This is the first installment in a two-part series of articles about rising health care costs and digital technology’s potential for developing a solution. Part I outlines major causes of medical inflation; Part II will explore digital approaches to addressing the problem and the role insurers can play.
According to Aon’s 2019 Global Medical Trend Rates Report, the annual general inflation rate of 2.9% was significantly outpaced by the medical trend rate of 7.8%. The net difference in these figures is even more pronounced in developing countries.
| 2018 | 2019 | ||||
|---|---|---|---|---|---|---|
Annual general inflation rate | Annual medical | Annual general inflation rate | Annual medical | |||
Gross | Net | Gross | Net | |||
Global | 3.1% | 8.4% | 5.3% | 2.9% | 7.8% | 4.9% |
North America | 2.4% | 6.9% | 4.5% | 2.4% | 6.4% | 4.0% |
Latin America & Caribbean | 5.2% | 13.9% | 8.7% | 4.7% | 13.2% | 8.5% |
Europe | 2.0% | 5.8% | 3.8% | 2.1% | 5.1% | 3.0% |
Middle East & Africa | 7.6% | 15.3% | 7.7% | 6.1% | 13.7% | 7.6% |
Asia-Pacific | 3.0% | 8.9% | 5.9% | 2.8% | 8.6% | 5.8% |
Source: Aon 2019 Global Medical Trend Rates Report
Rising medical costs present a worldwide problem with many different underlying causes – from the way societies deliver health care to the way people live their lives. Common systemic and cultural factors driving prices higher include:
While these and other systemic factors – wage inflation, infrastructure, medical advances, etc. – certainly contribute to rising health care costs, the global population’s actual health status and the ongoing evolution of modern lifestyles are also critical drivers.
Today non-communicable diseases (NCDs), generally characterized by their long duration and slow progression, are the leading cause of adult mortality and morbidity worldwide. According to the World Health Organization, an estimated 41 million deaths occurred due to NCDs in 2016, accounting for 71% of the overall total. The four main categories of NCDs include cardiovascular disease, diabetes, cancer, and chronic respiratory disease. Approximately one quarter of NCD deaths occur before the age of 60, and the diagnosis of diabetes in particular is affecting younger and younger populations. A growing body of evidence links modern lifestyle behaviors, such as physical inactivity and poor nutrition, to the alarming increase in NCDs and their associated costs. A report by the World Economic Forum and the Harvard School of Public Health estimates NCDs will cost more than $30 trillion in the two decades from 2010-2030, forcing millions of people below the poverty line.
The report adds that during this same two decades, mental health conditions alone will account for the loss of an additional $16.1 trillion, with a dramatic impact on productivity and quality of life. A lack of sufficient mental health resources only exacerbates the long-term problem – particularly in developing countries or developed countries with nascent mental health systems. In China, for example, approximately 20,000 psychiatrists serve a population of 1.4 billion, which means that around 92% of an estimated 173 million people in China suffering from mental disorders go without care. Read more.
Globally, people are living longer than ever – another major contributor to rising health care costs. The population of older persons – those aged 60 years or over – is growing faster than all younger age groups. According to data from World Population Prospects: the 2017 Revision, the number of older persons is expected to more than double by 2050 and more than triple by 2100, increasing from 962 million globally in 2017 to 2.1 billion in 2050 and 3.1 billion in 2100. Per capita consumption of health services by elderly people is 3-5 times higher than their younger counterparts. Read more.
As human health and health care have evolved, so have consumer expectations within more comprehensive health journeys – yet another major contributor to rising costs.
Traditionally, individuals were essentially left to their own devices to make choices about their general health and if and how their wellness was maintained. When people became sick, had an accident, or were generally not feeling well, they would go to doctor for treatment. The doctor would find the problem, fix it, and send them on their way, perhaps with a follow-up in hospital. That model mostly worked when utilization of healthcare services was dominated by infectious disease and accidents. With the increasing prevalence of NCDs, this is no longer the case.
As society progressed and educated consumers began to demand more of service providers in every industry, health professionals were not immune to the challenges of higher expectations. Today, people want to be proactive in their health care, taking recommended steps to be well and to stay well, typically through the use of digital devices. They want immediate advice on health care and where to seek treatment, if not the ability to diagnosis themselves. They seek to be knowledgeable and prepared for any intervention, wanting the best, personalized care at the best price and without long admissions and treatments. Typically, people want to get home and stay home after any admission.
Expanding and improving health services does not come cheap, and the medical industry continues to grow accordingly, as do the many supporting industries that have emerged alongside health care. Consider this: a 2017 U.S. study put the number of health-related mobile apps at more than 318,000, with approximately 200 new apps added each day.
Now that we have diagnosed major causes of health care cost inflation, let’s consider potential treatment – specifically the role digital interventions can play in finding a cure. In Part 2 of this article series, we will explore both the promise and the challenges associated with digitized health care and how insurers can help drive progress.
