Private health cover costs could rocket by 60% in next five years

Employers have been warned that the cost of providing medical benefits to staff could rise by 60% by 2013.

Rising costs, rising concerns: Medical Inflation, published by Mercer HR Consulting, found the cost of providing medical cover for a group of employees and their dependants has risen by more than two-thirds since 1999 – an average of 6% per year compared to increases in average annual wage increases of 4%.

The report said that medical benefits, which currently cost employers about £1m a year, could rise in price by as much as 60% in the next five years, and Steve Clements, a principal in Mercer’s health and benefits business, said employers may have to change the way they provide benefits if they hope to remain financially viable.

“If the current rate of inflation continues, we may see medical plans undergoing the same process experienced by pension schemes in the move from defined benefit to defined contribution arrangements,” he said.

“Employers will move to cap liabilities. We have already seen larger medical plans unbundling different elements of cost and services. Now we are beginning to see increasing interest in the UK and US over the viability of personal account-based medical plans.”

The report also found the number of ‘high claims’ – those costing at least £10,000 – has almost doubled, from 6% in 1997 to 11% today.

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