Employers can expect higher healthcare costs in 2024
It’s looking like healthcare costs will skyrocket in the employer market in 2023. But what exactly does this mean for you as an employer? To put it simply, premiums could increase much more than usual. Consequently, employers will have to decide whether they’ll spend even more on their employees’ healthcare. But with the ongoing ‘Great Resignation’ and battle to attract and retain top talent, the decision won’t come easy for most.
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In this Pacific Prime article, we look at the potential increase in healthcare costs in 2023 and what employers have to say about it.
What’s the latest?
A recent Willis Towers Watson survey revealed that “71% of employers expect moderate to significant increases in healthcare benefits over the next three years”. To address growing costs, 52% said they plan to use vendors or programs that would lower total spending. 24% plan to shift costs onto employees, resulting in higher premium contributions from the workforce.
Similarly, 14% will rely on out-of-pocket expenses. However, considering the current labor climate, employees may have something to say about premium increases. Earlier this month, New Jersey employees rallied to delay healthcare premium increases of over 20% for 2023.
Preliminary results from a Mercer survey suggest that the average health benefit cost per employee in the US is expected to increase by 5.6% in 2023. That is if they take extra measures to lower expenses. If they don’t, an average 7% increase is likely.
To answer questions like “Why are healthcare costs rising?” and get actionable steps as an employer, download your free copy of our Cost of International Health Insurance Report 2021-2022.
Why health costs have yet to increase with inflation
Health costs don’t necessarily rise along with general inflation for several reasons – one of them being pricing contracts. Since payers have these contracts with healthcare providers, the underlying inflation costs don’t affect premiums right away. Additionally, multi-year contracts are also common, and rate increases may happen over a few years instead of from one year to the next.
It’s no secret that hospital groups have had to deal with rising costs in recent years. According to a recent Wall Street Journal report, some hospitals are considering increasing prices up to 15% to combat rising nurse salaries. Understandably, challenges such as these may carry weight in negotiations with insurance providers. With hospital system price increases looming, it’s only natural for premiums for employee healthcare benefits to go up as well.
Even though large employers are likely to understand their costs for next year, many smaller employers (who are fully insured) haven’t received renewal rates from their insurers – which could come in higher as insurers play it safe in the unpredictable healthcare market.
Which benefit strategies are employers focusing on?
Mercer’s survey asked employers to rank benefit strategies in order of importance for the next 3 to 5 years. Unsurprisingly, “enhancing benefits to improve attraction and retention” was the priority for most. 84% of large employers (those with at least 500 employees) rated it as either important or very important. “Monitoring and managing high-cost claimants” moved from first to second place this year.
Another benefit area that employers are focusing on is behavioral health. 74% of large respondents say that they will prioritize enhancing access to behavioral healthcare over the next few years. Expanding employee assistance programs (EAPs) and offering virtual behavioral healthcare are some ways that employers can do so.
Healthcare affordability remains a concern
Even though costs keep going up, the majority of Mercer’s survey respondents said they won’t shift healthcare costs to employees (e.g. increasing deductibles/copays). Just 36% are adopting cost-saving measures in 2023 – a 4% decrease from 2022 (40%) and a 9% decrease from 2021 (47%).
What’s more, employers generally don’t want to extend employees’ share of the cost of coverage next year. On average, employees will have to contribute 22% of the total health plan premium costs in 2023. These costs will be deducted from their paycheck like the years before. Tracy Watts, National Leader of U.S. Health Policy at Mercer, said,
“Healthcare affordability is a real issue for many employees, especially with inflation stressing household budgets. Employers want to do what they can to keep more money in employees’ paychecks and remove cost barriers when care is needed.”
Enhance your employee benefits with Pacific Prime
With rising inflation and talent shortages, employers face their fair share of challenges. It’s imperative to manage increasing healthcare costs while, at the same time, making smart choices regarding attracting and retaining employees. Most employers are focusing their efforts on offering attractive benefits.
As a global employee benefits specialist and health insurance broker with over 20 years of industry experience, we know how important a robust employee benefits plan is – and what it takes to design one. By assessing the needs of your workforce and offering benefits that they will not only appreciate but also use, you can stay ahead of the competition and keep top talent happy and on your payroll.
Whether you want to enhance your offerings or start from scratch, look no further than Pacific Prime. We help businesses of all sizes and industries find, secure, and manage holistic employee benefits solutions and corporate health insurance. Contact us to find out how we can address your workforce’s unique needs today.
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