'In a tight labor market, plan sponsors are hesitant to shift significant cost to plan participants'
The average U.S. employer health care costs is projected to increase by 8.5% to more than $15,000 per employee in 2024, according to a recent report from Aon.
That number is nearly double the 4.5% increase to health care budgets that employers experienced from 2022 to 2023, to $13,906 per employee in 2023.
Plan costs represent the employer's and employee's combined premiums for medical and prescription drug costs but exclude employee out-of-pocket payments such as deductibles, co-pays and co-insurance. On average, employers subsidize about 81% of the plan cost, while employees pay the remainder.
And this is hurting employers.
"We see employers continuing to absorb most of the health care cost increases," said Farheen Dam, North American Health Solutions leader at Aon. "In a tight labor market, plan sponsors are hesitant to shift significant cost to plan participants and make benefits less affordable."
A previous survey of corporate employers on employee health care costs in the US conducted by the International Foundation of Employee Benefit Plans (IFEBP) predicted a median cost increase of 7% for 2024.
Factors affecting increase in health care costs
Numerous factors affect the projected increase in health care costs, according to Aon’s survey of more than 800 U.S. employers representing approximately 5.6 million employees.
"While economy-wide inflation spiked during the past two years, employer-sponsored health care costs did not see dramatic increases during the same time period due to the multi-year nature of typical medical provider contracts," said Debbie Ashford, the North America chief actuary for Health Solutions at Aon.
"Even though inflation is subsiding, health care trend is growing as medical providers push insurers for larger cost increases to cover the higher costs of wages and supplies that they endured during the last couple years but were unable to pass on to payers."
The “proliferation” of newly indicated weight loss drugs, new technologies, severity of catastrophic claims and increasing share of specialty drugs, also affect the increase, said Ashford.
There has also been an increase in high-cost claimants, said Dam.
"This growth is caused by several factors, including new high-cost injectable drugs, increasing cancer rates and longer hospital stays resulting from multiple conditions, complications and complex procedures. On the other hand, reinsurance premiums are climbing, making it harder for employers to hedge the elevated claim risk."
Health insurers previously reported a weighted average prescription drug trend of 9.3%, according to Buck’s survey of close to 100 insurers and/or administrators in December 2022.
Tips for reducing health care costs
Here are some ways employers can reduce health care costs, according to payroll and HR solutions provider Paychex:
- Shift to plans with higher deductibles and health savings accounts (HSAs).
- Improve employee education about healthcare.
- Encourage workers to use telehealth.
- Provide workers with wellness programs.
- Prioritize work/life balance for workers.
- Offer healthcare assistance programs.
- Consider changing current deductibles or employee co-pays. “For employees who rarely visit the doctor outside of preventative screenings, paying more per visit may be preferable to an increased healthcare premium amount subtracted from their bi-weekly paycheck,” said Paychex.