For any number of reasons, the costs of health insurance are on the rise. Soaring costs have myriad implications for employers and employees, who must pay the increasing premiums associated with health insurance. Those who understand these rising costs can take proactive steps to adjust to them and avoid the financial implications they bring. Employers who grasp the issues can take steps to ensure their businesses are able to handle those extra costs. This study examines the dynamics behind these rising costs and how they will affect employers and employees alike in For the second year in a row, employers and employees will see higher health insurance costs. The health insurance market has changed as a result of the costs that have risen during that two-year period. Employers have scaled back what they are willing to pay on premiums for employee insurance coverage to offset the incredibly high costs of health insurance. At the same time, the rising cost of health insurance takes a heavy toll on the budgets of more than million employees who need to pay for health insurance premiums. Both employers and employees must act to make sure they can handle the costs that have risen for health insurance next year.
Trends in Health Insurance Costs
Health insurance premiums and out-of-pocket costs continued to climb upward as of A closer look at data reveals that the costs of health insurance have been rising briskly over the past seven years, with year-over-year growth rates reaching as high as % in After averaging % from to , year-over-year growth rates slowed in largely due to regulatory changes, weighing in at %. Following intervention, growth rates have once again surged, reaching % in More importantly for executives and financial professionals in the C-suite, projections suggest that health insurance costs will continue to rise in future years, with growth rates approaching % in Consequently, bringing the resulting future costs into focus with statistical trends to encourage proper budgetary and investment decisions is of paramount importance for strategy development in and beyond.
Examining industry trends and demographic shifts is a requisite element for gaining insight into future projections. When taken in the larger scope of economic and industry trends, the data indicate robust historical growth. Nearly all segments experienced growth in health insurance costs from to , with a substantial majority experiencing increases in costs through At this juncture, taking a historical perspective into account can help contextualize the prevailing trends in health insurance costs. To speak to the specific findings in this year’s analysis, a majority of surveyed business managers anticipated “significant” and “moderate” increases in future treatment costs. A majority anticipated future increases in treatment costs as well, but to a lesser degree; that is, a majority anticipated only “modest” increases in treatment costs. This analysis uses data to project changes in both components of cost, based on expert opinion.
Factors Driving the Increase
Healthcare spending rose due to several reasons, one of which is the increase in healthcare utilization. The aging population also creates an increased demand for healthcare. As access to healthcare services continues to expand, per unit costs have risen due to new and advanced medical technology, especially for high-cost MRI and CT scans and cancer treatments. Prescription drug prices made up around % of total healthcare expenditures. In addition, drug prices are expected to continue to rise, especially with the demand for pharmaceutical products expected to increase. As a result, this will have an impact on the high cost for insurance consumers, which in turn will affect insurance premiums.
Non-medical costs can have an impact on the increasing trend. General administrative costs of private insurance companies have also tended to increase. The average general and administrative costs for fully insured products for a variety of different markets, including the large group, were whereas the small group was. Furthermore, the state taxes of any type and reserve requirements here tend to increase many employers’ premiums, which are paid by consumers to a significant percentage of an insurance premium. Insurance companies set premium rates based on a premium rating formula that incorporates the costs of medical services, as well as non-medical and non-administrative costs and profit. The premium is risk-adjusted based on factors such as age, location, and family size to estimate the expected insurance claims. This will form the basis for premium pricing by the insurer.
