Despite taking cost-cutting measures in 2024, employers can expect an unwelcome price hike for a second consecutive year. Results from a Mercer 2024 National Survey of Employer-Sponsored Health Plans revealed that the total health benefit cost per employee will rise an anticipated 5.8% on average in 2025.
Many employers estimate a rise of about 7% if they choose not to take action to lower costs. While rising health insurance costs are inevitable, employers can find ways to save with help from a reputable benefits consultant.
Find out how ongoing price hikes impact employer-sponsored health plans and how employee benefits consulting can make a difference.
Factors Driving Health Insurance Price Increases
Health insurance costs squeeze employers and workers, with premiums often outpacing wages. Some of the reasons behind these health insurance price increases include:
Economic Pressures
Economic pressures, such as inflation, prescription drug costs, and hospital price increases, can influence rising health insurance costs in multiple ways. With the cost of healthcare increasing faster than the rest of the economy, employers are forced to reevaluate their budgets for employee compensation and benefits.
Post-Pandemic Healthcare Usage
Delayed care during the pandemic has led to a backlog of medical needs, with many patients requiring more intensive treatment. Employees are utilizing more healthcare services, resulting in higher claims and upward pressure on premium costs. Mental health concerns are also increasing healthcare usage. The pandemic’s psychological impact has resulted in a rise in depression, anxiety, and stress-related disorders.
Aging Workforce and Chronic Illness
An aging workforce and an increase in chronic conditions have increased health insurance costs for employers. While medical advancements now allow people to live longer, individuals over age 65 tend to spend more on healthcare, especially those with chronic conditions such as heart disease, diabetes, and cancer. These conditions often require more care, including frequent visits to the doctor, emergency room visits, and medications.
The Impact on Employer-Sponsored Health Plans
Rising healthcare costs significantly impact employer-sponsored health plans by forcing companies to either absorb a larger portion of the increased expense, resulting in reduced profits or shift a greater share of the cost onto employees through higher deductibles and premiums, potentially affecting employee morale and recruitment efforts. Some of the impacts of rising healthcare costs on employee-sponsored health plans include:
Financial Burden on Employers
In 2023, annual family premiums for employer-sponsored health insurance grew 7% on average, reaching $23,968. Workers contributed an average of $6,575 each year toward the cost of family premiums, up almost $550 from the previous year.
A 2023 benchmark KFF Employer Health Benefits Survey found that 23% of employers anticipate increasing workers’ contributions in the next two years.
Workforce Implications
Rising healthcare costs within employer-sponsored health plans can dramatically impact your workforce, potentially leading to reduced employee morale, talent loss, decreased job satisfaction, increased financial stress, and a negative effect on recruitment and retention. In an effort to save money, some employers may choose to cut in other areas, such as salaries, training, and other employee benefits.
Employee Contributions
Health insurance costs remain one of the most significant expenses for employees and their families. With healthcare costs continuing to rise and more of the premium burden being passed on to employees, some companies may encounter negative consequences. Reduced employee morale, lower retention, and similar issues often plague employers due to rising health insurance costs.
Actionable Strategies for HR Managers to Mitigate Rising Costs
The right strategies can help employers cut costs while improving benefits. Consider some of the following strategies that HR managers can use to mitigate rising health insurance costs:
Focus on Data-Driven Decision-Making
HR managers can better understand employee healthcare usage and options for cost containment by analyzing their current plan data. The use of advanced tools, such as predictive modeling, can help businesses anticipate future costs and better implement targeted cost-saving measures.
Consider leveraging data-driven decisions by analyzing employee health trends, customizing benefit plans based on usage patterns, utilizing cost-effective provider networks, and promoting wellness initiatives.
Evaluate Self-Funding/Level-Funded Plans
Alternative funding methods, such as self-funding or level-funded health plans, can often offer greater control over healthcare spending. HR managers should consider how these plans compare against fully insured plans, including potential cost savings and risks.
Bear in mind that self-funded companies have the advantage of paying the exact amount of healthcare employees use. Still, this number can change from month to month. Level-funded plans serve as a hybrid between self-funded and fully-insured plans by offering the insights of a self-funded plan with the ability of a fully-insured plan.
Empowering Better Decision-Making With New City Employee Benefits Consulting
With healthcare costs continuing to rise, many employers are concerned about how rising health plans could impact their employees and their bottom line. At New City Insurance, we are proud to offer proven solutions that help employees cut costs without sacrificing the quality of their benefits.
Contact New City today to learn about our employee benefits consulting services and take control of your health insurance costs.