Trend – A Second Definition

Sep 22, 2014

When we hear the word trend, we often think of what is happening in the realm of the latest fashion or what is the latest and greatest in the world.

In the benefits industry, the term trend has a different meaning and is an important concept to understand. Most people intuitively know the costs of benefits plans are rising. The major reason for this is trend. It specifically refers to the expected year over year cost increases due to the following:

1. increasing inflationary costs of medical and dental services
2. rate of use of these services (usually always increasing) by the Canadian population

It’s an accepted fact the cost of most goods and services increases each year, mostly due to the fact that the cost of the materials that go into making the good or service increases. In healthcare, this could be the increased cost one year to the next of prescription drugs or medical supplies, such as a wheelchair, or a knee brace. In dental, it could be the cost of an appliance or the materials that go into making a filling or a crown.

From a usage standpoint, it is assumed that as the working population ages (think of the baby boomer generation moving through the system), there are increased incidences of health and dental services and products being consumed.

With an insured benefits plan, the insurance provider applies a certain percentage to their renewal rates. This percentage is what they feel properly represents the additional cost of overall inflation and the increased usage on average. In the past two decades, the trend figures have never been zero or a negative number. They have consistently been 5-12% for dental and 10-18% for extended health, depending on the provider. As such, it can be a difficult discussion to have with the plan sponsor if the claims usage is on par with what the insurance carrier has set as a target, yet there is still a noticeable increase in the proposed renewal rates. The increased rates are often attributed to trend.

For self-insured benefits plans, the trend figure is determined by overall inflation and the group’s claims usage over the year.

For further clarification, be sure to talk to your benefits consultant.

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