How Companies are Mitigating Rising Medical Costs

How Companies are Mitigating Rising Medical Costs
Human Capital Analytics

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This insight is part 09 of 10 in this Collection.

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December 6, 2023 13 mins

How Companies are Mitigating Rising Medical Costs

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With medical costs on the rise, companies are looking for ways to avoid passing the increased financial burden onto employees.

Key Takeaways
  1. Increasing employees’ share of medical costs is not always the best solution to combat rising rates.
  2. Wellbeing programs can potentially lower costs and improve the employee experience.
  3. Using data and analytics to understand where cost hot spots and triggers lie can help inform effective mitigation strategies.

The cost of healthcare services increases every year. For organizations who sponsor an employee health plan, this is an unavoidable fact. While the Global Medical Trend Rate Report gives employers budgeting advice for these increases, not every company can, or wants to, absorb such a burden. Rather, companies are looking for ways to mitigate the impact of expanding rates.

Previous articles discussed the risk factors and conditions driving these cost increases. But how are companies dealing with the rising costs? Historically, companies either absorbed the extra expense themselves or passed the cost along to employees. However, with costs continuing to increase year-over-year, those strategies are falling out of favor. Many employers agree — it’s time to try something different.

Better Informed

Traditional Strategies, Predictable Results

Companies who sponsor employee health plans previously passed rising costs along to employees, either through more expensive premiums, higher deductibles or narrower coverage (meaning fewer services covered or fewer eligible providers in the coverage network). But continued year-over-year increases aren’t sustainable for employers or employees. There is a growing recognition that companies need to do more to keep costs down. And the primary way we are seeing companies control costs is through wellbeing programs.

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With bleeding healthcare costs, the tradeoff is affecting a company’s ability to attract and retain talent. Companies keen to control the workforce cost lever need to recalibrate. That’s why we’ve seen an ever-increasing shift toward wellbeing.

Dr. Amitabh Deka
Vice President, Health Transformation, Global

Wellbeing Programs on the Rise

Wellbeing programs have become far more important and prevalent in recent years. Companies know that if they can’t control the cost of medical care, investing in something that can bring the overall demand for medical services down is necessary. While many early corporate wellness programs were limited in nature — for example, gym discounts or healthier snacks in the company break room — there are now much more sophisticated and holistic strategies employed by companies around incorporating wellbeing initiatives into the employee value proposition.

The conditions and risk factors discussed in the Global Medical Trend Rate report focus mainly on physical health — the traditional focus area of most wellbeing programs. But it’s important to note that there is more to a holistic wellbeing program than just physical wellness. Mental wellbeing, financial wellbeing, social wellbeing and career wellbeing are all interrelated pieces of a holistic wellness plan. Companies that recognize this are more likely to succeed in controlling their healthcare costs. For instance, poor mental, financial, social or career wellbeing can cause stress, which can raise blood pressure, causing a host of other physical issues. Stress has also been linked to higher blood sugar and increased incidence of musculoskeletal issues, among other risks and conditions. Smaller, frequent moments of stress, sometimes referred to as microstress, can also lead to burnout at work and affect a person’s emotional wellbeing.

Three Types of Wellbeing Programs

  • 1. Prevention and Detection

    Prevention and early detection are two of the most important ways to improve health outcomes. They also help keep costs lower by obviating the need for more expensive treatments at later stages. The World Health Organization suggests that cancer treatment for patients in high-income countries, whose cancer is usually detected early, are two to four times cheaper than those for patients whose cancer is detected later.1

    One type of program or activity that falls under this category is free checkups (also known as health screenings). This is offered either by encouraging or incentivizing employees to get regular checkups that are covered by insurance through their primary physician or by sponsoring screening events onsite. For instance, blood pressure screenings in the workplace have proven to be an effective way to identify individuals who need further intervention2 — which is key since high blood pressure is one of the top conditions driving claims and a risk factor for other conditions.

