With the global medical trend rate for 2024 reaching its highest level in a decade, healthcare affordability has become a significant workforce-related risk for businesses.
The Aon Global Medical Trend Rates Report 2024 projects that the global average medical trend rate for employer-sponsored medical plans will increase sharply to 10.1%, marking the highest rate since 2015.
The survey was conducted across 113 Aon offices that broker, administer, or otherwise advise on employer-sponsored medical plans in each of the countries covered in the report. Each office represents one specific location, with South Africa among them.
The survey responses reflect the medical trend expectations of Aon professionals based on their interactions with clients and carriers represented in the portfolio of the firm’s medical plan business in each location.
Based on the survey’s findings, the annual medical trend rates for South Africa in 2024 are listed as 9.5% (gross) and 4.7 % (net), respectively. This contrasts with the annual general inflation rate of 4.8%, as reported by the International Monetary Fund’s World Economic Outlook Database in April 2023.
According to Statistics SA, health insurance premiums increased by 12.9% in 2024, while higher prices for medical products and medical services drove a 6% annual rise in the health index.
In Aon’s 2024 Client Trends Report: Better Decisions in Trade, Technology, Weather and Workforce, the firm states that with costs rising steadily, employers don’t feel as though they can or should continue to pass those increases along.
Outlook on healthcare affordability
Aon reports that costs are taking up a larger portion of total rewards spending, with real expenses on the rise for employers and employees.
Total rewards are the combination of benefits, compensation, and rewards that employees receive from their organisations. The firm states that every dollar – or in South Africa’s case, rand – spent on healthcare is money not spent on retirement or wages.
Aon is projecting total rewards spend to increase by 22% in the United States over the next four years. More than one-third of that overall increase is expected to come from healthcare costs alone.
According to Aon, these cost increases are not sustainable. The firm emphasises that employers are paying more while adding additional costs to employees. Total rewards budgets are being swallowed up just to maintain the status quo, leading firms to aim lower.
“The number of employers that said they are just looking to keep their benefit offerings on pace with the market doubled coming into 2024, and those looking to lead the market decreased accordingly,” Aon states.
Key drivers behind surge in medical trend rates
According to the 2024 Global Medical Trend Rates report, macroeconomic instability has had a significant impact on the medical trend in many locations around the world.
Macroeconomic instability occurs when the price level fluctuates, unemployment increases, and the economy produces less output.
“While macroeconomic instability is a big part of the story behind the medical trend rates, it is also important to highlight the regional differences, the conditions driving the trend rate, and the ways in which companies are mitigating the increases,” says Aon.
However, it is not the only factor driving up costs. The report states that the surge in medical trend is driven by a generalised increase expected in all regions, with every global region showing an increase in trend over 2023.
The two regions with the highest projected increases are Latin America and the Caribbean (LAC), at 11.7% (up from 11.6% in 2023) and Middle East and Africa (MEA), at 15.1% (up from 14.5% a year ago).
According to the report, the top medical conditions that are expected to drive medical plan costs in 2024 include:
- Cancer/tumour growth. The most common cancers are breast, lung, colorectal, and prostate. Cancer is a top condition in all regions other than MEA. Countries such as Portugal, Turkey, Switzerland, and Israel consistently report cancer as the top condition, while LAC and Europe have also seen increased prevalence of this condition.
- Cardiovascular diseases include disorders of the heart and blood vessels. Collectively, they have been a top condition, negatively impacting claims in Asia-Pacific, Europe, and LAC, with Argentina, Belgium, Costa Rica, Japan, and South Korea consistently reporting this as their leading condition.
- High blood pressure/hypertension. High blood pressure and hypertension are leading risk factors for many other conditions and are continuously reported as top conditions driving adverse claims experience in MEA. South Africa, Philippines, Dominican Republic, and Bulgaria are some of the countries that consistently report this as their leading condition.
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Interestingly, the report finds that although the leading conditions driving the trend rate – cancer and cardiovascular – are associated with risk factors such as poor nutrition, air pollution, and excessive drug and alcohol use, it is physical inactivity and poor stress management that continue to lead the list of risk factors.
Obesity is also highlighted as a significant risk factor, particularly in the US and LAC, where it remains the second most critical risk factor. In the US, obesity is closely followed by excessive alcohol or drug use, while in LAC, it is followed by poor nutrition because of unhealthy eating habits.
Additionally, lack of screening has emerged as a crucial risk factor in Canada, being reported for the second consecutive year as the leading cause of future adverse claims. This trend has also been observed historically in the MEA and more recently in Europe.
How leading employers are tackling rising costs
Aon has found that to manage rising costs, companies are focusing on reducing ineffective spending through value-based strategies. These strategies include directing employees to high-quality healthcare providers, using analytics to identify and address high-cost claimants, and investing in physical and emotional well-being initiatives to help mitigate overall healthcare expenses.
According to the 2022-2023 Aon Global Well-being Report, 83% of employers globally have a well-being strategy in place and have responded that well-being is a top priority for the next five years. In addition, an increasing number of countries are reporting well-being as their single most important cost mitigation initiative, with a quarter of the 113 countries citing well-being’s importance, with countries such as Brazil, Colombia, India, Singapore, and Hong Kong at the forefront.
“These initiatives help to control costs in a couple of ways: by encouraging utilisation of preventative care, they can avoid more expensive care down the road; and by keeping employees engaged in their well-being, they can reduce the stress that can exacerbate other health conditions,” Aon states.
However, for any strategy to work, the firm says it must be “built on robust data and an understanding of the underlying health cost drivers”. This is where healthcare analytics come in.
“Many leading employers are looking towards using a Global Health Dashboard to access regular reports on claims and diagnostic data for their major healthcare plans, which can then be used to set and measure tailored initiatives, budget costs appropriately, and react to unexpected claims,” the firm states.
Leading employers are also “building resilient workforces” by combining healthcare data with other key wellness data sources (time off, well-being app data, economically active population statistics) to identify a broad set of well-being focus areas and then implement programmes and strategies to tackle these key challenges.
Another strategy expected to play an important role during 2024 is the implementation of cost-containment measures. These include initiatives aimed at reducing or controlling overuse, such as raising deductibles and co-payments and using referrals.
“More significant plan design changes, such as the use of flexible benefit plans to cap overall benefit costs, and access and delivery restrictions, are all measures designed to incentivise plan members to seek care in a cost-effective manner and are also expected to play a role in 2024,” Aon states.
