On Aon Podcast: The Future of Healthcare: Key Factors Impacting Medical Trend Rates

On Aon Podcast: The Future of Healthcare: Key Factors Impacting Medical Trend Rates
December 18, 2024 13 mins

On Aon Podcast: The Future of Healthcare: Key Factors Impacting Medical Trend Rates

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Aon experts discuss the best strategies companies can explore to help mitigate rising medical costs.

Key Takeaways
  1. In this episode, Aon experts identify the trends in weight management drug costs.
  2. Aon’s experts share proactive healthcare cost management strategies.
  3. Episode 82 is an in-depth overview of the report findings.

Intro:
Hi everyone, and welcome to the award-winning “On Aon” podcast, where we dive into some of the most pressing topics that businesses and organizations around the world are facing. Today, we hear from Kathryn Davis for a closer look at Aon’s 2025 Global Medical Trend Rates Report. Now, please welcome this episode’s host, Celine Ng Tong.

Celine Ng Tong:
Hello everyone. My name is Celine Ng Tong and I'm a global benefits consultant at Aon. In today's On Aon episode, we're discussing the recently published Global Medical Trend Rates Report. The headline of that report is that the 2025 medical rate is at 10 percent, which is almost identical to 2024. So with me today to discuss is Kathryn Davis, data and analytics leader for global benefits. Thank you for being here today, Kathryn.

Kathryn Davis:
Thanks, Celine. I'm looking forward to the conversation.

Celine Ng Tong:
Me too. In our discussion today, we're going to walk through this year's result, talk a little bit about what is driving costs and how companies can mitigate these rising costs. So, let's get started. So, my first question for you, Kathryn, is I know you've been doing this survey for a few years now, so from this year's results, what surprised you the most or what stood out to you the most?

Kathryn Davis:
I would say I was pleasantly surprised to see that the overall global medical trend increase is actually lower than last year. So, it is 10 percent, but last year it was 10.1 percent, so we've got a whole 0.1 percent lower. So pleasantly surprised on that. That's the first time actually since 2021 that the trend rate has been projected to be lower than the previous year. So that's why it was a surprise to me. We've seen bigger increases year over year for many years now, and it seems like we might be turning a corner now. So interested to see as we look into 2026 if that holds with inflation cooling as well. But that I think was a pleasant surprise to me.

Celine Ng Tong:
A 0.1 percent decrease.

Kathryn Davis:
It's better than nothing, it's better than nothing.

Celine Ng Tong:
Did you have any regional observations that stood out to you?

Kathryn Davis:
Yeah, so on a region to region basis, I'll actually kind of turn that on its head. It was a bit interesting to me how much doesn't change year over year. So I went back over the past 10 years to look at the conditions that were driving the cost, cost increases, what companies are doing when we think about mitigation initiatives, some of the risk factors, all of the more kind of qualitative things that we ask in the survey and what the different countries and regions are seeing in that space.

Maybe unsurprisingly to some, but interesting to me was that, for example, when we look at the top two conditions driving medical claims, I looked all the way back to 2015 and they were exactly the same as they are this year. Global and regionally, there's very little movement in what's actually driving the claims. So again, maybe unsurprising to some, but I think an interesting data point that we keep seeing these increases. So much is changing in the world of health and the world of benefits, but what employees are still struggling with their health, what is still driving these costs hasn't changed in 10 years.

Celine Ng Tong:
Yeah. I guess to your point around kind of new innovation in the medical world, a really hot topic right now for a lot of our clients is the impact of high cost drugs, high cost cancer drugs, or even the newer GLP-1 or the weight management drugs. So that's a very hot topic for our clients and they're trying to understand the impact on their medical costs. Are you starting to see that impact around the world and have you seen it in the trend's numbers that have come out?

Kathryn Davis:
Yeah, so we're definitely starting to see that. If you had asked me blindly going in where I would've expected it, I would've told you the U.S. and we definitely saw it there, unsurprisingly, but we actually saw it in other parts of North America as well. So it was reported in Canada and Puerto Rico, those GLP-1 one drugs really driving the cost, but also as far away as the Middle East and starting to see this crop up in countries such as the UAE. That one definitely stood out to me. Then as you mentioned, that's the GLP-1s, but there's also the advanced drug therapies for other conditions such as cancer starting to see those emerge as well, a little bit in the UK and in some other places as well. So it will be interesting to see how that develops.

When I was thinking through this, an interesting thought question that I'll just pose to this, and I don't know that I have the answer, but we're very focused on how those drugs are driving the short-term costs, the cost of those, how that's impacting next year's cost. But what I don't know if we know the answer to yet or have enough details to quantify, but what's the longer term impact of this? Is this going to pay dividends in the future? Could this help lower claims in three years, five years? When we think about some of these GLP-1s, are these short-term increases in drug costs going to lead to claims savings or lower claims in the future because people's weight is managed, they are healthier?

So again, I don't know that we know the answer to that, but I think that longer term piece is often an overlooked piece of this puzzle because people are so focused on managing costs in the short term that it could be that you're almost investing in the future of your employee's health with some of these drugs and it might pay off in the future, or I could be totally wrong and it could go the opposite way, but.

Celine Ng Tong:
I was going to say, or it could go completely the other way, right? So I think what we don't know is for people who might be on some of these weight management or GLP-1 drugs more in the shorter term, once they go off of it, does that worsen health conditions? So I think neither you or I have a crystal ball, so I think we'll be interesting to see which way it goes, because honestly, it could be either.

