Medical inflation at 4% as insurance claims increase

The cost of providing health benefits to employees rose by 4% in 2008, according to a report from Mercer.

Its annual Medical inflation report also shows that the number of claims has risen by 3% over the same period. The annual claims spend for the survey data was £144 million.

Mercer analysed historical claims data from 250 companies in the 12 months to December 2008. In 2007, market medical inflation was running at 10% with a compound inflation rate of 67% since 1999. By the end of 2008, the compound rate of interest since 1999 stood at 73%.

Steve Clements, a principal in Mercer’s health and benefits business, said: “Inflationary costs are easing from the 6% recorded in 2007, primarily due to deflationary pressures. But 4% is still a substantial increase given the current environment, and reflects the longer term upward trend.”

“Interestingly, our data shows that there was a marked increase in scheme utilisation from August 2008 onwards. This may well have been due to the stressful environment of the credit crunch as, anticipating redundancy or a reduction in health benefits in 2009, more people sought to make claims while they could. However, average bill costs have remained fairly static over 2008, largely due to reduced inflationary pressures on medical treatment costs.”

According to Mercer, some companies are responding to increasing medical costs by linking access to treatment with NHS waiting times and so reducing workplace absence by accelerating access to care. Others are increasing employee and dependant contribution levels either through premium sharing or at the point of claim, or both. Some are introducing medical underwriting to exclude pre-existing conditions from cover or introducing annual maxima for all treatment or for specific high cost conditions.

Clements added: “Undoubtedly some companies will prefer short term tactics to reduce the costs, but all the evidence points to preventative measures being more effective to preserve the productivity and health of the workforce and maintaining a valued company benefit.”

Mercer has also said that employers should be aware that insurance companies may not yet have adjusted their costs and may still be working to 2008 inflationary figures, so they should prioritise negotiations on medical cover.