November 13, 2024 from Canadian HRReporter
Canadian employers should prepare for a significant rise in medical costs in 2025, according to Aon’s latest Global Medical Trend Rates Report. The projected medical trend rate—the percentage increase required to address price inflation, technological advancements, and plan utilization—is expected to climb from 5.0% in 2024 to 7.4% in 2025.
This spike reflects inflationary pressures, increased use of advanced medical technologies, and shifting utilization patterns, as well as cost-shifting from public programs to employer-sponsored plans.
Economic Slowdowns and Employer Decisions
While inflation is forecasted to stabilize, “continued economic slowdowns… will undoubtedly influence plan sponsor decisions,” noted Joey Raheb, senior vice president at Aon. Although Canadian employers haven’t significantly cut spending, many are reassessing their benefit plans to ensure efficiency, particularly in light of rising costs for medications and chronic health condition treatments.
Top Cost-Driving Medical Conditions
The report identifies several conditions contributing to the rising costs:
- Diabetes
- Autoimmune diseases
- Mental health issues
- Respiratory and lung disorders
- Cardiovascular and weight management challenges
Weight-loss drugs, such as GLP-1 medications, are forecasted to add 1.2% to Canada’s overall medical cost trend in 2025. Globally, obesity is now a top-five risk factor driving claims, a shift attributed to its growing prevalence in Canada, the U.S., and Latin America.
Balancing Rising Costs and Plan Flexibility
Rising costs present challenges not only for employers but also for employees. “Despite inflation projected to decrease in 2025, we expect health and wellbeing costs will continue to rise,” explained Kathryn Davis, vice president of global benefits at Aon. Flexible benefit plans have emerged as the leading cost mitigation strategy in Canada, with approximately 60% of countries adopting similar initiatives.
Preparing for 2025
As Canadian employers face increased budget pressures, proactive strategies such as flexible benefit plans and reassessing coverage options can help mitigate the impact of rising medical costs. Understanding these trends and adapting plans accordingly will be essential for managing affordability and ensuring employee well-being.
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