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Healthcare Cost Inflation Threatens Employee Benefits Programs

January 16, 2023, by New City Insurance

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

nurse staff restocking inventory shelvesMany 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

asian patient laying in bed in the hospitalThe 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.

senior citizen using an inhaler for the fluA 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

department manager reviewing benefits with employeeAffordability 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.

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New City Insurance
New City Insurance
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Carol Zhang
Carol Zhang
04:29 06 Mar 22
As a rapidly expanding national media organization, the employee benefits strategy and administration that New City has provided us during our growth has been invaluable. They have been proactive about informing us of the different benefit strategies available to us as we grow as well as managing the additional compliance laws and reporting requirements at each stage of our growth.
Claudia Villalobos
Claudia Villalobos
20:14 03 Mar 22
New City Insurance made navigating through all the health insurances super EASY. Their documents are highly informative, professional, and easy to work with. Thank you for making the process of choosing a health plan so simple. You guys are THE BEST!
Philippe Salas
Philippe Salas
17:02 22 Feb 22
I never expected to have a good time talking to an insurance salesman, but let me tell you Brendan was quite the treat. He was very helpful explaining the options and has a wonderful sense of humor. I hope to speak with him every time I call.
Jennifer Polito
Jennifer Polito
17:15 09 Feb 22
Super easy enrollment process. Fast and friendly customer service. If you are looking for an insurance company that is there for you every step of the way I highly recommend New City Insurance.
Rocky Salas
Rocky Salas
23:46 07 Jan 22
So friendly, I hope to speak to him again in all my future insurance needs.
Rocky Salas
Rocky Salas
23:38 07 Jan 22
So friendly and soft spoken. I hope to speak to him again in all my future insurance needs.
Jose Brena
Jose Brena
13:20 06 Jan 22
Eric Calciano has been extremely helpful in finding and selecting the right insurance coverage for our company. With many options out there Eric assisted us on getting a low cost provider saving more than 20% than from our competitors and providing excellent coverage for our employees.
Anastasia Beaverhousen
Anastasia Beaverhousen
17:05 28 Dec 21
Signing up for insurance was quick and easy. Felicity Sundsboe
SFCC
SFCC
22:08 29 Nov 21
Jeff Stoltey and his team provide excellent customer service. Jeff has always provided my company SFCC with straightforward options. I went to a larger insurance company only to RUN BACK to Jeff at New City Insurance. I recommend them to anyone needing insurance without hesitation.
Kevin Luby
Kevin Luby
19:13 22 Oct 21
Quick, easy & informative. We were able to secure quality insurance for our small business on a tight deadline. Thanks for the help New City.
Theresa Ruybol
Theresa Ruybol
19:30 01 Jul 21
Eric was so great with us. He was very patient and kind as we are a newer smaller organization who is growing rapidly. With that said, we had made our inquiry, he had great rapid response and mostly had to wait on me. Any request that we made and/or questions we had, he was great answering and helping us understand. Then when we were ready for all documents and to move forward, Brendan helped with getting that together and the two of them worked their magic on New City's end to notify me of what was needed, assist me in that process and confirming that all was complete and approved for the coverage. I just want to say thank you all again so much, as insurance has always been confusing to me, and you all made that process go a lot smoother.Thank you
Andrea Ordendorff
Andrea Ordendorff
21:06 07 May 21
I've been working with both Clayton and Brendan for well over a year. As the purchase of our dental practice was delayed well over 14 months they both patiently supported me and continued to make themselves available. When we were officially ready to sign up they made the whole process seamless and super easy. This team is highly knowledgeable, professional, supportive, and efficient! I can't thank them enough for everything they've done.
T W
T W
22:32 30 Aug 20
I love New City Insurance. I never had a good experience dealing with insurance brokers until I started working with Brendan. He’s awesome! He is patient with me and takes the time to answer all my questions. I’m very grateful for all his help and hard work!
Mary Jane Deyette
Mary Jane Deyette
00:57 11 May 20
Jeff Stoltey is so awesome...even thru my company had only two employees, he took the time each year to research and find the best plan for us. The only reason I am leaving New City Insurance is because we no longer have any employees. Thank you Jeff
Alma Ortiz
Alma Ortiz
22:25 23 Feb 20
Brendan was awesome! I couldn't figure out how to pick my plan and he returned my call on a weekend to help me. Outstansing service!
jessica kavanagh
jessica kavanagh
19:53 13 Feb 20
Brendan was so helpful I definitely recommend him if you’re in need of good help and getting it done promptly. Thankyou so much again.
Tricia DeYoung
Tricia DeYoung
19:49 13 Feb 20
I was very thankful I inquired about this info. with Brendan. He was very helpful so I understand the benefits available much better now. Thank you Brendan.
B Bayer
B Bayer
17:43 24 Sep 19
NCI handled almost everything from start to finish. Clayton and Brendan made the plans easy to understand and walked me through the application process. They got me my ID numbers before my cards arrived so that I could keep an appointment I had already scheduled. My last broker wouldn't have done that. 5 stars!
Jessica Lehr
Jessica Lehr
03:36 07 Jun 19
Our staff was interested in a health plan, but we didn't know how beneficial a solid employee benefits package would be for our business to expand. We'd lose prospective employees because they had more options for their medical insurance which was sometimes more valuable than more pay. The New City team was amazing and gave us as many affordable options as possible so that everyone had their needs met.
Mike McClay
Mike McClay
19:36 03 May 19
My employer uses New City as their insurance broker, and I'm always amazed when I call in for assistance by how knowledgeable and attentive their staff is with my requests. Their online benefits platform makes selecting insurance plans pretty darn easy. I would highly recommend their services.
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