As medical inflation surges ahead of general inflation, employers with sponsored healthcare plans face mounting pressure to tackle escalating costs. Striking a balance between affordability and maintaining high-quality care has become a critical challenge, driving companies to adopt increasingly innovative and adaptive strategies.
According to Aon’s 2025 Global Medical Trend Rates Report, medical costs have surged by 300% over the past 13 years, with price inflation reaching 150%.
The report was based on a survey across 112 Aon locations globally, advising on employer-sponsored medical plans in regions including Asia-Pacific (APAC), North America, the Middle East and Africa (MEA), and Latin America and the Caribbean (LAC).
In the report, “general inflation” refers to the overall increase in the price of goods and services, while “global medical trend rate” (medical inflation) highlights the specific factors driving healthcare costs.
As Nele Segers, global benefits consultant and principal at Aon, explained during a recent webinar, medical plans, like all goods and services, are subject to inflation. However, factors such as advances in medical technology, worsening population health, and challenges with government-provided healthcare are pushing costs beyond the general inflation rate.
Aon’s survey, which has been tracking these trends since 2013, shows that medical inflation was about 10% when it began monitoring the data. After several years of slower growth, medical inflation has risen. For 2025, the global average medical trend is projected to hit 10%, a slight decrease from 2024 but still far higher than the global general inflation rate of 2.8%.
More concerning is the widening gap between medical inflation and general inflation. In 2023, the gap was about 5.5%, and it is expected to grow to nearly 7% in 2025.
Segers observed that this trend is evident across regions, with North America and APAC seeing the most significant increases.
In contrast, LAC anticipates a decrease in medical trend rates, projecting 10.7% for 2025, down from 11.7% in 2024. This decline aligns with the overall decrease in the region’s general inflation rate.
Europe, benefitting from a lower general inflation rate, forecasts a medical trend of 8.9% for 2025, down from 10.4% in 2024. Most European countries are projecting either stable or lower trend rates.
The MEA is the only region forecasting an uptick in both medical inflation and general inflation, with a 15.5% projected medical trend, up from 15.1% in 2024. However, this increase is offset by a projected decrease in about a third of the region’s countries, notably Nigeria.
In South Africa, the annual general inflation rate for 2025 is projected to be 4.5% with the projected medical trend rate coming in at 9.5%.
Risk factors contributing to leading medical conditions
A key contributor to rising medical inflation is poorer health among employees.
Segers said Aon observed a number of risk factors for poor health recur across regions. High blood pressure/hypertension stands out as being the top risk factor identified in four out of five regions. The second most prominent risk factor is physical inactivity, which appears in the top three in all but one region. Poor stress management rounds out the global top three risk factors.
“Most importantly, nearly all of these risk factors are interacting with each other, so low levels of physical inactivity, for example, can be linked to obesity. Obesity increases a person’s risk of developing high blood pressure and high cholesterol, and we also know that greater levels of physical inactivity can improve stress levels,” said Segers.
New in 2025, obesity has emerged as a top five global risk factor expected to drive future claims, replacing bad nutrition, driven by its prevalence in the United States, Canada, and LAC. Segers noted that this is particularly important this year, because many countries cite prescription drugs used for weight loss as leading factors in the increase in medical trends.
The top five risk factors in MEA are high blood pressure, lack of health screening, physical inactivity, high blood glucose, and high cholesterol.
Conditions behind the trend rate
The top medical conditions that are expected to drive medical plan costs in 2025 on a global scale are the same as those that had the greatest impact on trends in 2024, with a slight change in the ordering.
Cardiovascular diseases, including disorders of the heart and blood vessels, are now the top medical condition anticipated to drive plan costs in 2025.
“We see that cardiovascular disease is expected to drive up costs, particularly in APAC. Over 25 countries reported this type of condition as the most impactful one when it comes to cost,” said Segers.
Second is cancer/tumour growth. Down from the leading condition last year, it is still a top five condition in every region, with 21 countries reporting it as the most impactful condition. The most common cancers are lung, breast, colon and rectum, and prostate cancers, according to Worldwide Cancer Data.
High blood pressure/hypertension is the third top medical condition. It is the leading risk factor for many other conditions and are continuously reported as top conditions driving adverse claims experience in MEA and increasingly in LAC, with 16 countries reporting it as the most impactful condition.
South Africa is one of the countries that consistently reports this as a leading condition.
In MEA, the top five medical conditions are high blood pressure/hypertension, diabetes, ENT/lung disorder/respiratory, cancer/tumour growth, and cardiovascular.
What leading employers are doing to mitigate rising costs
According to Aon’s 2024 Global Benefits Trends Study, companies are exploring alternative financing arrangements, such as pooling, global underwriting, and cell captives to mitigate rising costs.
A cell captive is a private insurance company that is wholly owned and controlled by a parent company or a group of companies. Its purpose is to insure the risks of its parent or members, essentially allowing the parent company to have more control over its insurance arrangements and financing.
About 35% are focusing on analysing disability and health claims data to identify trends and implement targeted interventions.
