatively stable for the past five years, at between 11% and 12%. The Buck study reports that insurers are using an average health trend factor of 11.43% in 2019, down slightly from 11.92% last year.

Prescription drug costs make up most of private payer health spend in Canada, and thus have the biggest impact on employer benefit cost trends. According to the study, insurers’ inflation factors for prescription drugs decreased from 12.45% in 2018 to 10.99% in 2019 – with an actual costs rate increase of approximately 3% - 5%.

"Our survey shows that although actual drug claims remain relatively stable, insurers continue to project a faster rate of increase due to market inflation," Lizann Reitmeier, health practice leader in Canada, Buck, said. "Insurance providers factor projected market inflation into the rate setting calculation, and this has the potential to drive plan costs both higher and faster than the actual trend in healthcare spending."

Hospital inflation increased dramatically from last year, after consistently falling since 2015, with the insurer trend rising from 2.60% in 2018 to 10.03% in 2019. Hospital claims, are, however, a relatively small portion of plan spend in Canada due to single payer medicare.

The expected dental care utilization trend, meanwhile, rose slightly from last year (5.74%) to 5.86% in 2019.

"Medical, prescription drug, and dental care coverage make up an important component of employees' total compensation," Reitmeier said. "To help contain costs, companies need to think creatively about how they can encourage a healthy lifestyle for employees and embrace medical advances in testing and treatment to achieve better health outcomes."

Advances in diagnostic tech could lead to earlier detection of health conditions, lowering plan costs overall, though the costs of covering the technology could drive up plan costs. New genetic testing could also get more people to take genetic pre-screening tests and result in better health outcomes. Wellbeing plans are a further avenue that could lead to healthier outcomes and lower plan cost trends.

The OHIP Plus plan, which covered drugs for people under 25, was axed by the Progressive Conservatives in Ontario, increasing cost pressures on employer plans, according to the study. The proposed National Pharmacare program, if it comes to fruition, would soften the loss of OHIP Plus by lowering drug costs through increased nationwide bargaining power and shifting high-cost drugs away from employer plans.