What employers can do about increased health care costs in 2024

The health care landscape continues to evolve in 2024, presenting new challenges for insurers, employers, and employees. One of the most pressing concerns is the projected increase in health care costs, fueled partly by a surge in outpatient procedures observed towards the end of 2023. This spike, attributed to a combination of factors including catch-up care following the disruptions of the COVID-19 pandemic, has raised concerns among patients, insurers, and industry analysts regarding the potential impact on premiums and employer-sponsored health benefits.

The rise in outpatient procedures, particularly noticeable in major US cities where hospitals are struggling to keep pace with demand, is a multifaceted issue with implications for insurers and employers. While some speculate that this surge may be temporary, driven by the timing of non-emergency procedures typically scheduled towards the end of the year when deductibles are met, others warn of a more sustained increase in health care costs driven by broader factors such as medical inflation. There have also been the rollbacks of COVID-era Medicaid eligibility criteria, releasing more people into the wild to find their own health care coverage.

Increased health care costs are not a new problem, but the rates are now hitting levels that are untenable for many companies, especially those with over 150 employees. According to new data from SureCo, benefits consultants say about a third of their clients need an alternative to fully insured plans.

Employer considerations

For employers, rising health care costs pose challenges in managing benefits while containing expenses. Reports suggest that many employers are bracing for significant cost increases, with some projections indicating the largest jump in health care costs in over a decade.  PWC’s Health Research Institute is projecting a 7.0% year on year medical cost trend in 2024 for both Individual and Group markets. This trend is higher than the projected medical cost trend in 2022 and 2023, which was 5.5% and 6.0%, respectively. While many employers may have many important reasons to hesitate to shift these costs onto their employees, finding strategies to mitigate the impact on their bottom line is crucial.

One potential avenue for cost savings is the adoption of Individual Coverage Health Reimbursement Arrangements (ICHRAs), which offer employers greater flexibility in designing benefits while potentially reducing overall costs.  An ICHRA is an employer-provided health benefit model that allows employees to choose their health insurance coverage from all plans available in their area and get reimbursed from their employer tax-free for a portion of the premiums. ICHRAs can save employers up to 15-30% over group plans, while still providing high-quality health benefits to their employees.

By providing employees with defined contributions towards their health care expenses, employers can control spending while empowering employees to choose plans that best suit their needs.

Related: Employers should expect higher health care costs in 2024, outpacing inflation

Employee-centric solutions

Employers must always seek solutions that prioritize employee wellbeing and satisfaction. Recent surveys indicate that employees increasingly value benefits that offer flexibility and personalized options. According to SureCo’s 2024 State of Employee Benefits Survey, 80% of employees said they would prefer to select their own plan from all available options and 59% of employees would leave their current company for one with better health benefits (if all other factors remained equal).

For the 36% of employers who say they’ll need to change plans next year, cost is only part of the equation. A staggering 65% say they’ll make a switch because their employees aren’t satisfied with the status quo.

Mitigating the impact of rising health care costs

As we confront the challenges of rising health care costs in 2024, it’s essential to understand the factors driving these increases and explore proactive solutions to mitigate their impact. While the outlook may be uncertain, employers have opportunities to navigate these challenges effectively by embracing innovative benefit strategies such as ICHRAs and prioritizing employee-centric solutions. By taking proactive steps to address rising health care costs, employers can not only contain expenses but also ensure the wellbeing and satisfaction of their workforce in the years ahead.

Erik Wissig is SureCo’s CFO & COO and works across all areas of the company, supporting teams with strategic execution and management. SureCo is an ICHRA health insurance company servicing businesses, benefits consultants, and consumers.