Additionally, more than half of the surveyed organisations emphasise the importance of integrating benefits with wellbeing programmes.
It comes as no surprise then that well-being initiatives remain the leading strategy for mitigating healthcare costs. These initiatives help to control expenses in two key ways: by promoting preventative care, they help avoid more costly treatments later, and by keeping employees engaged in their well-being, they reduce stress that can worsen other health conditions.
Cost containment measures, such as raising deductibles, increasing co-payments, and utilising referrals, are gaining traction as ways to control overuse. These strategies are expected to be central to healthcare plans in 2025. The study finds that more significant changes in plan design, including flexible benefit plans and restrictions on access and delivery, are being implemented to encourage cost-effective care.
About 60% of countries are expected to adopt flexible benefit plans as a strategy in 2025, with South Africa, Spain, and the US already prioritising it. These plans not only offer employers greater cost control but also encourage positive behavioural change among employees.
Cost mitigation strategies
According to Ben Batho, EMEA data and analytics leader: health solutions, cost mitigation strategies in employee benefits can be grouped into three main areas. The first involves examining plan design, which directly ties the scope of benefits to costs.
“If you offer more, you’ll pay more; if you offer less, you’ll pay less,” he explained.
The second area considers funding methods, such as insurance, self-insurance, or captives. He warns that these approaches come with varying cost implications.
“These have different factors that have an impact externally. But if you’ve got new entrants to the market, you may pay less. If you’ve got exits to the market, you may pay more. These are impacts that need to be considered,” Batho noted.
The third area is addressing the underlying health risks within the workforce. A healthier workforce typically leads to lower utilisation of benefits and reduced costs.
Batho cautioned that although cost-containment efforts can deliver immediate savings, their long-term effectiveness is less certain.
“It’s very effective short term but how sustainable that can be is up for debate, because you might see a 10% decrease by changing carrier today, but you might not see any sustainability [in] the premium going forward.”
For long-term success, well-being initiatives are essential, he added.
“What we see is that that is the most sustainable approach, and arguably has the greater health outcome for your employees.”
Where cost and values meet
When considering cost mitigation strategies, Batho advised that employers need to weigh cost-saving measures against broader organisational objectives, such as employee engagement and productivity.
From a cost perspective, he said, employers may aim to limit benefits, reduce illness prevalence, and detect conditions earlier to minimise severity.
“That’s linked further with absence from work. If you look at the employee lifecycle, you might have a high-cost claimant at one point, but can you understand the pattern of the employee behaviours earlier to reduce absence, identify what those critical conditions are, and then reduce those claims?” he asked.
From a values perspective, organisations must consider whether reduced access to healthcare services, such as mental health support, could result in greater long-term risks to productivity and employee well-being. Some costs, Batho said, “may be higher, but they might be the right cost to take”.
Batho also underscored the importance of leveraging data to make informed decisions. The ability to track, measure, and look at the impact of any intervention plans that employers may have.
“You need to think about how you can use data to identify and really take the temperature of your firm today, to think about what cost impact you want to make in the future.”
He added that before making any drastic changes to plans, employers need to be clear about what is valued and what is more likely to be used in their plans.
“Think about the demographics that you have and that you’re insuring in your population. What is right for those, what do they value, and what will drive their decisions? And look at the utilisation rates of your plans.”
Lessons from the Philippines
The Philippines continues to experience one of the highest medical trend rates in the APAC region. Aon estimates a 15% medical trend rate for 2025, up from 14% in 2024 and significantly higher than the 9% recorded in 2023. This rapid rise in medical inflation outpaces trends in most other countries regionally and globally.
To address these rising costs, employers in the Philippines are exploring strategies such as cost-sharing and network redirection. Todd Dore, APAC regional director for data and analytics: health solutions, highlighted the implementation of co-payments for high-cost providers as an effective approach.
“In the Philippines, the highest cost hospitals and clinics are called major providers, or major hospitals,” Dore explained. “And if co-payments, which usually take the form of a flat co-payment, are introduced for those providers, then that can help to steer the members to a more cost-effective yet still high-quality provider.”
Dore noted significant cost differences between major and non-major hospitals.
“For example, on average, outpatient services cost more than double within the major hospitals. So, by implementing a relatively modest and affordable co-pay only for a major hospital, for example, can help steer employees to the more cost-effective providers,” he said.
Employers here are also increasingly exploring on-site clinics as a cost-effective strategy to address rising healthcare costs.
Dore noted that on-site clinics are expanding their range of services to better support employees. “Whether that’s more lab and diagnostics type of services, more staffing of doctors, because pound for pound, on-site service, medical treatment is the least costly of just about all of the different types of services.”
Insurance companies are also implementing measures to cut costs, including addressing inefficiencies such as unnecessary hospital stays and emergency room misuse.
“For example, in in-patient hospitals where hospital stays end up being longer than they otherwise need to be.”
He said these behind-the-scenes efforts aim to reduce waste, fraud, and abuse, while mitigating overall healthcare expenses.
