Despite ongoing efforts across the industry to combat rising health care costs, employers continue to face a climbing upward trend. Estimated annual increases to employers' health care spending range from 5.4% up to 8.5%, and KFF's 2023 Employer Health Benefits Survey reports premiums went up 7% last year. While employees are seeing an uptick in their contributions, employers are absorbing the majority of these costs. Employers and their benefits advisors want to provide employees with robust and comprehensive benefits, but it is increasingly critical to find strategies to help manage the associated costs.
The first step is understanding the factors driving this ongoing upward cost trend. Some of the key contributors include:
- Specialty drugs – The most recent Business Group on Health Large Employer Survey found that more than 90 percent of employers expressed concerns about the impact of high-cost specialty drugs, and this was largely before the explosion of interest in GLP-1s was a factor. Pharmacy coverage continues to be a primary cost driver for employers, with its percentage of employers' total health care spend increasing from 21% in 2021 to 24% in 2022, and those costs are only continuing to rise as more of these medications enter the market.
- Ongoing pandemic repercussions – At the height of the pandemic, many people delayed care, including treatment for chronic conditions and preventive screenings, and the impact of that is being felt now in terms of both outcomes and costs. For example, data shows that preventive care screenings dropped well below usual levels during the pandemic, so experts and employers alike are anticipating a surge in later-stage cancer diagnoses and avoidable complications of chronic conditions, significant cost drivers that half of employers indicate is their top contributor to increased costs.
- The complexity of benefits – In response to rising costs, many employers have shifted more responsibility to their employees to manage their own care. However, without providing the employee with easy access to the support needed to navigate the health care system, this leads to more unnecessary care, less focus on the value of care, and unfortunate outcomes.
There are opportunities for employers and their advisors to counter these cost drivers and maximize their benefits spend, ensuring they can provide the benefits employees have come to expect.
Strategies to balance costs with benefits needs
Continuously rising health care costs are challenging employers and their advisors to think creatively in order to continue offering robust benefits programs that help engage employees in their health and wellbeing. Consider the following strategies to help find the right balance and provide premium benefits while managing costs:
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