Continued lifestyle risks drive up medical costs and increase the need for resilience

Medical costs are continuing to rise, and demand for medical services is predicted to return to normal in 2021. What can employers do to manage their medical, health and wellbeing costs?

The 2021 Global Medical Trend Rates Report, released by Aon in October 2020, forecasts that the costs of employer medical benefits across the world will rise 7.2% in 2021, outpacing general inflation by 5%. The Global Medical Trends Report is based on up-to-date health trends data from 107 Aon country offices. The 2021 report predicts that medical cost increases will vary by region; costs are expected to increase the most in the Middle East/Africa regions, with the average medical trend rate forecasted at 12%, while Europe is projected to see an average medical trend rate of 5.5%. Globally, medical costs are predicted to continue to increase at higher-than-general-inflation rates.

The drivers of increasing medical costs

The 2021 report confirms that non-communicable diseases are having an increasing impact on healthcare costs globally. The top conditions predicted to drive healthcare claims in 2021 are cardiovascular disease, cancer, high blood pressure and diabetes.

Mental health issues are growing in importance here, with ‘poor stress management’ appearing for the first time among the top three risk factors.

The report also confirms the growing prevalence of risk factors from unhealthy personal habits such as physical inactivity, poor stress management, high cholesterol and bad nutrition. Disease and risk rankings vary significantly throughout the world, but some common themes, like the growing impact of poor mental health on wellbeing, are consistent worldwide. Stress is now a top issue for employers, and should be front and centre for any organisation wanting to help to improve the wellbeing of its employees.

The added challenge of COVID-19

Of particular relevance at the moment, many of the physical diseases and conditions mentioned also play a role in the severity of COVID-19; something that should be on the radar of both employers and employees.

The need to respond to the coronavirus pandemic, as well as tackling the usual health and wellbeing challenges, add another layer to current employee health strategies. The economic and social impacts of COVID-19 are only beginning to be felt in many areas; the current challenges are just the beginning of a long, drawn-out recovery phase. Governments, healthcare systems and employers must prepare for the long-term ramifications of the pandemic.

From a medical costs point of view, a predicted return to more usual conditions following the hiatus in some of the usual medical services during the pandemic will add to the pressures employers face.

Tim Nimmer, Aon’s chief global actuary for Health Solutions, believes that while;

“There is still a significant amount of uncertainty regarding COVID-19’s impact on deferred treatments and long-term health care…the expectation is that medical plan utilisation will return to normal levels during 2021 as medical services begin to reopen to the market.”

The usual pressures on medical spend have not gone away – and in fact, longer-term, COVID-19 will only have added to them. The landscape for employers trying to manage medical provision and costs is therefore challenging.

How are employers responding to increasing medical costs?

In responding to the challenges they face, many employers continue to use strategies such as controlling unreasonable plan utilisation, adjusting plan designs, streamlining supplier networks, and adding flexible benefit plans to cap overall benefit costs.

Wellbeing programs and wellness initiatives are also being used by employers to try and improve employee wellbeing and reduce medical costs; among them, preventive solutions like physical check-ups, screenings, healthy eating and physical activity promotional programs.

The Medical Trends Report demonstrates the importance of wellbeing in controlling medical costs.
But the positive impact of these wellbeing programs goes far beyond simply reducing costs, and can have significant wider benefits for the organisation and its employees.

A well-rounded wellbeing program is a central tenet of employee resilience, and resilience is increasingly recognised as something that has tangible organisational benefits. Aon’s Rising Resilient report identified a clear connection between workforce resilience and employees’ motivation, loyalty and ability to reach their potential. Focusing on resilience can help to deliver benefits far beyond simply reducing medical costs – although lower costs may be a welcome side-effect – creating a workforce that can withstand the challenges it faces.

Tackling the threats to workforce resilience

The COVID-19 pandemic has demonstrated the need for a physically, mentally and financially healthy workforce as never before. At the same time, it has evidenced very clearly how fragile our expected ways of working can be.

Yet while the pandemic may have brought this to the fore, the risks employers face associated with unhealthy or non-resilient workforces are constant. Mental, as well as physical, health challenges continue to impact employees, and reduce organisational ability to respond robustly to day-to-day issues, never mind unexpected ones.

To tackle these challenges, employers need a structured approach to wellbeing that delivers a resilient workforce. However, as the Rising Resilient report notes, while employers may have invested in ad-hoc wellbeing initiatives, in many cases these have failed to deliver as expected.

The research underpinning the Rising Resilient report clearly shows that wellbeing is an intrinsic part of the solution to the challenges businesses face; a key factor in delivering resilience – but a thought-out strategy is needed if wellbeing efforts are to deliver increased resilience.

What actions should employers be taking now?

Managing costs – medical or otherwise – is a clear priority for many employers now. Alongside looking at ways to reduce their medical costs specifically, organisations should be exploring how they can improve resilience more broadly, hopefully reducing the need for medical spend ‘at source’ by creating a workforce of resilient employees who can handle future challenges.

You can read more on how to do this, and the strategies other organisations are taking to create resilience, in the Rising Resilient report, which you can download here. You can read the full findings from Aon’s Global Medical Trend Rates Report here.


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