When Calculating your renewal the insurance company uses a 'Trend Factor' Why do they use Trend and why is it higher than inflation?
Although trend and inflation are often interchanged by some advisors, there are distinct differences between the two. Inflation in Canada is typically tied to CPI (Consumer Price Index) and generally represents an increase in cost of 3-4%, whereas Healthcare related trend has ranged from 11-17%. So how are these two related?
Trend is a combination of demographics, utilization and cost shifting from public to private plans. Trend is used because past claims experience alone is not enough to predict future claims. Inflation is actually a component of trend, as the cost of the services and items we consume continue to increase.
Government legislation and plan design will lead to the potential for your benefit plans to have greater costs, even if claims usage is the same. With increased belt tightening, drugs continue to be de-listed leaving private plans to make up the difference. Service providers such as chiropractors and physiotherapists, are also increasing and will add to inflationary pressures. With average costs increasing, this may also mean that deductibles may not have the cost offsetting effect they once had.
The factors that impact future costs are complex in themselves and will place upward pressure on rates at a much greater pace than the general inflation we are accustomed to seeing. The key is to understand the pressures and get qualified advice from a trusted advisor.
A 20yr veteran of the Group Benefit market place sharing my expertise with Business Owners and H.R. professionals!