Helping Employers Navigate the Rise in High-Cost Medical Claims

Helping Employers Navigate the Rise in High-Cost Medical Claims
June 7, 2024 12 mins

Helping Employers Navigate the Rise in High-Cost Medical Claims

Helping Employers Navigate the Rise in High-Cost Medical Claims

A rapid rise in medical plan costs is being driven in part by high-cost claimants — a high-risk group that disproportionately accounts for a large amount of healthcare costs. Here are strategies for addressing this issue.

Key Takeaways
  1. Global medical trend rates are expected to rise in 2024, driven by high-cost claimants, chronic conditions, cancers, aging populations and expensive treatments. This is creating financial and health challenges for employers and employees.
  2. Mitigation strategies include predictive analytics, care management programs, prevention and screening, reinsurance, stop loss and more.
  3. Early prevention and detection of high-cost medical claims is crucial. Many conditions will worsen if they are not identified promptly, leading to higher treatment costs.

High-cost claimants are contributing to a rise in medical plan costs, putting employers under enormous financial pressure. This increase is driven by exorbitantly high-cost drugs, more complex therapies and a larger population with multiple chronic conditions.

“The number of million-dollar healthcare claimants in the United States has risen 45 percent in recent years, and I expect it will continue to go up,” says Charles Smith, Aon’s chief medical officer in North America. “This is creating a strain across the healthcare system.”

Across the globe, medical costs are also rising. The global average medical trend rate for 2024 is expected to be 10.1 percent, according to Aon’s 2024 Global Medical Trend Rates Report. That’s up from 9.2 percent in 2023, with every region showing an increase.

There are several strategies employers can use to mitigate rising costs. Some companies are using analytics to pre-emptively identify high-risk claimants and adverse population health trends. Leading employers are also implementing wellbeing initiatives, cost containment measures and plan design changes to help defray costs. Tools such as Aon’s Health Risk Analyzer can help employers take a proactive approach to managing their high-risk population by predicting high-cost claimants, optimizing care coordination and designing effective benefit programs. Flexible benefit plans are also an increasingly popular mitigation initiative. Around 60 percent of countries identified this as a top initiative to consider in 2024.1

Navigating the Complex Landscape of High-Cost Medical Claims

Medical Trend Rates Across Regions

The impact of rising medical costs is being felt across the globe. With widely varied healthcare systems across countries and regions, the effects are felt differently among stakeholders. Here’s a closer look at the medical costs landscape across regions:

