How Companies are Mitigating Rising Medical Costs
With medical costs on the rise, companies are looking for ways to avoid passing the increased financial burden onto employees.
Key Takeaways
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Increasing employees’ share of medical costs is not always the best solution to combat rising rates.
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Wellbeing programs can potentially lower costs and improve the employee experience.
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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.
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.
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
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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.
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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.
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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.
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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Report 18 mins
Evolving Technologies Are Driving Firms to Harness Opportunities and Defend Against Threats
While advancements in AI, cyber and data technology are helping companies operating in an increasingly digital world gain a significant competitive edge, they also introduce new and evolving risks.
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Article 6 mins
How to Make the Most of Voluntary Benefit Plans in the U.S.
As healthcare costs rise, voluntary benefits are a critical component of engaging employees, while also helping to manage direct and indirect medical expenses. Here are three strategies for employers to make the most of their voluntary benefits.
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Article 8 mins
NIS2 Compliance Readiness for Organizations across the European Union
The expansive scope, stringent sanctions and pivotal role of management related to the new NIS2 Directive provide a strong foundation to protect against evolving cyber risks.
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Article 8 mins
London Insurance Market: Unveiling Demands for New Skills in 2024
The London insurance market seeks a generation of game-changers who can navigate uncertainties and drive innovation to ensure the industry’s future success in a digitalised world.
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Article 3 mins
Better Decisions in Trade, Technology, Weather and Workforce
From global supply chain risks to climate insecurity, organizations face challenges and complexities on a scale rarely seen before.
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Article 15 mins
How Artificial Intelligence is Transforming Human Resources and the Workforce
Artificial intelligence is having a measurable impact across all aspects of HR — from talent management to compensation, health and benefits, and retirement planning. To effectively harness the technology, HR leaders must ensure both their own teams and the wider workforce are prepared.
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Article 3 mins
Risk Capital and Human Capital Perspectives
Risk Capital CEO Andy Marcell and Human Capital CEO Lambros Lambrou discuss how innovations in Risk Capital and Human Capital can help organizations boost resilience and navigate volatility.
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Report 15 mins
Wide-Ranging Trade Issues Confront Global Businesses on Multiple Fronts
Global business leaders highlight risks linked to trade as some of their top concerns — both physical and financial. While the topic is complex and broad, there are opportunities that business leaders can pursue to stay ahead of emerging trade dynamics.
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Report 16 mins
Climate Analytics Unlock Capital to Protect People and Property
Extreme weather and a changing climate are impacting many of the risks businesses face today. To address future exposures, organizations will need advanced climate and natural catastrophe models and expertise that can assess chronic and acute risks.
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Report 14 mins
A Workforce in Transition Prepares to Meet a Host of Challenges
Engaging a changing workforce requires data and innovation. Workers increasingly expect more than just a paycheck. In response, organizations are balancing costs with the ability to provide a compelling employee experience.
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Case Study 3 mins
How Aon Helped M&G Wealth Develop New Advisor Skills
Aon partnered with UK financial advice firm M&G Wealth to help the firm better understand the make-up of a highly successful advisor of the future, including the skills needed given shifts in societal needs, technology and regulation.
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Article 8 mins
Energy Transition Investments: How Advanced Analytics Can Empower Organizations
Advanced analytics can empower organizations with deeper insights into the risks and opportunities surrounding renewables, while also supporting energy transition investment.
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Article 17 mins
Q1 2024: Global Insurance Market Overview
Positive performance in 2023 fueled insurer growth ambitions but underwriting remained disciplined in the first quarter of 2024.
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Article 12 mins
How Life Sciences Build Robust Talent Pipelines in the Age of Digitalization
While digitalization is delivering transformational change to R&D across the sector, it is also rapidly reshaping recruitment and retention strategies.
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Alert 6 mins
U.S. Federal Trade Commission Bans Employee Noncompete Agreements; Here’s What Employers Should Know
The FTC has announced a rule that bans noncompetes and clauses that have a similar effect. While the rule will face legal challenges, employers should take steps now to prepare for an environment where they cannot use noncompete agreements.
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Article 7 mins
Managing Construction Risks: 7 Risk Advisory Steps
Risk advisory services can help construction stakeholders navigate uncertainties, optimize performance and drive growth in their projects.
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Article 9 mins
Floating Offshore Wind Unlocks New Opportunities and Challenges
While there are similarities in the risk profile of floating offshore wind and bottom-fixed offshore wind, challenges like unproven technology and tow-to-port strategies for maintenance require a collaborative approach between owners/developers and their insurance partners.
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Article 4 mins
Parametrics Unlock Solutions For Future Risks
Macrotrends are transforming our world and creating emerging property-casualty exposures, which will have profound implications for the insurance industry.
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Article 7 mins
U.S. Cyber Insurance: Market Trends and Opportunities
Understanding market trends and future projections in an evolving cyber insurance market is paramount to strengthening risk mitigation and transfer strategies.
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Article 5 mins
How Climate Modeling Can Mitigate Risks and Improve Resilience in the Construction Industry
In an era of escalating climate-related challenges, the construction industry is turning to advanced climate modeling to fortify its risk management strategies.
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Article 14 mins
How Technology Will Transform Employee Benefits in the Next Five Years
Advances in technology will not only transform healthcare and treatment outcomes — benefit offerings, access to care, diagnosis, treatment and affordability challenges will also be radically changed. Here is what to expect as these efforts take shape globally.
