Inflation is at an all-time high, producing the largest year-over-year inflation rates since 1981, according to the U.S. Bureau of Labor Statistics. Going into 2023, many employers are taking a hard look into their expenses as some businesses struggle to adjust. This may mean trimming employee benefits programs to save on business expenses.
Referred to as the “Great Resignation,” this ongoing economic trend in which employees voluntarily resigned from their jobs en masse began in the wake of the COVID-19 pandemic and continues to affect the healthcare industry. Inflationary pressures in the US have the potential to significantly raise annual employer healthcare costs and threaten employee benefits programs.
According to McKinsey, healthcare costs are estimated to be $370 billion higher in 2027 compared to pre-COVID projections. Many providers are already feeling the pinch of inflation but its effect on employers and consumers will not likely be felt significantly until the 2024 to 2026 insurance-contract renewal cycle. Without immediate change, the most vulnerable employees could end up spending a large majority of their discretionary income on essential medical expenses.
One of the best ways that employers can better respond to this healthcare cost inflation is by restructuring their benefits. The team of experienced benefits consultants at New City Insurance can help employers maximize their employee benefits cost savings both in the immediate and long term.
Healthcare Costs Are Projected to Increase Dramatically
Many businesses continue to struggle with rising healthcare costs and these increases are not expected to stop anytime soon. According to a Willis Towers Watson survey, healthcare costs are expected to rise by six percent in 2023 after seeing a five percent increase in 2022. The survey also revealed that 54 percent of respondents who employ approximately 8.2 million people reported that their healthcare costs will go over budget in the coming year.
With no end in sight to these sharp healthcare cost increases, it is important to understand what is creating these spikes in medical expenses. The blame can be put on a variety of factors, such as a US population that is growing more unhealthy, medical providers that are paid for quantity rather than quality, and the release of new and improved technology. There is also a general lack of information about healthcare and its costs, and providers are well-positioned to demand higher prices due to increased provider consolidation which resulted in a decrease in market competition.
Inflation Has Ravaged the Healthcare Market and Providers Are Passing Costs to Payers
Healthcare payers are likely to feel the brunt of rising inflation-induced healthcare increases, as well as associated administrative and general expenses. According to McKinsey, providers could potentially pass on more than six percent incremental healthcare increases to payers in the upcoming contractual cycles. When underlying provider network contracts are renegotiated, these cost increases could impact employers and ultimately their employees.
Some employers may experience even higher medical costs depending on the type of plans they include in their employee benefits programs. McKinsey suggests that employers that offer high-deductible health plans (HDHP) could see a rate increase of 1.4 to 1.8 times higher than normal due to deductible leveraging. High-deductible health plans represent approximately one-third of all commercial group enrollment plans.
While efforts have been made to help curb healthcare costs, such as the implementation of the Inflation Reduction Act of 2022, only enrollees in the individual market are likely to feel the effects. Employer-sponsored healthcare plans are often more vulnerable to cost shifts or the so-called “balloon effect.” However, if employers and their plans are able to gain more leverage, they may be able to exercise greater control in their negotiations.
Vulnerable Populations Are Most at Risk From Increased Healthcare Costs
The high cost of healthcare has remained a burden on American families as a whole; however, more vulnerable populations are most at risk from increased costs. According to McKinsey, lower-income populations could spend between 68 and 75 percent of their discretionary income on healthcare expenses due to unmanaged cost increases.
Older adults also struggle with the growing cost of healthcare in the country. Many adults ages 65 or older report having difficulty paying for various healthcare services, especially when these services are not covered by Medicare, such as dental and hearing services, as well as some prescription drugs.
The rising cost of prescription drugs has prevented many vulnerable populations from having the medicines they need. Others resort to cutting their pills in half to make them last longer or skipping doses altogether.
Half of US Adults Can’t Afford Healthcare Costs
Growing healthcare costs not only impact employers but also employees and their livelihoods. Polling by the Kaiser Family Foundation (KFF) found that approximately half of all adults say that they have difficulty affording healthcare costs. Survey results also show that about four in ten adults have delayed or gone without the medical care that they needed in the last year due to cost. Dental services are among the most common types of medical care neglected.
