Employers continue to struggle with rising healthcare costs and providing employees with affordable and quality care options. Unfortunately, employers expect healthcare costs to increase significantly in 2024, according to several industry surveys and reports. These findings revealed that employers anticipate healthcare costs to grow between 6.5% and 8.5% in 2024, the largest increase in more than a decade. As a result, employer-sponsored healthcare plans may cost more than $15,000 per employee.
For the most part, employers have avoided shifting increasing healthcare costs onto employees due to the tight labor market and ongoing attraction and retention challenges. Despite employers’ reluctance to shift the burden of rising costs onto employees, workers will likely pay more for healthcare as overall medical expenses increase. Health insurance costs are already among the biggest expenses for American families; therefore, employees will likely feel increasingly stressed and burdened financially as they are forced to pay more for care. As such, employers have an opportunity to support their workers by helping them navigate rising costs.
This article provides guidance to help employers discuss increasing healthcare costs with their workers and aid employees in mitigating these expenses.
Why Are Healthcare Costs Rising?
Healthcare costs have increased relatively slowly over the last few years, in part due to decreased utilization during the COVID-19 pandemic and because insurer contracts typically are not renegotiated annually. However, several market conditions have recently led to steep increases in healthcare costs. For example, healthcare utilization has rebounded, resulting in medical plan costs returning to pre-pandemic levels. Utilization has especially increased for catastrophic claims and among individuals with chronic health conditions.
Inflation is also causing healthcare costs to rise. Hospitals and medical providers are increasing prices to address rising employee wages and supply costs. Additionally, consolidation among hospitals, physician practices and commercial insurers has resulted in higher healthcare prices for insurers.
Other reasons why healthcare costs are expected to increase in 2024 include the following:
- Specialty and costly prescription drugs, especially the high demand for diabetes and obesity drugs Cell and gene therapies
- Technological advancements Workforce shortages
These market conditions started affecting insurance rates and contracts in 2023, and their impact is only expected to grow in 2024. As a result, increases in health plan expenses are expected to impact all employers, regardless of size and whether they are fully or self-insured.
How Employers Are Responding to Rising Costs
While some employers may pass increasing healthcare costs onto their employees, many employers are expected to absorb most of the higher costs to remain attractive to top talent and retain their workforce. Instead, these employers are expected to embrace cost control initiatives, such as requiring prior authorization, utilizing disease management and adding nurse advice lines. Other strategies employers will likely implement to manage rising healthcare costs include wellness programs; plan design initiatives (e.g., offering high deductible health plans, requiring spousal surcharges or carve-outs and conducting dependent eligibility audits); and offering telemedicine, price transparency tools and centers for excellence.
Helping Employees Navigate Rising Healthcare Costs
Even though most employers will not pass rising healthcare costs onto employees, how employers communicate changes and information related to increasing medical costs is critical. It presents employers with an opportunity to build trust, strengthen employee loyalty and reduce the risk of turnover. Employers should consider the following strategies for communicating with employees about rising healthcare costs.
Communicate Changes to Employees
As organizations make changes to their health insurance plans and offerings to address increasing medical costs in 2024 and beyond, it’s important to clearly communicate those changes to employees. Failing to do so may result in employees paying for expensive and, in some cases, unnecessary care. This may include employees going needlessly out of network to receive care, resulting in increased medical costs. With this in mind, effective employee communication can help employers with implementing cost control measures.
Educate Employees About healthcare Costs
Employers can educate employees on the current state of the health insurance industry and how to effectively use their health plans to avoid unnecessary or high-cost care. By focusing on educating employees about any changes and rising costs, organizations can enhance the overall effectiveness of their communication methods and increase the likelihood that employees will accept them. Employers can also give employees a breakdown of total healthcare premiums and the portions paid by each party to help workers understand how medical costs impact a company’s bottom line as well as the total value of the benefits provided to employees. Additionally, employers can provide tools to help employees make the most cost-effective healthcare decisions.
Employer Takeaway
Helping employees navigate rising healthcare costs is an ongoing process, but it’s essential that workers feel properly informed about medical expenses, benefits options and mitigation strategies. Establishing strategies to communicate important information regarding increasing healthcare costs and benefits changes is vital to the health and well-being of an organization’s workforce. As healthcare costs will likely increase for the foreseeable future, employers who act now to address workers’ concerns regarding rising healthcare costs and provide actionable solutions can improve employee retention, increase productivity, strengthen staff morale and gain a leg up on their competition.
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This Benefits Insights is not intended to be exhaustive nor should any discussion or opinions be construed as professional advice. © 2023 Zywave, Inc. All rights reserved.