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Article 10 mins
Key Trends in U.S. Benefits for 2024 and Beyond
As healthcare costs continue to rise, employers are struggling to balance cost control with attracting and retaining talent. The results of Aon's 2024 U.S. Health Survey point to key strategies organizations are using to help.
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Article 11 mins
Capturing Carbon on the Critical Pathway to Net Zero
As the world races to reduce climate risks and limit CO<sub>2</sub> emissions, the demand for scalable and cost-effective decarbonization technologies is increasing. Carbon capture projects form an important part of the low carbon energy transition, bringing both challenges and opportunities.
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Article 7 mins
Protecting North American Contractors from Extreme Heat Risks with Parametric
Growing extreme heat conditions have escalated risks, delays and costs for the construction industry in North America. Parametric insurance can help protect against such risks, offering contractors and building owners agility, efficiency and flexibility.
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Article 9 mins
How Insurance Can Help Hedge Potential Exposures Under the New Unified Patent Court System
The launch of the Unified Patent Court allows for a new patent filing process across Europe using a centralized system. While this brings significant financial and operational benefits, navigating these changes will demand a robust litigation risk management strategy.
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Article 8 mins
Parametric Can Help Mitigate Extreme Heat Risks for Contractors in EMEA
Construction projects in EMEA are often impacted by extreme heat, leading to project delays and increased costs. Many heat exposures are excluded by traditional markets, however, parametric is a flexible solution that can help mitigate these risks.
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Article 12 mins
Understanding and Preparing for the Rise in Pay Transparency
New regulations in the U.S. and Europe will require companies to be more transparent about their pay practices. Combined with willingness among workers to talk about salary, the era of pay transparency is here.
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Article 11 mins
Advancing Women’s Health and Equity Through Benefits and Support
As companies tailor their health and benefits to meet the needs of their employees, vital areas for support include family building and menopause.
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Article 7 mins
Unlocking Capacity and Capital in a Challenging Construction Risk Market
Complex market dynamics in the construction industry are pushing organizations to proactively explore alternative risk transfer solutions, including parametric insurance and captives.
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Article 11 mins
Securing Human Capital in Natural Resources
As new job roles and technologies emerge in the natural resources industry, employee expectations are also shifting. Leaders must rise to the challenge of securing talent to meet the world’s future energy needs.
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Article 5 mins
Navigating Cybersecurity Risk Under New U.S. Rules
Rulemaking from the Securities and Exchange Commission (SEC) highlights the importance of company transparency with investors and regulators around risk management and the impact of cyber events.
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Article 13 mins
Building Growth From Uncertainty in Financial Institutions
Five ways financial institutions can balance investment with prudence in an uncertain economic climate.
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Article 12 mins
Q4 2023: Global Insurance Market Overview
An increasingly interconnected and complex risk landscape continues to shape risk strategies and market responses.
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Article 13 mins
Top Risk Trends to Watch in 2024
To be successful, business leaders must keep pace with the key trends that will impact the risk and insurance landscape in 2024.
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Article 9 mins
How to Navigate Contractor Shortages in the Energy and Power Industries
Taking a new approach to talent management and planning for worker shortages can help businesses in the energy and power industries build greater operational resilience.
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Article 8 mins
Driving Inclusion and Diversity with Employee Benefits
As organizations build diversity, equity, inclusion and belonging in the workplace, they must also ensure benefit plans are designed and customized to meet the needs of a diverse workforce.
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Article 11 mins
How Investors are Making Better Decisions Amid a Changing Climate
For investors, climate change means navigating uncertainties and understanding a wide range of potential outcomes.
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Article 8 mins
Understanding Freeze Risk in a Changing Climate
Extreme cold and freeze were responsible for $15 billion worth of structural damage in recent years, as well as business interruption and supply chain impacts. We explore the threat chronic hazards pose and consider the influence of climate change on business.
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Article 7 mins
4 Steps to Help Take Advantage of a Buyer-Friendly Directors' & Officers' Market
The global D&O market remains soft, creating a favorable environment for buyers. With abundant capacity and increased competition, capitalizing on conditions now is critical as rates are showing signs of moderating.
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Article 17 mins
Five Big Human Resources Trends to Watch in 2024
It's never been more important for HR leaders to help shape and support the execution of business strategies. However, to be successful in today’s volatile world, HR teams must stand ready to understand and harness five fast moving trends.
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Article 9 mins
Managing Reputational Risks in Global Supply Chains
Supply chain disruptions can have serious reputational repercussions, causing plummeting shareholder value and diminished stakeholder trust. The potential fallout underscores the need for management strategies that collectively address these risks.
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Article 13 mins
Creating Operational Resilience Amid Growing Risks in the Food, Agribusiness and Beverage Industry
To feed a growing global population, FAB organizations must build operational resilience to overcome supply chain, cyber, geopolitical and climate risks.
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Article 10 mins
Seizing Opportunity in a Booming Pension Risk Transfer Market
Businesses considering pension risk transfer to mitigate volatility should prepare now to be well-positioned for market opportunities.
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Article 7 mins
How Collective Retirement Plans Help Support Financial Sustainability
Improving retirement plan governance is crucial during economic uncertainty. Collective retirement plans, like a pooled employer plan, reduce risk and streamline administrative expenses for employers while also boosting employee support.
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Article 4 mins
Addressing Risks is Critical in a Deal-Hungry M&A Market
Senior executives aren’t letting a tough market for transactions stop them from finding new approaches to closing deals.
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Article 7 mins
The Changing Priorities of Today’s Middle Market
To stay competitive, middle-market companies need to navigate the current economic volatility and invest in their technology and talent.
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