Canadian employers' medical benefit costs to outpace inflation in 2021

Increased spend and launches of novel therapies expected to drive up expenses, but questions about the 'new normal' remain

Canadian employers' medical benefit costs to outpace inflation in 2021

A new report from Aon that employer-provided medical benefit costs in Canada will accelerate faster than inflation next year.

In its 2021 Global Medical Trend Rates Report, the firm projects the costs of medical benefits provided by Canadian employers will grow 6% in 2020 and accelerate to 7% in 2021, outpacing general inflation by 5.7%.

Aside from an expected continuation in launches of new and expensive therapies, the report said Canadian employer-sponsored medical plans should expect costs to rise due to increased spend for drugs in general. That trend comes as a host of health risk factors assail Canadians today.

Confirming the rising impact of non-communicable diseases, musculoskeletal issues topped the list of leading medical conditions driving plan sponsor costs in Canada. That was followed by cardiovascular conditions, mental health issues, diabetes, and cancer.

The report also confirmed that unhealthy personal habits are an increasingly influential source of risk to employee benefit plan costs. Aside from poor stress management, excessive alcohol or drug use and insufficient sleep were identified as the top health risk factors in Canada.

While some of the risk factors impacting benefit plan costs are manageable through a combination of drug therapies and wellness initiatives, Aon said employers are looking more at the bigger picture to determine the approach they’ll follow to mitigate costs.

The report’s projections on health care benefit cost growth come with a few important caveats. Its figures for 2020 growth were derived from what was expected and are without the impact of the COVID-19 pandemic; by extension, those assumptions impact the 2021 figures, which are based on expected 2020 claim levels. Finally, the projections assume that the effect of lockdowns on utilization will be limited in the future.

“Given the relative fluidity and uncertainty of COVID-19, as well as the inherent limitations of projecting costs in this unprecedented environment, these figures should be used with caution,” said Greg Durant, Canadian chief actuary for Health Solutions at Aon.

According to Durant, the restrictions on both employees and medical and dental service providers have has a significant impact on claiming patterns this year.

“Based on our analysis, Health per capita claims on an annualized basis are expected to be almost 10% lower than expected, and Dental per capita claims are expected to be in excess of 20% lower than expected during 2020,” he said. “The questions we all want answers to are when will these claiming patterns recover, and what will be the ‘new normal.’”