Employers' healthcare costs could rise by 60% in five years

Employers have been warned that medical benefits could cost up to 60% more in five years due to compound inflation.

According to Rising costs, rising concerns: Medical Inflation published by Mercer, medical benefits that currently cost an employer £1million could rise in price by 60% in just five years. The cost of providing medical cover for a group of employees and their dependents, meanwhile, has risen by 67% since 1999. This averages at 6% inflation each year, compared to annual average wage increases of 4%.

The report also showed that in 1997 fewer than 6% of all claims were registered as 'high claims' with an average cost of over £10,000. This has now risen to 11%.

Steve Clements, a principal in Mercer's health and benefits business, said: "It's proving an increasing challenge for companies to maintain current levels of cover irrespective of how much their employees value it. If the current rate of inflation continues, we may see medical plans undergoing the same process experienced by pension schemes in the move from defined benefit to defined contribution arrangements. Employers will move to cap liabilities. We have already seen larger medical plans unbundling different elements of cost and services. Now we are beginning to see increasing interest in the UK and US over the viability of personal account-based medical plans.

"Moreover, there is increasing focus on health risk management including wellness programmes to improve employees' overall health and motivate them to live in a healthier manner."