Chronic conditions: The top reason for rising health care costs in the U.S.

Inflation. Delayed care. Chronic conditions. Pharmaceutical prices. These and other factors will continue to push upward the cost of providing health coverage to employees in 2024 by an estimated 7%.

A new report from the International Foundation of Employee Benefit Plans confirms other estimates in that range. The foundation’s estimate is based on a survey of 171 employers that offer health coverage.

The median cost increase has been creeping higher since the pandemic, from 4.4% in 2022 to the 7% predicted for next year. In this survey, respondents were asked to cite the primary reasons that will contribute to the increase. The top four responses are:

• Utilization due to chronic health conditions (22%, up from last year)
• Catastrophic claims (19%, same as last year)
• Specialty/costly prescription drugs/cell and gene therapy (16%, up from last year)
• Medical provider costs (14%, up from last year)

Respondents generally shrugged off the pandemic hangover caused by delayed care. Only 4% cited that as the primary reason for cost increases. Last year, 12% pointed to an increase in utilization due to delayed preventive/elective care as a major inflating factor.

When asked about strategies for managing costs for 2024, five actions took center stage:

• Utilization control initiatives: e.g., prior authorization, case management, disease management, nurse advice lines (22%, up from last year)
• Cost sharing initiatives: e.g., deductibles, coinsurance, copays, premium contributions (16%, down from last year)
• Work and wellness programs (13%—a new standalone response option this year)
• Plan design initiatives: e.g., dependent eligibility audits, high-deductible health plans, spousal surcharges/carve-outs, formulary changes (12%, same percentage as last year)
• Purchasing/provider initiatives: e.g., telemedicine, price transparency tools, centers of excellence, health care navigators/advocates, coalitions, quality initiatives (12%, down from last year).

Related: 7 employer wellness programs that move the needle on improving employee health

The results suggest that sponsors are investigating more ways to take control of costs rather than simply passing them along to plan members, who then may decide not to avail themselves of benefits they think are too costly. The wellness program response reflects the general rise in adoption of the new, improved wellness programs entering the marketplace. The current trend has employers shift their focus from cost-sharing through increased copays and deductibles, to  better access to upstream health and chronic diagnoses management.

No one-size-fits all solutions, however …

Julie Stich, CEBS, Vice President of Content at the International Foundation, responded to questions about the significance of the results.

Q: The survey results indicate that plan sponsors recognize that chronic conditions continue to drive up the cost of providing coverage. With more resources now available to address chronic conditions, do you see this cost factor leveling off in the next 3-5 years

Stich: Plan sponsors have indicated that chronic health conditions have a considerable effect on their medical expenses. That ties to the data that disease management and wellness programs rank high in cost management strategies. The scope and challenges surrounding chronic health conditions are immense, complex and costly. There are no one-size-fits-all solutions. While we cannot predict the short- and long-term extent and impact of these conditions on future costs and claims experience, increased employer awareness and focus on managing chronic conditions may lead to improvements.

Q: Meantime, more sponsors are turning to utilization control strategies to better manage their cost of providing coverage. Does this suggest that plan sponsors, and their benefits advisors, are taking more ownership of employee health?  

Stich: Utilization control initiatives was the highest rated cost management technique, and work and wellness programs was ranked third. This category would include onsite clinics and worksite screenings as well as smoking cessation, weight management, lifestyle coaching,  etc. The high response rates to both of those initiatives suggest that plan sponsors are aware of the impact that workplace programs have on employee health. Related data from our 2022 Workplace Wellness and Financial Education Programs Survey Results indicated that for 71% of corporate employers, improving overall worker health was the primary reason for offering wellness initiatives.

Q: Did the survey give the sense that employers are more focused on upstream health? Are they reducing barriers to annual checkups, adherence to commonly prescribed drugs for chronic conditions, and engagement in wellness programs?

Stich: Two of the initiatives highlighted in our recent survey results, work and wellness programs at 13% and purchasing/provider initiatives at 12%, involve programs that reduce barriers to seeking care, increase access to quality care, encourage preventive care and facilitate well-being. Examples include health screenings, lifestyle coaching, health care navigators, flu shots, case and disease management, centers of excellence and the like. Plan design initiatives (at 12%) are in place to keep costs in line. If care is accessible and affordable, employees have less reason to delay seeking preventive or timely care.