Comparison with Previous Years
Comparison to Previous Years, to Previous Trend Analysis The cost to provide benefits for employees, even when comparing only the premium share paid by employees, has increased by times the percentage increase in ’s Social Security cost-of-living adjustment (%). In , annual employees’ copay responsibility for a single total health plan premium was $ and $ for family coverage. Since then, the percent increase in the single annual premium paid by employees has ranged from % to %. The same range for family coverage was % to %. The increase in single coverage premiums paid has exceeded the combined gains in Social Security cost-of-living adjustments since The Social Security cost-of-living adjustment percentage over the last years has averaged %. Possible reasons for the steep annual premium cost increases can vary from year to year and plan to plan due to many factors, although there are some regular trends to be aware of. Most employers have witnessed a rise over several years in the prevalence of employees’ use of more health benefits. Reachable annual or lifetime limitations to many benefit plans have been replaced by more comprehensive benefit packages. Such a trend may have caused a rise in the percentage increase in spendable funds by employees to make use of those health benefits. Reduced benefits from private and government insurance mean that employees must rely more on employer-sponsored insurance. Higher insurance usage equals more claims, resulting in less profit for insurance companies. In turn, they must raise the price of the insurance premiums. These are just a few of the possible reasons for the increase in health care revenue. The main reason, however, is that the health care market is different from a retail market, especially when involving insurance. Agreements, prior years’ predictability, and risk assessments might lead to such incongruencies in rates. It’s a complex machine involving many moving parts coming in from all sides.
Impact on Employers
Significant Factors Impacting Costs: The pace and good fortune of vaccination development, authorization, and administration offset the economic damage and allowed employer profits to soar beyond figures and well beyond pre-ACA levels. Strong economic recovery in Q and Q caused concomitant recovery in claims and prescription costs, which easily shattered any prior annual norms for two straight years. Unfortunately, covered employee premiums and out-of-pocket costs did not shrink to match record-low annual insurance needs. Consequently, covered workers made record profits from premiums, employer contributions, and investment returns, along with subsidies and other private and governmental assistance in Employer profits also set records by more than doubling from $ to $ billion in , improving further to about $ billion in Over the last decade, employer profits have increased an astounding % from , the tail end of the great recession. However, the $ billion employers earned in was a shocking % increase from the $ billion earned in After a strong recovery in with increased profits from covered employee benefits, continued the positive trend as employer profits increased to over $ billion. Rising health insurance costs place a substantial financial burden on businesses, particularly smaller organizations. At best, employers struggle to maintain attractive health benefits while keeping overall compensation and expenses competitive. At worst, employers elect to lower the cost of coverage and annual premiums through plan changes such as benefit reductions and greater employee cost sharing. The majority of employers leverage covered employee benefits in their recruitment and retention strategy. This becomes especially critical when attracting top-level talent. Moreover, increased employee shares may need to be compensated by offering higher base salaries. Attract and retain top-level talent with a competitive benefits package. Particularly in light of the coronavirus pandemic, an attractive benefits package has made a direct, positive impact on employee satisfaction. A significant percentage of employees said they considered an employer’s benefits package before accepting a job. From a total benefits strategy perspective, benefits cost and compensation represent a balancing act. It is always critical for employers to design or redesign competitive, affordable benefits strategies that balance expenses with those of the workforce. These include the impact of employee retirement benefits, such as match and other health incentives, and the many new leave provisions recently introduced at the national and local level. Over the last several years, employee-paid cost-sharing for health care has been increasing more and more each year. This has caused major cost-sharing ‘sticker shock,’ when employees finally take advantage of their hard-earned and expensive health benefits.
Financial Implications
The current rising health insurance costs will mean increased premiums for employers and a greater percentage of premiums as applicable employees’ payroll deductions if the employers do not absorb the rate increases. A further repercussion would be that an increase in premium could conflict with the ability of the employer to remain profitable or increase the overall pay of the employees. As worldwide health care and prescription costs continue to rise, health insurance premiums continue to increase for the organizations that offer it. Therefore, the organizations must decide how much of the premium they can afford and how much of the premium will be passed on to the employee, as an increased premium percentage passed on to employees must also be approved by applicable law.