  • United States
    • The American Cancer Society reported a 5 percent increase in cancer each year, with a 12 percent increase in young people. This has resulted in a lower screening age for many cancers.
    • Because of the pipeline of new therapies in development, Aon forecasts an 11 to 21 percent increase in the cost of cancer care every year.
    • Many large employers have dropped reinsurance that would usually protect them from high-cost claims, making them vulnerable to significant risk from costly claims and new gene and cell therapies.
    • Stop loss reinsurance is becoming more challenging for smaller and medium-sized employers, as many carriers are either refusing to offer quotes or excluding high-risk individuals from the policy.
    • Drug treatments are often prioritized depending on which are the most effective and least toxic, which are generally the newer and more expensive options.
    • Catastrophic claims are increasing to new levels, exceeding $4 million to $6 million for rare cancers and hemophilia.
  • Mainland Europe
    • According to projections, Europe’s medical trend rate is expected to reach 10.4 percent in 2024, up from 9.1 percent in 2023 and nearly double the 5.6 percent increase in 2022. Several European countries have even higher rates, including Turkey at a staggering 90 percent.
    • France is expected to have a more moderate medical trend rate of 5 percent in 2024, lower than the European average of 10.4 percent and much lower than some of its neighbors. Luxembourg has the lowest rate in Europe at 2.5 percent.
    • Employers are not obligated to give medical cover, but those who do offer private medical coverage are facing a similar effect of high-cost claims as in the U.S.
    • Since the beginning of the COVID-19 pandemic, mental health has been reported in Europe as a leading condition driving claims. This is especially true in Germany and Scandinavia.
    • Regulations like the Corporate Sustainability Reporting Directive2 are pushing for better employer-sponsored care. Combined with increasing medical costs, this will prove to be a large cost burden for organizations of all sizes.
  • United Kingdom
    • The cancer market is expected to undergo significant growth between now and 2027 due to increased cancer prevalence, increased technology and treatment options and an aging population. Each year in the UK, 367,000 new cancer cases are diagnosed.3
    • The impact of cancer on the health system is exacerbated by differing standards of coverage by the National Health System (NHS) in the UK and private insurers.
    • Several promising but expensive treatments like gene and cell therapies are now accessible in the UK, driving up costs.
    • The main system-wide challenges right now are an overstretched, underfunded and inefficient NHS with long waiting times.
    • Employers are grappling with certain expensive treatment options that are inaccessible through the NHS. As a result, employees are turning to private schemes.
  • The Middle East and Africa
    • In the Middle East and Africa, the medical trend rate for 2024 is expected to be 15.1 percent, up from 14.5 percent in 2023. However, it is lower in the United Arab Emirates (UAE) at 10 percent and Saudi Arabia at 14.0 percent.
    • The top medical condition driving plan costs in the region is high blood pressure/hypertension.
    • The UAE government is requiring all private companies to provide employees' health insurance starting in 2025.4 Other countries in the region already require this, meaning high costs will be a greater burden and concern for employers.
  • Asia Pacific
    • While the medical trend rate at 9.7 percent in Asia Pacific remains the lowest, costs of medical care in the region have been on the rise, driven by increased consumption of healthcare services since COVID-19 restrictions were lifted and the rising cost of medical supplies, medication and labor shortages in some markets.
    • Many organizations enhanced their employee benefit offerings during the pandemic, taking advantage of lower-than-expected claims performance. Common enhancements focused on increased coverage for catastrophic conditions (e.g., cancer, kidney failure), mental health and maternity.
    • The World Health Organization and Global Cancer Observatory report that cancer rates in Asia Pacific make up 49 percent of the worldwide cancer burden. While fewer people are dying from cancer, more people are getting diagnosed with it, especially women and young people.5
    • To curb escalating treatment costs for major conditions, both local governments and private sponsors have increased investments in educational, preventive and screening programs in the last five years.
    • Some markets like Singapore, Hong Kong and Australia are also taking proactive steps in making medical care costs more transparent by publishing average and recommended professional fees for typical cases and introducing pre-approved, cost-effective drug lists.

35M

Global cancer cases are projected to rise 77 percent to more than 35 million in 2050, driven by an aging and growing population and more health risk factors.

Source: World Health Organization

The Risk of Doing Nothing

It is important to note that as different countries have different levels of risk, so may the consequences of inaction. Screening and interventions can vary due to differences in healthcare systems, cultural attitudes toward health and the prevalence of certain diseases.

While innovations in cancer treatments and gene and cell therapies give patients the potential for life-changing results, the high costs can be unsustainable for employers, employees, insurers and governments. Average healthcare costs are outpacing wage increases in most regions, creating affordability issues around the world.

Even in countries with government-funded healthcare, there remains a risk of not acting. For example, as some individuals report higher wait times to seek treatment and more restrictive coverage in the UK, the number of adults using private health insurance has increased from around 12 percent in 2019 to 22 percent at the end of 2022, according to Statistica Consumer Insights.

There are a number of things employers can do to help drive down some of these costs and improve employee health. For starters, the positive impacts of preventative and lifestyle changes can be very effective. Implementing a wellbeing strategy, cost containment measures and plan design changes are excellent mitigation strategies.

22%

Between 2019 and 2022, the share of UK adults with private health insurance rose from about 12 percent to 22 percent.

