CFOs Concerned About Rising Health Costs

CFOs are worried about growing health benefits costs—which are running well above inflation—and the increasing volatility of health care expenses, including the potential impact of GLP-1 drugs, which are rising in popularity, according to Mercer.

Two-thirds of respondents with 500 or more employees (67%) view health care costs as a “significant” concern, according to the consulting firm’s survey of CFOs from 80 organizations. Another 33% said health costs are “somewhat of a concern.”

More than half of the surveyed CFOs (54%) believe their organizations' health care costs will need to rise at no more than the rate of general inflation to be sustainable over the next three to five years. Nearly two-fifths of CFOs (39%) said their business results will be materially impacted if actual expenses are over budget by even 4% or less.

Significantly, the survey also revealed that 36% of CFOs are not confident that long-term health-benefits cost-management strategies that require investment, such as well-being initiatives or clinical management programs, are saving money—and 19% don’t have enough information to say.

“Understanding the potential impact of health care costs is crucial for CFOs, especially those with self-funded plans,” said Sunit Patel, senior partner and chief health actuary at Mercer. “To address this challenge, HR and benefits professionals should proactively collaborate with their CFO and finance department colleagues. As investment decisions are more closely scrutinized, budgets get tighter, and health costs increase, it’s imperative that CFOs have the right metrics in place to monitor the performance of these benefits to ensure they are meeting the needs of employees while not breaking the bank.”

We rounded up more articles about rising health care costs from SHRM Online.

Health Care Costs Increasing

Several reports earlier in the year indicated that U.S. health costs are on the rise, which may have significant implications for organizations.

According to WTW’s Global Medical Trends Survey, the cost of medical care benefits in the U.S. is projected to increase about 8.9% in 2024, compared with 8.2% in 2023. Globally, the cost increase will ease slightly to 9.9% after hitting a record high of 10.7% in 2023, although analysts predict it will increase again in the coming few years. Nearly three-fifths of insurers (58%) anticipate higher or significantly higher increases over the subsequent three years following 2024.

Meanwhile, a survey of nearly 100 health insurers and health plan administrators by benefits consulting firm Buck also found that medical costs for employer-sponsored plans continue to outpace inflation, rising on average between 6.8% and 7.3%. That’s up from Buck’s previous survey in May 2023, when insurers found medical trend factors were averaging 6.2% to 6.8%.

(SHRM Online)

The GLP-1 Drug Effect

Since blockbuster GLP-1 drugs such as Ozempic and Wegovy burst on the scene as a weight-loss aid phenomenon, employers have been left mulling whether to cover their costs for employees.

A survey of 200 employers from the International Foundation of Employee Benefit Plans (IFEBP) late last year found that the majority of organizations (76%) provide GLP-1 drug coverage for diabetes, which is the original intended use for those drugs. This figure far outpaces the amount of those providing coverage for weight loss—27% of employers provide coverage for weight loss, while another 13% are considering doing so.

In 2023, the average representation of GLP-1 drugs used for weight loss in employers’ total annual claims was 6.9%, employers told the IFEBP. Many employers that cover GLP-1 drugs (79%) are relying on utilization management to control costs. A less common approach is step therapy, used by 32% of organizations, while 14% of employers have no cost control mechanism in place.

Julie Stich, vice president of content at the IFEBP, said price—“both the immediate costs and the potential for long-term costs if employees need to stay on the drug for longer periods of time”—is undoubtedly one of the major considerations for employers thinking about GLP-1 coverage.

(SHRM Online)

Inflation’s Impact

Many employers are bearing the brunt of rising group health insurance costs, leading half of employers (51%) to say that inflation affected which benefits they were able to offer in 2024, according to recent data from benefits administration firm Optavise.

Kim Buckey, vice president of client services at Optavise, said employers are starting to back away from shifting more costs onto employees because “they recognize they’re going to hit the wall as far as that’s concerned.”

“They know that they can’t push more of the cost down to the employees, and they probably can’t absorb more costs themselves,” Buckey said. “And then there’s the generalized fear about what could happen this year because there’s still talk out there about a possible recession. Plus, we’re in an election year, which can impact our economy.”

(SHRM Online)