Employers tackling inflationary pressures in health care

For the past 12-24 months, rising inflation rates have been felt across all industries – and the health care sector was not spared. While many organizations tried to shoulder high health care costs during the pandemic, inflation has made this strategy increasingly unsustainable.

Employers are now faced with the challenge of finding solutions to mitigate the impact of these escalating costs on their organizations and workforce. For many, that means passing some of the burden onto their employees – whether they want to or not.

Inflation’s impact on the health care industry

Rising costs have a domino effect on the industry that is felt by employers who sponsor their organization’s health plan. As hospitals are charged more for their products and face higher labor expenses, they pass those costs onto the health insurance carriers who manage the burden by charging employers higher premiums.

Compounding this issue is the influence of the prescription drug market, which continues to be a major cost driver for employers. The release of some incredibly successful medications in recent years has led to higher RX drug spending, which has consequently become a major hurdle and claims driver for employers.

Balancing act for employers

While many employers tried to avoid passing high health care costs onto their employees during the pandemic, this has become largely unsustainable in the current market. High inflation rates have forced organizations to reevaluate their strategies. To manage the stress of high costs, some employers are opting to increase their deductibles and copayments.

Others are reevaluating their overall account strategies (Level-Funded, Self-Funded, ICHRA, HSA) in order to keep premiums at a palatable level. Whether they’re halting employer contributions to HSAs or increasing deductibles, a shift in the status quo is underway as employers seek practical solutions to high costs.

Which companies will feel the impact?

Rising inflation rates impact companies of all sizes across a plethora of industries. The majority of employers face headwinds from the health insurance market and high premiums regardless of their individual circumstances.

An organization’s ability to shoulder costs or pass them to employees varies by their size and which market segment they are underwritten in. The bigger they are, the more ability they have to understand their own costs and how those changes will impact future premiums.

For these large companies, costs are generally determined by the performance of their actual plan. Similarly, specific claims are more likely to impact their rates and future performance.

Determining individual impact

Employers want to ensure they are having strategic discussions outside the renewal period with their insurance broker/consultant to prepare for their renewal and understand their plan performance.

Related: Report: Most Americans don’t know how much their health care costs

The amount an organization can absorb on behalf of their employees will depend on the market data, trends and individual company size. The sum of these factors will likely impact the claims for their population and dictate their future costs and individual burden.

Expectations for 2024

Maintaining the status quo is becoming more and more difficult amid such high inflation rates. While the majority of organizations will feel the strain of higher health care costs, their ability to mitigate these costs comes down to their unique circumstances and how much they are able to absorb on behalf of their employees.

Greg Puig, Head of Group Insurance and Partner at Sentinel Group, a leading employee benefits provider.