Employer medical and health insurance costs are higher than they’ve ever been and are increasing at rates that have not been seen in nearly a decade. In 2023, costs were projected to increase by 9.2% globally on average, and cost increases are expected to climb to 10% in 2024. According to Aon, these increases are largely due to the current inflationary environment and partially due to economic instability around the globe. But the continued prevalence of certain conditions — namely cancer, cardiovascular disease and high blood pressure — have also propelled costs higher.
These trends illuminate a continued need for employers to make better-informed decisions about their health plans. The right data can help employers identify where they are spending the most money and where they should invest for the benefit of their workforce.
For global companies, health plan data can be a powerful tool to tailor offerings based on common conditions or needs in a region.
2024 Global Medical Trend Rates Report discusses the main factors influencing employer medical plan costs and the regional differences in health trends. By taking a closer look at this data, employers can improve their health plans and identify and respond to cost pressures.
According to Aon, a confluence of consumer trends and an uptick in complex conditions, including lung cancer, diabetes and hypertension, have also contributed to higher costs, putting more pressure on employers to reevaluate their health plans.
In the face of continued cost increases, employers are looking to adapt their medical benefits programs, what they cover and how they support employeesKathryn Davis, vice president, data & analytics leader for Health Solutions for Multinationals at Aon
So they can make better decisions on their healthcare plans, employers must understand the factors that are causing costs to rise, the health trends affecting their employees most and the data-driven solutions that can help them reimagine their benefits programs (see How to Reduce Healthcare Price?).
The Causes of High Healthcare Costs
Average costs for U.S. employers that pay for their employees’ health care will increase 8.5% to more than $15,000 per employee in 2024. The projection increase, which assumes employers do not implement employee cost sharing increases and other cost saving strategies, is nearly double the 4.5% increase to health care budgets that employers experienced from 2022 to 2023 and Healthcare insurance premiums in U.S. increases.
Three trends have had the greatest influence on costs for employer healthcare plans.
1. Increased Use and Inflation
Though general inflation is one of the main drivers of increased healthcare costs, costs are also rising due to increased use of health services.
During the height of the COVID-19 pandemic, people forewent elective treatments and were postponing care, resulting in lower incidence of claims. As utilization rebounds, costs for smaller treatments like exams and therapies will also increase.
Davis adds that as healthcare systems recover from the past few years, more resources are available to support non-COVID-19 conditions. As more people receive health screenings, more conditions are caught, which in turn raises the demand for additional healthcare services. Consequently, more people are using medical services, increasing claims and health plan costs for employers.
2. Expanding Health Plans
In addition to covering physical conditions in health plans, the rise in mental health conditions around the world has become an increasingly important issue for employers to address.
Since the beginning of the COVID-19 pandemic, the incidence of mental health conditions has been on the rise, and mental health conditions are increasingly becoming something that employees are seeking treatment for and missing work because of.
In fact, mental health conditions were listed as the leading conditions driving claims in Europe. In Canada, these are the second most prevalent conditions, following diabetes.
Part of the reason for this increase is the macroconditions that are perpetuating stress, anxiety and depression.
Awareness and acceptance of mental health conditions is much more widespread today and continues to expand, and workplaces are expected to weave these realities into their benefits coverage.
The talent market has also inspired employers to invest in more-comprehensive benefits programs.
As part of those efforts, companies have moved from only providing medical coverage for major health-related events — a broken leg or giving birth, for example — to providing programs such as employee assistance programs (EAPs) that support employees’ broader health and wellbeing (and include mental health services).
Medical coverage and EAPs work hand-in-hand, helping employees to acknowledge they’re having mental health struggles and then teaching them how to most effectively use their medical plan(s) to support those struggles.
3. Common Conditions and Risk Factors
Data from this year’s Global Medical Trend Rates Report suggests that many of the most prevalent health conditions and risk factors in 2024 are expected to be the same as those in 2023 — and these are also the main drivers of medical plan costs.
The cancer insurance and cardiovascular health conditions have become more prevalent across the globe, ranking first and second in most regions and as top five conditions in every region.
Contributing to poor cardiovascular health, physical inactivity and poor stress management are two of the top health risk factors globally, and both can lead to more-serious health conditions if they’re not addressed.
Physical inactivity is one of the top five health risks in every region across the globe; underlying factors might include lingering effects from stay-at-home orders during the COVID-19 pandemic or a lack of movement related to working from home.
Additionally, poor stress management has become more of an issue in North America, the Asia–Pacific region (APAC) and Europe.
Risk factors can compound and lead to more serious conditions.
For example, physical inactivity can lead to obesity, high blood pressure and/or high cholesterol, which could then lead to cardiovascular disease or risk of stroke. Poor stress management can impact mental health and lead to declining productivity and burnout.
By addressing these risk factors in their health plans early, employers can help their workforce stay healthy and avoid more costly treatments for serious conditions.
Using Data as a Tool
Employers can use health data to educate their employees, build preventive programs and drive down costs.
As healthcare costs continue to surge for both individuals and employers across the U.S., many organizations are pursuing value-led strategies.
These strategies are known to lower costs while also improving the quality of care and patient outcomes (see How Artificial Intelligence AI is Modernizing the HealthCare Industry?).
They can look at data to determine the top five to ten claims among their workforce and expand wellbeing programs or educate employees about existing programs to try to mitigate these claims wherever possible.
Other steps employers could take include encouraging preventative behaviors or designing measures to incentivize plan members to seek care in a cost-effective way.
Global companies can look at claims data within and across countries to identify outliers and cost drivers
Say you notice a much higher claims incidence in Argentina for lung cancer as compared to other employee populations. An employer could then look to implement a smoking cessation program in Argentina specifically to help mitigate that condition or stop conditions before they occur.
Employers can also look at data to see how the health plans are being used and who they cover and then adjust use of the plans by clarifying or adapting who is covered by certain health benefits.
On one hand, this measure could benefit employers by limiting coverage to minimize claims and costs. On the other hand, it could benefit employees where coverage is extended based on cultural trends.
In the APAC region, data show that an increased acceptance of LGBTQ+ relationships has led to an emergence of same-sex partner coverage under medical plans in some countries.
This extended coverage has undoubtedly increased the number of claims within the employer-paid healthcare plans, but it has also served as a step toward a more inclusive workplace and healthier workforce.
Embedding Flexibility into Wellness
Opting for flexible benefits programs offers a solution for both employers and employees. With a “full flex” approach, employers can allocate employees a chosen amount of money to use toward their benefits as they see fit across a broad range of benefits.
A key premise behind flexible benefits is allowing employees to select the benefits they need and want to support their lifestyle
An employee could use their flexible allotment toward a gym membership, a green car or even pet medical expenses aid, for example, without having to pay out of pocket.
This approach could help protect employers because it gives employees agency over their benefits and helps change employee behavior in relation to the benefits package. It also helps put a cap on the cost of medical coverage because it disperses ownership over the plan between employees and the company, which helps guarantee good investments.
AUTHORS: Kathryn Davis – Vice President, data & analytics leader for Health Solutions for Multinationals at Aon