  • 2. Education and Coaching

    Education programs are not new in the wellbeing space, but they take on added importance in conjunction with detection and prevention efforts. Digital health has played a key role in accelerating the virtues of self-care. While education has historically been a big part of wellness initiatives, coaching is a relatively new phenomenon. Digitalization and personalization have led more programs to offer advice from coaches on topics like nutrition, diet and exercise and financial/career counseling. Coaching can be tied to a variety of goals, ranging from weight loss and debt reduction to caregiver responsibilities.

  • 3. Physical Wellbeing Interventions

    These programs are designed to directly influence behavior that can lead to better health outcomes. Encouraging physical activity, like hosting exercise classes or walking clubs, is a common offering in this space. Other common interventions include healthy eating, weight loss and smoking cessation programs.

85%

Of companies surveyed, 85 percent offer physical checkups — the most common prevention program. This includes heart health screenings.

Source: Aon Global Medical Trend Rate Report 2024

Different Regions, Different Systems, Differing Results

There can be seemingly large regional discrepancies in the data around these types of programs. But it may not be telling the whole story. For example, in Latin America, 96 percent of markets mentioned mammogram screenings as something companies offered as a cost mitigation strategy, while in Europe and Asia, only 60 percent of countries mentioned mammograms as a specific wellness benefit. That’s because in many European and Asian countries, mammograms are paid for by the government and don’t need to be provided as a separate health benefit.

Other regional differences may occur on a country-by-country basis. For example, across the Asia Pacific region, differences exist regarding cancer screenings. In Korea, they are mandatory, while in Japan and Australia, they are only emphasized, meaning uptake is much lower. Meanwhile In China, there is widespread access to preventative care, resulting in more routine screenings.

Better Decisions

Going Beyond Wellbeing to Combat Rising Medical Rates

While improving employees’ wellbeing is one of the most common mitigation strategies employed to combat rising medical rates, it’s not the only one. Many companies have at least begun to explore flexible benefit plans, whereby an employer gives an employee defined funds to design and fund a benefit package based on personal needs. While this provides flexibility for the employee, it also shifts the burden of cost management to each individual. Companies are increasingly taking this approach to ensure there is a cap on their risk exposure, while also offering employees a unique set of benefits.

Data also plays a huge role in mitigating rising costs. While collecting and analyzing data is not itself a mitigation strategy, it is vital that companies do so to design an effective benefit program. Knowing what drives claims, understanding employees’ use of benefits and even having substantial data around employees’ time off can help direct a company’s benefit strategy.

Some organizations may opt for alternative funding vehicles, for example: creating a captive. A captive is a private insurance company set up by a non-insurance organization to insure its own risks; a strategy employed in some capacity by about 17 percent of companies globally, according to Aon’s research. Creating a captive is not strictly a cost mitigation strategy — analytics can also provide a greater level of data that can then be used to inform benefit plan design. A company that funds its own insurance plan will have immediate access to claims data without restriction. It also has more control over costs and can often use that control to differentiate itself by offering expanded benefits. For example, a firm that wants to fulfill its commitments to diversity, equity and inclusion can provide added coverage for certain women’s health and transgender care services. However, companies that go this route will own more of the risk, so creating a captive is not a decision that should be taken lightly.

Whichever mitigation strategy a company chooses to pursue, the end goal is the same — to provide employees with the medical benefits they need at a reasonable cost for both employer and employee. While the medical trend rate has not cooperated with that desire in recent years, companies that engage a holistic wellbeing strategy, collect as much data as possible and use that data to make better decisions can mitigate the rising cost impact significantly.

To learn more about healthcare cost mitigation trends and strategies, download the report.

1 https://www.who.int/news/item/03-02-2017-early-cancer-diagnosis-saves-lives-cuts-treatment-costs
2 https://journals.sagepub.com/doi/pdf/10.1177/216507998903700103

Aon’s Thought Leaders
  • Kathryn Davis
    Vice President, Global Benefits
  • Dr. Amitabh Deka
    Vice President, Health Transformation, Global
  • Rui Silva
    Vice President, Global Benefits

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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