Continuing medical advances and a greater understanding of health risks (particularly around the dangers of smoking and obesity) are helping individuals around the world live longer, but not always healthier, lives. This is mostly positive news, but challenges remain for individuals, employers and governments alike in meeting the needs of an aging population.

Drivers of improved mortality

Globally, mortality rates are continuing to fall. Since 2000, mortality rates in the UK have decreased by around 24% for males and 19% for females ⁽¹⁾. Circulatory diseases, such as heart disease and stroke, remain the most common cause of death (at around 32% of all deaths), but the number of deaths caused by these diseases has fallen considerably over the period – by 40% for males and 38% for females. In addition, deaths caused by cancer accounted for 29% of all deaths and have fallen by 15% for males and 12% for females. Exhibit 1 demonstrates that death rates in the UK have fallen by more than 50% in the male population since 1970.

Exhibits 2 and 3 show how mortality rates have changed in the UK for males and females in different age groups. Apart from a slight increase for young males in the late 1980s and 1990s, there has been a continued improvement for both males and females, with mortality rates often less than half of those in 1976.

Improving mortality rates have, of course, led to higher life expectancy throughout the world. Exhibit 4 shows the improvement in life expectancy (from age 65) for several European countries since 1990. However, while “healthy life expectancy,” also known as “disability-free life years,” has improved slightly over the period, it is not as marked as the overall expectation of life improvement. Therefore, it is clear that some individuals are now living longer with long-term illnesses, and these individuals will require additional support and funds to help maintain their lifestyles. Exhibit 5 demonstrates that despite increasing cancer incidence rates, mortality from cancer has shown a considerable decline.

With continuing medical advances, improved understanding of different illnesses and genetic developments, the trend of mortality improvements may continue well into the future. The increased understanding of lifestyle effects (for example, the ill effects of smoking and obesity) will also likely lead to further improvements in healthy life expectancies.

How trends affect the cost of health benefits

Decreasing mortality rates and reduced incidences of long-term absences have been accompanied by a gradual decrease in the costs of life and income protection coverage. This has meant that the cost of providing these benefits has decreased in real terms.

Health care costs, however, have continued to increase above inflation due to medical advances and the increased needs of this older, but not necessarily healthier, population. Health care costs generally increase with age, reflecting increased incidences of different illnesses. Where these benefits are being provided by the government, medical budgets are coming under increasing scrutiny, and it is likely that governments will need to review their approaches in the future.

Employers’ absence costs have also generally decreased. The “voice of business” in the UK, Confederation of British Industry’s Absence and Workplace Health Survey 2011, indicated that absence rates have decreased by more than 25% since the 1980s.

What governments are doing

For several years, considerable concerns have arisen throughout the world about the increasing dependency ratio  − a decreasing workforce having to support an increasing number of retirees. Governments have responded by raising their retirement ages and encouraging individuals to work longer. The UK government, in particular, recently removed its requirement that individuals retire at a default retirement age and is now encouraging individuals to work longer.

As highlighted earlier, health care costs are increasing with advances in technology and the aging population in general. Governments are therefore reviewing the funding for government-provided benefits and are considering different approaches to limit spending in the future. They are also considering the increasing long-term care costs of individuals living with disabilities. In the UK, for example, the Dilnot Commission has recommended that the government provide more assistance to these individuals. However, the additional funding for this has yet to be agreed upon. The current economic situation has clearly limited the flexibility of governments to increase funding for health care benefits.

Governments tend to encourage savings for retirement by introducing tax breaks and other incentives. We would recommend that they also offer incentives for health and wellness initiatives. However, with the current economic situation, we expect that this is unlikely to occur in the short term.

Details of the UK government’s National Health Service (NHS) reforms are outlined below.

What individuals should do

Individuals can now look forward to a longer retirement. As well as planning how they are going to pay for it, individuals need to consider how they can remain healthy and fit during this long retirement.

Throughout their different life stages, individuals will continue to have different financial and protection needs. However, the costs of some of these protection benefits have decreased, providing an opportunity for individuals to spend more cash on other needs. These “savings” may be spent on health care (to match the decrease in government health services) or on other health and wellness initiatives that may improve health over time and help prevent future long-term illnesses.

We would also expect that employers will encourage individuals to take up these benefits.

How employers should prepare

Employees are likely to continue to work longer. Therefore, employers will need to consider the changing needs of their aging workforce and the general impact that improving mortality will have on individuals. Fortunately, however, due to the improvement in mortality rates, the aging of this population is generally not increasing these costs for employers as older employee stay healthier longer.

Medical costs continue to increase, and these should be monitored carefully. With the reduction in public spending on health care, it is likely that there will be an increased need for private health care, with employees valuing these benefits more. Employers, however, may wish to review members’ contribution rates and the levels and types of coverage provided. With medical insurance costs increasing with age, employers will need to balance the cost of covering their older workforce with that of maintaining attractive rates for younger employees.

With a more varied workforce, employees are expected to have more diverse requirements, which could be met by offering flexible benefits plans to enable individuals to make choices more appropriate to their needs. In particular, employers need to ensure that the array and choice of services and benefits available allows for the needs of older employees to be met as much as those of the younger population. This can help ensure that individuals will value their benefits, which also helps employers maximize the value of their investments in employee benefits.

Employers should review the changing disease mix in their workforce as the population ages, and as medical science advances continue to help people live longer with chronic illnesses. They will need to target the emerging disease set with appropriate preventative and early detection services. Health and wellness initiatives, such as disease-specific screening and other initiatives to encourage lifestyle/behavioral changes, should be considered. While health risks increase with age, there is also evidence that the opportunity to reduce health risk increases with age if lifestyle changes are made, such as exercise or improved diet. Employers will also need to examine the changing treatment and rehabilitation needs of their population, perhaps providing more coverage for chronic conditions (which are normally excluded currently) and rehabilitation.

The cost of many benefits has been decreasing over time, and employers should consider whether they wish to apply these “savings” to introduce additional benefits to differentiate themselves as “employers of choice.” In addition, investments in both short- and long-term absence costs will likely lead to increased productivity for employers over time.

Note:

1. Age-standardized mortality rates for England and Wales. Source: Office for National Statistics,  July 2011