Healthcare costs continue to rise at a pace that challenges employers and employees, creating greater budget restraints and making it harder to offer affordable employee benefits. According to the Milliman Medical Index, the cost of healthcare for the average U.S. family has surpassed $30,000 per year, with a significant portion tied to prescription drugs and outpatient services. Increased utilization, specialty drug pricing, and expanded care options outside hospital settings drive up healthcare costs.
Let’s look at how these trends are impacting employer-sponsored plans and how business owners should respond.
Why Healthcare Costs are Rising
Prescription drugs and outpatient care are major contributors to the rising healthcare problem, but there are other factors to consider. An aging population means more people are developing chronic conditions that require ongoing, and often costly, care. New advances in medical technology, although beneficial, are usually accompanied by high price tags.
Fragmented billing systems and administrative inefficiencies also add unnecessary overhead to healthcare systems. Employers feel the strain through increased claims, higher premiums, and growing employee expectations for high-quality, accessible care.
A Closer Look at Outpatient Care
Outpatient care, which involves services provided without an overnight hospital stay, has become one of the most rapidly expanding areas in healthcare spending. Due to medical advancements and patient demand for convenience, more procedures, such as physical therapy, diagnostic imaging, and same-day surgeries, are being performed outside hospitals.
Although outpatient services typically result in lower costs per visit than inpatient care, higher overall utilization can significantly increase spending. For example, a single MRI performed in a hospital outpatient environment can cost as much as 4 to 10 times that of an independent imaging center. Unfortunately, many employees don’t realize other, more cost-effective options exist.
It’s common for employers to see an increase in medical claims tied to outpatient services, especially when the site-of-care is not optimized. When you better understand how, where, and why outpatient services are delivered, you can approach benefits planning to balance employee needs with cost control.
Prescription Drug Spending Trends
One area of healthcare that continues to outpace nearly all other areas is prescription drug spending. A major factor contributing to mounting pressure on employer-sponsored plans is the rise of specialty medications, which, while effective, can cost upward of thousands of dollars per patient each month.
Brand-name drug prices are also still climbing, often without corresponding improvements in efficacy. At the same time, a lack of transparency in pharmacy benefit manager (PBM) contracts makes it challenging for employers to know what they’re paying for. Patient demand and direct-to-consumer advertising further drive up high-cost or unnecessary prescriptions.
For many employers, this means higher premiums and cost-sharing burdens that impact the business and its workforce. Managing pharmacy costs is no longer optional; it’s become essential to any sustainable benefits strategy.
Impact of Rising Costs on Employers
With prescription drug and outpatient care costs rising, employers are forced to make difficult decisions regarding the benefits they offer. Many are experiencing challenging budget restraints, which often lead to cost-shifting measures such as increased employee contributions, higher deductibles, and limited provider networks.
These changes can negatively affect employee satisfaction, retention, and morale, especially in competitive labor markets. For many small and mid-size businesses, having unchecked healthcare expenses can significantly reduce profitability, limit growth, and make it more difficult to attract top talent. In turn, businesses are left trying to balance the need to provide meaningful benefits with the reality of financial restrictions.
Approaches to Cost Management
To protect their bottom line and stay competitive, employers must adopt proactive strategies that address the root causes of rising healthcare costs. One strategic approach involves analyzing claims data to identify high-cost areas, such as using brand-name medications when generics are available, or unnecessary use of hospital outpatient facilities.
Employers can also implement site-of-care programs that motivate employees to choose more affordable, high-quality facilities, such as independent imaging offices or ambulatory surgical centers.
On the pharmacy side, working with a transparent PBM and promoting generic or biosimilar alternatives can help significantly reduce drug spending. Bundled payment arrangements and value-based care models are also gaining traction, as they reward providers for better outcomes and efficiency rather than volume. Finally, education plays an important role, helping employees better understand their options and make informed decisions about their care.
Speak With the Professionals at New City
Rising healthcare costs, driven heavily by prescription drugs and outpatient services, pose serious challenges for employers striving to offer affordable, competitive employee benefits. If you’re ready to examine your current benefits strategy or find cost-saving opportunities, contact New City today.