UK employers should expect above-inflation increases in medical costs, says Watson Wyatt

Medical cost increases for UK employers are projected to rise by 8 per cent in 2008, part of a significantly above-inflation global trend, according to a survey of insurance companies conducted by Watson Wyatt Worldwide.

The UK is, if anything, likely to experience lower medical cost inflation than many other countries. Insurance companies in Asia and Africa are expecting double-digit increases in employer medical costs in 2008, with the exception of companies in Hong Kong and Singapore. The same is true in Latin America, except for Brazil and Chile, where costs are expected to increase by around 7 per cent. In Europe, most insurers – except those in Italy – are projecting increases in single digits, although respondents in all European countries said they expect higher trends over the next five years.

Some 71 per cent of respondents to the global survey expect higher or significantly higher medical cost trends over the next five years. Additionally, 81 per cent report that medical costs are eclipsing the general rate of inflation in their country.

The results are based on a Watson Wyatt survey of 85 insurance companies that provide medical insurance to employers throughout Asia, Africa, Europe and the Americas.

Elliott Hurst, senior consultant at Watson Wyatt, says: “If UK medical benefits are to increase at 5 per cent or more above both price and wage inflation in the medium term, then employers may well wish to review plan designs and strategies that offer them opportunities to exert greater control and predictability over future programme costs.

“Factors such as reduced waiting times for NHS treatment and the apparent rationalisation of new, higher-cost drugs, bring into question where traditional employer medical plan designs will offer ‘added value’ to employees in the future. Some employers may decide to move the focus of their medical benefits away from timely access to treatment, private rooms and a choice over hospitals and specialists, and towards providing employees access to drug therapies and other treatments that the NHS will not, for cost reasons, be prepared to offer.”