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Global Healthcare Costs to Increase

The average price of healthcare is projected to increase around the world. Some factors are driving up costs in almost every region, while locales have their own specific cost drivers. Either way, HR must help tone down those costs by increasing education and promoting healthy lifestyles.

Monday, February 21, 2011
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It's no secret that healthcare costs are increasing in the United States and around the world. The latest evidence: The recently released Towers Watson Global Medical Trends survey projecting the average medical-cost increase for employer-provided health insurance will be 10.5 percent globally.

Latin America (13.7 percent) will see the largest increase in healthcare costs, according to the 170 medical insurers in 37 countries surveyed by the New York-based consultancy.

That's followed by North America (11.6 percent), Middle East/Africa (10.3 percent) and Asia Pacific (10.2 percent). Only Europe was in the single digits -- barely -- at 9.1 percent.

Almost all respondents (95 percent) project a medical trend that is two or three times the rate of general inflation.

(The U.S. rate of inflation was 1.5 percent in 2010, according to the U.S. Consumer Price Index. Other inflation rates include 4 percent in the UK, 5 percent in China, 5.7 percent in Saudi Arabia, 6.7 percent in Russia and 22 percent in Argentina, according to various published reports.)

A study by New York-based Mercer found significantly lower cost increases in Europe -- averaging 3.3 percent, with a high of 4.9 percent for the UK and Ireland, and dropping down to 1.5 percent in Germany.

One reason for the global cost increase is an aging -- and, in turn, costly -- workforce, says Ken Sperling, global healthcare practice leader at Chicago-based Aon Hewitt.

"It's not just a U.S. issue. There's an aging workforce across the world," he says.

The cost increases, according to Mercer, are also driven by advances in medical research and technology, which result in more effective -- and more expensive -- diagnostic tools and medical procedures.

Another factor is the growth of a global middle class -- leading to the spread of Westernized lifestyles, where people have the luxury to eat fatty, processed foods and live sedentary lives.

"People are doing less physical activity and eating higher caloric content," says Dr. Lorna Friedman, a partner in Mercer's global health-management consulting business.

That's led to diabetes-prevalence rates higher than 10 percent in Western Europe, she says. Even more staggering, China has 90 million people with diabetes and India has 55 million.

As for weight, American Samoa, for example, has obesity rates of more than 90 percent. Sperling says that's because their diet has changed from fish and vegetables to processed foods.

"All you have to do is go to places like China and look at the proliferation of Kentucky Fried Chicken" for proof of less-healthy foods spreading around the world, Sperling says.

The advancement of medical technology -- and the costs associated with it -- also helps increase healthcare spend, says Friedman. In fact, new medical technology was cited as the most significant healthcare-cost driver by respondents of the Towers Watson survey.

"There's access to more modern capacities," she says. "Some of that is quite clearly beneficial. It's better to have access to good healthcare and modern healthcare but it's having an efficient use of it that different systems are trying to manage and are having a challenge with."

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While some cost drivers are global, others target specific regions -- especially emerging economies.

In markets with socialized systems, such as China and India, multinational companies are taking on more healthcare costs because the state-run plans provide only a basic level of coverage.

State-run healthcare services "aren't adequate to provide the type of insurance coverage that people need, so private insurance is growing in popularity and adding cost," Sperling says.

Francis Coleman, senior international consultant at New York-based Towers Watson agrees, saying the "growing demand for private healthcare, particularly in developing nations, has placed enormous upward pressure on the cost of providing this valuable employee benefit."

Another regional difference is found in the United States, where Americans tend to have more stress-related health issues than, say, France where people retire in their late 50s or early 60s, says Dean Hatfield, senior vice president and health practice leader at New York-based Segal.

"If you knew you were guaranteed a job and a pension at age 55 or 60, that takes away a lot of the stress that we see here in the U.S," he says. "Also the U.S. leads in hours worked, and we tend to use less of our vacation."

Healthcare costs have obviously led employers to invest in health, by promoting wellness programs and healthy lifestyles -- not just in the United States but around the world. But again, that differs in different places.

For example, in the United States, wellness might mean smoking-cessation, exercise or nutrition programs but in an emerging country, it might mean education about clean water or a vaccination program.

"You can't build a fitness center in every geography around the world," says Sterling. "You can't have a disease-management program in every geography around the world because the vendor capabilities just don't exist."

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