Australia's medical plan costs projected to increase by 4.9% in 2027

Projected medical plan costs in Australia have slightly moderated in 2027 but will continue to outpace inflation, according to the latest forecast from Aon, leaving employers with the challenge of balancing affordability and providing access to healthcare.

Aon's 2027 Global Medical Trend Rates Report forecasts that medical plan costs in Australia will increase by 4.9% in 2027, down slightly from the projected 5.2% increase in 2026.

Despite the decline, healthcare costs are expected to continue outpacing the annual general inflation rate of 3.2%, according to the report.

"While the projected rate of increase has moderated slightly, employers still face difficult decisions around balancing costs with access to quality care," said Stuart Whitbread, Director, Health and Benefits, Australia, Aon.

Australia's projected medical trend rate also remains below the 9.7% average for the Asia-Pacific region, as well as the 9.0% global average.

The report said the key driver of healthcare costs globally is chronic health conditions, with cardiovascular disease being the leading healthcare cost driver worldwide.

In Australia, cancer has emerged as a significant contributor to medical plan costs.

"Cancer continues to drive healthcare costs not only because of its prevalence, but also because of advances in treatment and growing demand for specialist care. While these developments are positive for patient outcomes, they are also increasing the cost of care for employers and insurers," Whitbread said.

The challenge for employers

The elevated healthcare costs in Australia and across the world leave employers with the challenge of balancing cost management and employees' expectations around quality healthcare.

Whitbread said organisations that take a "long-term approach" to workforce health will be better positioned to manage costs while supporting employee wellbeing and productivity.

"A long-term approach to workforce health means moving from reactive support to an evidence-based workforce strategy," Whitbread told HRD Australia.

"Rather than responding only when medical costs rise, claims increase or wellbeing concerns emerge, employers use workforce data to identify risks, understand root causes, and invest in prevention over time."

In practice, Whitbread said this means leading employers:

• Use claims, health, benefits, and employee feedback data to understand the key drivers of workforce risk and healthcare costs.
• Develop a multi-year wellbeing and workforce health road map aligned to business objectives, rather than running isolated annual initiatives.
• Focus on prevention and early intervention for common workforce challenges, such as mental health, musculoskeletal conditions, chronic disease, fatigue, and workplace injury.
• Embed health and wellbeing into leadership practices, workforce planning, culture, and employee experience, recognising that sustainable behaviour change requires action at the individual, team and organisational level.
• Measure outcomes over time and use evidence to refine future investment, linking workforce health initiatives to productivity, workforce resilience, employee experience and cost management.

Practical starting point for employers

For employers who are just starting to address rising medical plan costs, Whitbread suggested understanding what is driving the costs.

"Employers should resist the urge to jump straight to cost-cutting measures and instead analyse claims data, utilisation patterns and workforce health risks," he said.

Many organisations find that rising medical costs are a symptom of broader workforce challenges, according to Whitbread. These include mental health concerns, chronic disease, musculoskeletal conditions, fatigue, and workplace injury.

"The most effective approach is to identify the biggest drivers of claims, target interventions where they will have the greatest impact, and measure results over time," he said.

He also advised employers to engage with insurers and wellbeing providers so they can make full use of the support and preventative programmes that are already available.

"Ultimately, organisations that focus on workforce health, rather than simply reducing costs, are more likely to achieve better long-term outcomes for both employees and the business," he said.