Employers define a substantial monetary commitment towards benefits. For example, health insurance may cost employers a major financial investment that will have to be considered at length prior to any pooling or budget allocation. Effectively predicting healthcare costs through claims history may help with budget projections but may not negate the significance of budgeting for economic costs such as catastrophic claims or long-term illnesses affecting employees. Employers will need to ensure optimal cost containment approaches, beneficial to proper functioning and speed of operation, and allow for financial sustainability. Each employer has individual factors that dictate their approach. Some companies may absorb the entirety of premium increases while others may charge employees the increased dollar amount or percentage in premiums. Explanations will need to be provided to support that financial sustainability is not affected, or in the case of a premium charge to employees that it is in accordance with the state code. Some examples may be provided on the varying approaches.
Strategies for Cost Management
In the quest to manage rising insurance costs, planning is key. This is too important to leave until the week before open enrollment is announced. Know where you are now. Know where you want to go. Know what is important to your workforce. Collect some demographics on who your group is. Where are the gaps in your benefit plan? How proactive or reactive do you want to be in adding and deleting? There are a variety of tactics that sponsors use to rein in the growing costs in health care. Adding a wellness program to have fewer claims is proactive. Adding a nurse line to take a few claims before you pay them is also proactive. Adding first dollar coverage for some preventive services is an approach that could keep people from having to get catastrophic types of care, a proactive approach. And, if you are willing to remove some people from your plan, you could build some discounts should you have a higher deductible in your plan. You can also eliminate some discretionary services too. Preventive care coverage is important right now.
Put another way, if health plans are allowed to drive around the block for whatever they want to purchase in the marketplace, they will effectively get out from under the cost management program. In addition to the generic cost-cutting chores, some of you will avoid the market-based discount programs, preferring instead to negotiate coverage and benefits directly with providers. This may need special contracting expertise or legal assistance to help you draft such agreements. Over time, it has shown that employers who act according to the above strategy ultimately realize that by controlling the cost of care, the cost of insurance takes care of itself. But they have to keep an eye and some input on the insurance product as well in order to prevent renewed inefficiency from creeping into it. It’s now time to sit down and visit with employees to let them know where they stand and what is really going on in the health care market. Total benefit costs as a percentage of payroll are expected to remain stable. Anyone who wants planned changes will need to understand why they are not getting them. They will need to be able to translate the underlying trends into real events that have affected them and possibly their plan. If, however, you have managed to flush out costs by implementing good cost management, it might be time to test the market. Give the broker prepared employee survey questions for the rates that your current insurance won’t offer. Be candid with those community services who may want to bid on the business. Do not engage these services in what appears to be a formal process or you may be exposing your current partner to future lawsuits. Rather, it is more like getting current certified prices on your home in the event you decide to sell to purchase a larger one once the rates appear. This means that providers and pharmacies must come clean on the total costs associated with a narrow-focused product, not just the single-minded product’s cost. Experts can measure costs in terms of spending power and effectiveness adjusted for inflation.
Impact on Employees
Premiums and deductibles for employer-sponsored health insurance have been increasing faster than overall inflation for many years. Higher health insurance costs can pose major challenges for people with chronic conditions, as well as low-income employees. Employees who do not have a lot of extra money in their regular budgets may not be able to afford all the services they need while also making rent, keeping up with car payments, and taking care of family needs. Many employees rely on their employers’ help in deciding what benefits to select because they trust their employer’s knowledge of the benefit options. Employers can help by giving a clear explanation of what each benefit covers and the amount the employee would have to pay when they use the benefit. Employers can also provide health care advocacy services to help employees with a complex health issue use their insurance and save money.
Health care is an intensely personal and emotional issue. Employees may experience personal hardship as they try to pay for the care they need, and the worry and concern over paying medical bills may create layers of difficulty in the employee’s life. Even mid-level income employees may face financial anxiety and relationship strain as they figure out how they will make the requisite contribution to pay for treatment. The challenge of navigating these concerns takes time and mental resources away from the employee’s contributions at work. High health care costs that squeeze a family budget may create a stronger desire to advocate for a pay increase. Thus, the issues of employee cost management and finance management can be closely tied with deep issues of employee satisfaction and life balance. Many employees experience significant communication barriers when trying to understand and navigate their health insurance benefits. All these communication considerations are much more difficult and important in a benefits marketplace characterized by rising costs.
