Although predicting the future can be a tough call for plan sponsors, health actuaries will never shy away from a good challenge! Here are a few cost drivers to keep in mind when it comes to your group benefits strategy for 2024.
Many organizations are struggling to attract and retain talent. WTW’s 2023 Canadian Benefit Trends Survey found that competition for talent is the top factor (84%) influencing benefit strategy.
Pandemic era layoffs, followed by the “great resignation”, followed by evolving employee expectations changed the availability of talent, and the talent profile of many organizations. Having a solid understanding of your current population, and even more importantly, of your future one, is essential to budgeting your benefits plan costs. Each demographic group will have their own needs, impacting costs and potential strategies differently across your life insurance, disability, health and dental plans.
With the pandemic mostly behind us, we now know that the widely expected avalanche of health and disability claims did not materialize, though both disability and mental health claims remain elevated. According to WTW’s 2023 Canadian Financial Benchmarks Survey, Long-Term Disability costs increased by 8.8% on average in 2022. This was slightly down from 9.6% for the previous year[1].
We’ve learned:
Location, industry, and job types are all factors that can contribute to incidence rate fluctuation. Tying it back to demographics, age and gender distribution will impact expected durations, as these will influence the types of diagnosis observed in your plan. To accurately project costs and establish budgets, it is essential to apply data-driven insights to inform your decision-making, such as using appropriate assumptions, and to carefully evaluate all strategies that aim to minimize costs.
Diabetes and obesity will be two key cost drivers going into 2024.
From 2000 to 2020, prevalence of diabetes more than doubled in Canada[2]. While the average drug cost of a diabetes patient in a group benefits plan is not disproportionate to other types of drugs, expected increases in diabetes drug costs, equipment and testing supplies, and new diagnoses along with an aging population and comorbidities should be top of mind when projecting your plan costs.
According to the 2020 Canadian Risk Factor Atlas,[3] 26.7% of the Canadian adult population is obese, while 35.9% is overweight. As newer and more effective anti-obesity drugs gain popularity, including off-label use of diabetes drugs, growing utilization will also impact benefit budgets.
We have all heard of once-in-a-lifetime events that trigger dramatic consequences. Recent extreme weather episodes are one example. And as with climatic shocks, it can seem that these formerly rare events are now occurring more frequently. The same can be said of low-frequency but high-cost group benefit plan claims.
One example is specialty drugs. Most new drugs in the pipeline consist of highly specialized medications that can cost anywhere from $10,000 to $3,000,000. WTW’s Canadian Financial Benchmarking Survey indicates that the proportion of specialty drugs continues to increase, rising to 35% of total drug spend in 2022 from 31% in 2020.
Another example is large disability claims. No one is invincible, and unexpected events can occur at any time. Just a small number of significant disability claims can have a material impact on the cost of long-term disability plans.
WTW’s 2023 Canadian Benefit Trends Survey found that managing plan costs is a key area of focus for most employers (59%).
There are a few ways to deal with financial risk:
Plan sponsors will continue to face challenges and competing priorities in 2024. As you reflect on your priorities for 2024, a few elements are key to a successful strategy:
In the end, providing the right level of coverage for all employees while ensuring long-term sustainability, will continue to remain a balancing act. By taking steps to manage risk, however, plan sponsors can tip the balance in their favour.