While more than 90 percent of Americans have some type of health insurance, many patients are still unable to afford health costs even with their policies. Many Americans only have healthcare plans that offer limited financial protection, forcing many to forego important medical care or prescription drugs to avoid being hit with excess out-of-pocket costs.
A Commonwealth Fund survey conducted in 2022 that interviewed 8,022 US adults between the ages of 18 and 65 found that 43 percent of working-age adults were inadequately insured. Results of the survey showed that nine percent were uninsured and 11 percent had a gap in their healthcare coverage the previous year. Most simply had coverage that did not provide affordable access to healthcare.
According to a recent US Census Bureau publication, more than 164 million people received health insurance through their work in 2021. Despite most employees having access to health coverage, many workers remain underinsured, especially those with lower incomes. When employees go without the medical care they need, it can have a direct effect on their health, happiness, and productivity in the workplace.
Women are Most Likely to Skip Recommended Medical Treatments Due to Costs
While everyone is feeling the pressure of inflation-related healthcare costs, women are facing unique challenges. According to a KFF survey, 40 percent of women have not gotten a medical test or treatment that was recommended by a doctor because they weren’t able to afford them. In addition, 50 percent of women revealed that they put off or postponed getting the healthcare services they need due to the high expense.
Women with established health problems, as well as women with low incomes, often find it difficult to acquire the coverage they need. The unique challenges for women to afford health coverage don’t end there. Women can typically pay more for healthcare services overall. According to Kaiser Health News, American women have to pay approximately $1 billion more than men each year on health insurance premiums.
This high cost of healthcare has become a public health crisis that affects women of all ages. According to a recent national poll from NORC at the University of Chicago, most Americans do not feel that they are receiving a good value for their healthcare dollars and that the rising cost of healthcare is having a direct effect on their overall health and financial well-being.
How Employers Can Respond by Transforming Their Benefit Offerings
Affordability remains a top priority for most employers across the nation. Although healthcare costs are continuing to rise, the majority of employers do not plan on increasing their employees’ share of health plan coverage costs in 2023, such as by raising co-pays or deductibles.
Instead, many employers are choosing to review their current benefits offerings to see where employee-positive, cost-effective changes can be made. According to a survey published by Mercer in 2022 that gathered results from large employers with 500 or more employees, 11 percent plan to offer employees free coverage for at least one healthcare plan in 2023 and an additional 11 percent are considering making this important move.
With rising healthcare costs that outpace inflation, coupled with an increased focus on diversity and record levels of attrition, employers are under more pressure than ever to offer attractive employee benefits packages. A business cannot function without a healthy and present workforce. Developing an inclusive and specialized health plan is becoming a heavier factor in a potential employee’s decision to stay or compete for a company.
Today, many employers perceive cost as slightly less important when choosing benefit carriers compared to just a few years ago, despite rising healthcare costs. Many employers also perceive high-deductible health plans as viable options for helping to manage rising health expenses. Employers have also shown increased interest in benefits solutions that include components that simultaneously help manage costs while improving member satisfaction.
New City Insurance Will Help Your Organization Maximize Employee Cost Savings
While employers have little control over rising healthcare costs, they can take some immediate actions to maximize their employee benefits cost savings. The knowledgeable employee benefits consultants at New City Insurance can help businesses establish a competitive benefits package that includes affordable health and wellness coverage, as well as benefits that offer the best tax advantages for the company.
New City Insurance can also assist employers with managing their benefits package, including helping employees with open enrollment, providing technology platforms that allow employees to enroll in benefits independently, and delivering ongoing support throughout the year to ensure that benefits are used to their full advantage.
The team at New City Insurance can help today’s businesses structure their benefits to up to half of the national average. To learn more about our benefits consulting services or to request a consultation, contact or call New City Insurance today.