Source: Statistica Consumer Insights

Quote icon

Despite the lack of any legal obligation for employers in the UK to offer any cover, more companies are providing private medical. And for those who do offer this coverage, high claims are having a financial impact.

Rachel Western
Principal, Health Solutions, United Kingdom

Mitigation Strategies for Rising Healthcare Costs

The issue of high-cost claimants is multi-dimensional, with clear challenges that can’t be ignored:

  • Medical data can be complicated and difficult to analyze, making it challenging to find useful insights.
  • There are also strict regulations around how medical data can be used and shared, which can reduce the availability of data for analysis.
  • Future cost estimates and risk evaluations are uncertain and complex.
  • Stop loss carriers are raising premiums and creating exclusions and limits, requiring insured options for high-cost treatment.

However, there are numerous mitigation strategies that employers can implement now to stay ahead of these challenges.

  • Prevention and early detection are essential

    Many conditions will worsen the longer detection is delayed. For example, patients in high-income countries whose cancer is usually detected early have treatment that is two to four times less expensive than treatment for patients whose cancer is detected later, according to the World Health Organization.

  • Encourage on-site screenings and interventions

    Employers have a role to play in motivating employees to have regular medical exams. These should be paid for by insurance through their main doctor or free screening events hosted onsite by the company. For example, offering cancer and blood pressure screenings in the workplace is an effective way to determine who needs more help — with high blood pressure one of the main conditions for claims and a risk factor for other conditions. Employers can also encourage and help facilitate at-home screening kits and provide education around the process.

  • Use data to inform strategies

    Collect and analyze data to plan a good benefit program. Use health data from sources like screening, wellness programs and absence data to identify and address health risks among your employees. For example, Aon’s Health Risk Analyzer uses machine learning to help companies improve their care management and budget planning by more accurate forecasting, finding risk early and monitoring it regularly, and providing integrated wellbeing care. This helps companies prepare for risk, save money for healthcare costs and handle claims effectively.

  • Explore alternative funding options

    There are several additional risk controls that companies can use to mitigate the rising costs of healthcare, including stop loss, captives, hybrid financing approaches and redirecting investment into areas that pose high risk to employees. Setting up a health captive is a strategy used by about 17 percent of companies globally, according to Aon’s research. These measures can help companies manage their healthcare costs and mitigate the risks associated with rising medical trend rates.

45%

Increase in million-dollar healthcare claims in the U.S. from 2018 to 2022.

Source: Sun Life 2023 Stop Loss Trend Report

Quote icon

While not always possible, prevention is an important mitigation strategy that is often underutilized. Employers should create care management programs that encourage employees to undergo health screenings and follow healthier lifestyles.

Dr. Charles Smith
Chief Medical Officer, North America
Aon’s Thought Leaders
  • Dr. Avneet Kaur
    Head of Advisory and Specialty, Health Solutions, Europe, the Middle East and Africa
  • Meghan Rausch
    Vice President and Health Actuary, Health Solutions, North America
  • Dr. Charles Smith
    Chief Medical Officer, North America
  • Marina Sukhikh
    Senior Global Benefits Consultant, Health Solutions, Asia Pacific
  • Rachel Western
    Principal, Health Solutions, United Kingdom

1 Aon’s 2024 Global Medical Trend Rates Report
2 Corporate sustainability reporting - European Commission (europa.eu)
3 Cancer Statistics for the UK (cancerresearchuk.org)
4 Long-awaited nationwide health insurance mandate to come into force in January (thenationalnews.com)
5 Global cancer burden growing, amidst mounting need for services (who.int)

General Disclaimer

This material has been prepared for informational purposes only and should not be relied on for any other purpose. You should consult with your own professional advisors before implementing any recommendation or following the guidance provided herein. Further, the information provided, and the statements expressed are not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information and use sources that we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. All descriptions, summaries or highlights of coverage are for general informational purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy.

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