Kathryn Davis:
Absolutely.

Celine Ng Tong:
Almost 10 percent around the world. Probably not a huge surprise for most of our listeners. But I guess the question is, if you had top three recommendations for multinationals who are trying to be very proactive and manage their long-term healthcare costs, what would those top three recommendations or top three tips be?

Kathryn Davis:
Yeah. This is more of a long-winded answer, so bear with me and I'll pause as we go through these. So I welcome your thoughts on this. But I'm going to start a bit broad here and then drill down. So I think the first thing, and I might be a bit biased on this given my role, but my first recommendation would be to start and end with data when we're looking at this. So what I mean by that is I would encourage clients to explore what claims and health data that they can get their hands on, be it from their brokers, borough if they have a captive, their network providers, whatever it may be, and then really start to drill down into that and explore what the data is telling you to identify what specifically is driving healthcare claims costs.

Then with this data, clients can be better informed on what interventions and mitigation techniques that they should consider implementing and can target specific problem areas. Then once they've done that initial kind of starting with data, also ending with the data. So, coming back to it. It's not a one-time exercise. Measuring it, monitoring it year over year or whatever the cadence might be to see how claims are changing in response to any mitigation techniques. I'll come onto that separately. But from a strategic broad point of view, I think the data is really key here when you're talking about managing the costs.

Celine Ng Tong:
I knew it would be one of your top three tips. I'm glad that you kicked off with that. What else?

Kathryn Davis:
So, I think my second recommendation, especially for multinationals, would be to operate on what I always call the 80 percent rule. So again, what I mean by that is multinational clients can often get stuck trying to do things everywhere all at once and tackling the entire world, which can be very difficult when we're thinking about the scale at which multinational companies often operate - 30 plus countries - and it can be very daunting. Celine, I know you and I have stories of clients wanting to do everything everywhere in some very unique niche markets where capabilities may not exist anywhere - let alone at the level that they want.

So, encouraging clients that they look at their footprint next to the medical trend rate in each country within the report and then use that and do a prioritization exercise about where they should focus. So, for example, the UK might be a natural one because of the 17 percent increase that we're seeing, and that's often a large market when we think about multinational companies having a significant presence there. But there are other countries where head counts might be smaller, medical increases are lower, and or employer sponsored medical benefits just aren't very robust or common in the market, and therefore they might not need as much attention from clients when we're talking about managing costs.

So just doing that focusing of efforts at the beginning to identify where the needle can be moved I think is really important. Then applying that focus, because I think it's better to do something in the big countries in depth than do light touch something everywhere when you're talking about moving the needle on managing medical costs.

Celine Ng Tong:
So, prioritizing and also phasing, right? So, to your point, focus on the 80 percent, start with potentially the higher impact market, and then back to your point around data, it's cyclical, right? So also, I think it's prioritizing and phasing. Then your third tip?

Kathryn Davis:
Yeah. So now getting tactical, and I think this is probably maybe what listeners want the most and where you were getting at, but I absolutely don't think that there's a wrong answer when it comes to mitigation techniques and what clients can do. I think it is really dependent on what they need in the data and with that prioritization that we talked about. But a couple of things, we've definitely seen a rise in companies interested in looking at the feasibility of alternative financing arrangements, so pooling's, captives and all of that. So would encourage any clients who haven't looked at that. There are a few different options in that space. So even if a captive isn't a possibility, there's a few other ways to use some creative financing arrangements to possibly look and get some cost savings.

So that might be one to think about. I also just personally think that effective well-being programs are an excellent option because not only do they keep employees healthier and perhaps save medical costs, that way you're being proactive with your health. And employees are better managing their sleep, their food, their exercise - whatever it is - but also their stress if we're talking about mental well-being, planning for their future with financial well-being. All of that stuff.

But I do think that those programs also serve to keep employees engaged and help them feel more connected not only to their health, but also to their benefits package and their employer as a whole. These programs are often a kind of social programs. You do a competition, or we all have the same well-being app. It makes you feel part of a community I think and helps with that employee engagement. So, I think that those programs are a small but important part of the overall benefits package for employees.

Celine Ng Tong:
So, if I had to summarize your top three tips, so start and end with data. Prioritize, so prioritize so that you can have the biggest impact and that you can also use your effort and your resources really efficiently. Then three, based on that, kind of get creative with tactics and don't ignore well-being because it will have a longer-term impact. So, thank you so much for joining us today, Kathryn. That was really fun.

Kathryn Davis:
Yeah, and thank you Celine for hosting.

Celine Ng Tong:
So that's our show today. Thank you everyone for listening. In the next few months, we'll have episodes on workforce resilience, risk transfer, and much more, so hopefully you tune in. Until next time.

Outro:
Thanks for tuning in to the latest episode of “On Aon” with our episode host, Celine Ng Tong and today’s expert, Kathryn Davis, for a discussion on Aon’s 2025 Global Medical Trend Rates Report. If you enjoyed this episode, don’t forget to subscribe wherever you get your podcasts, and stay tuned for our next conversation featuring industry experts bringing you the latest on topics, including climate risk, workforce wellbeing, ESG trends, and much more. Be sure to check out our show notes and visit our website at Aon dot com to learn more about Aon.


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