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The future of health insurance: SMEs at risk from rising costs

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Small and medium-sized enterprises (SMBs) across all sectors and geographies have demonstrated their agility and adaptability in the face of the largest pandemic in living history, pivoting on business models and delivery methods to keep them afloat in the face to the growing public restrictions. Three years after adjusting to a significant business disruption, many markets around the world are seeing increases in corporate health insurance prices, a trend that appears to be more prevalent for SMBs.

Medical costs on the rise

Healthcare costs are rising in most regions. Over the next three years, more than three-quarters of health insurers (78 percent) expect major or significantly higher medical trends. During this time frame, 84% of insurers in Europe, 73% in Asia-Pacific, 69% in Latin America and 60% in the Middle East and Africa expect a greater or significantly greater increase in medical spending.

This global pattern of medical inflation (an increase in unit costs for the same service) is expected to continue well beyond 2023. According to recent projections, the Asia Pacific region is expected to see the highest jump in medical inflation, expected to rise since 6.9% to 10.2%. Latin America (18.2% to 18.9%) and the Middle East (10.5% to 11.5%) are expected to experience modest cost increases. Europe has historically experienced lower levels of cost increases, but is now also expected to face record cost increases of 5.6% to 8.6%.

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Figure 1, Source: WTW

North America is the only region experiencing a decline in forecasted figures, with a decline from 9.4% to 6.5% expected in 2023. Although inflation is expected to ease in 2023, US employers are still concerned about costs and volatility and have not yet experienced the positive effects. The high cost of new medical technologies and the desire of providers for higher profit margins continue to have a significant impact on medical expenses. Insurers also point to broader concerns affecting these costs, including reduced quality and funding of public healthcare systems and geopolitical crises.

High health insurance is holding back the growth of SMEs

A US study of the small business health insurance market reveals that 95% of SMB owners have seen the cost of health insurance increase in the past four years, and 56% estimate that the annual increase in costs health care is 10%. or higher. When asked how the rising cost of health insurance affects their business, SMB owners surveyed say they have had to pass the cost onto their customers by raising the prices of their products and services. They also find that the rising cost of health insurance is affecting their competitiveness in attracting talent and causing them to delay growth plans such as the purchase of key equipment. 37% of respondents said they do not offer health insurance because the costs are too high.

With respect to managing or containing medical plan expenses, 68% of insurers surveyed by Mercer worldwide predicted that employers will prioritize plan improvements that address employee attraction, retention and engagement. employees. Internationally, insurers estimate that less than a third (32%) of plan sponsors will lower coverage to cut costs. This outlook is most likely influenced by broader trends in the workplace, such as a lack of talent, the changing nature of the workforce, and changing employee expectations.

Tackling medical inflation

Medical inflation affects SMEs more acutely than larger organizations. Unlike larger companies, SMBs lack the benefits of a larger pool of insured employees, greater bargaining power with health insurance providers, and the support of full-time HR staff. As a result, these companies often have limited options in the face of rising health insurance premiums.

Analyst firm GlobalData notes that the health of the SME insurance market depends on the number of SMEs in each country, so if settlements start to increase, the number and value of insurance contracts will decline. Surviving SMEs will need to drastically cut their costs, which can include insurance coverage. Considering that globally 90% of all businesses are SMEs and account for 50% of all jobs, this could have far-reaching consequences for the wider economy.

In Europe, the cost-of-living crisis shows no signs of ending, with continued geopolitical uncertainty, inflation and energy prices still soaring, says Ben Carey-Evans, Senior Insurance Analyst at GlobalData. In addition to rising inflation, consumers are facing higher mortgage rates, which will impact both homeowners and renters as landlords are likely to raise rents. Therefore, consumers will have less disposable income to spend, which will further impact SMEs.

Insurance companies may need to prioritize customer retention, even if it means a temporary decrease in profits. A short-term solution might be to offer adaptable insurance to keep customers on board. As the COVID-19 pandemic continues to pose significant challenges for businesses, there is growing interest in the potential return of pay holidays and flexible payment terms. These measures were used extensively during the initial outbreak and many experts believe they could once again prove useful in supporting struggling businesses. Insurers may have found a better solution to keep customers from walking away altogether by allowing customers to turn specific policies on and off so they can manage their payments more effectively. It will be a difficult year for insurers in the SME market, with the level of concern extremely high. Insurers who can distinguish themselves by offering innovative products, such as on-demand insurance or at least communicating well with customers, will be more likely to complete increasingly difficult renewals, adds Carey-Evans.

In the Middle East, Abu Dhabi’s recent Flexible Health Insurance Program for Entrepreneurs and Investors demonstrates a potentially replicable model for the underserved SME segment of the global insurance market. In response to growing market needs and to elevate the Emirates’ position as an attractive destination, the new insurance options extend to investors and free business license holders, their families and employees for treatment services costs amounting to Dh150,000 per year. Initiatives such as flexible health insurance ease the burden on businesses, especially startups, entering the business world, said Hala Khaled Al Ameri, executive director of the Abu Dhabi Office for Competitiveness (COAD ) at the ADDED in a statement.

    Mercer

Figure 2, Source: Mercer

Other insurance features include 100% emergency coverage, a 20% co-payment of the cost of all outpatient treatment services, and a 30% co-payment for medications. The program also offers the ability to upgrade insurance coverage based on patient needs. The feasibility of this model globally remains to be seen, as factors influencing access to affordable health insurance for SMEs may vary across regions and across healthcare systems.

This article appears in the journal Omnia Health. Read the entire issue online today

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