Affordability Concerns
As healthcare costs continue to rise, employees at all income levels are finding it difficult to afford the care they need. In , % of all employees with employer-sponsored health plans reported having to cut back on contributions to savings and retirement accounts or reduce the amount of money they put aside for their children’s education in order to help pay for their healthcare premiums and out-of-pocket costs. In , % of all employees with employer-sponsored health plans reported experiencing financial difficulty and/or being unable to afford to pay their healthcare deductibles – up from % in And in , % of all employees with employer-sponsored health plans reported the need to delay care and % of all employees with employer-sponsored health plans reported being unable to adhere to their treatment plans, including taking medications as prescribed, due to the high cost of care.
Factors Worsening Affordability Concerns. Employees now contribute an average of $, toward their annual premiums – up % in the last years. High deductibles and out-of-pocket expenses are of particular concern for employees. The average deductible for employees with a single coverage employer-sponsored PPO plan is $, and the average maximum out-of-pocket allowed for a single employee is $,But a substantial number of employees have even higher out-of-pocket maximums. While % of companies with , or more employees have a $, or higher out-of-pocket maximum for their PPO employees, % of companies have a combined in-and-out-of-network deductible and copay maximum of $, for employees with employer-sponsored single coverage in that same plan. Employees report that high deductibles and out-of-pocket expenses limit their abilities to obtain care when they need it.
Coverage Options
Part III: Covered Subpopulations
Coverage Options
Employers know that no two families are alike, and the same applies to healthcare needs. Therefore, employers often offer multiple options for coverage, including a low-cost option, a standard network option, and a high-cost option with potentially higher premiums but lower cost-sharing.
Employees should carefully consider which coverage option is best for them and potentially their family based on who in-network is providing their care, what services are available, what benefit services and cost-sharing are included in the benefits, and what the associated costs are for those benefits. When choosing an option, it is vital for the healthcare consumer to understand the size of the provider network and the differences in provider availability and costs between the network options. Employers often tell employees to ensure their provider is in-network to realize the cost savings and to ask the provider for the cost of service. Additional communication with the provider can help offer alternative cost-effective options.
Employer health plan document enrollment materials will often post employee share of dependency amounts reflecting employer benefit premium contributions; the premium is a part of the total cost not reflecting employer contributions. Make sure to review the plan options and that the employer is offering a solution that meets the needs of themselves and their dependents. Employers often ask their employees to actively participate in health plan enrollment, even if they wish to waive coverage. Your input on coverage choice is often requested to ensure an offering that meets the collective needs of the workforce. It is also important to review the private market offerings, as an employer-offered plan is not the only coverage solution.
Regulatory Changes and Future Outlook
In , lawmakers passed a number of provisions related to health care that could impact the availability and cost of coverage: – Ending the Enhanced Unemployment Compensation Program – End of Multinational Pooling Fee – Other Legislative Developments Regulatory changes and new laws also have an impact on employer-sponsored health insurance. Knowing where the health insurance market may be headed can help employers as they develop their benefits strategy in the coming months. Health reform continued to be a topic of interest in with a number of health reform bills being introduced – some of which could have an effect on employer-sponsored insurance. With opposition controlling the majority in both the House and Senate and a Democratic president until January , meaningful reform wasn’t anticipated on the part of many stakeholders. Health Savings Accounts and the use of fees were brought to the spotlight in some bills. Health insurance is a highly regulated industry. Federal laws come into play when you have more than employees. Currently, several states require coverage of specific benefits and/or have limits on cost sharing beyond the limits under the federal laws. It’s important to stay informed of legal changes, administrative interpretations, and judicial judgments to know where the health insurance market may be headed, and to adapt your benefits strategy (as well as your communication strategy) accordingly while maintaining compliance. Many of the issues impacting the increased cost of health insurance are a major focus of health reform; as more clarity is brought to these changes, employers will likely adjust their benefits programs accordingly.
