Fueled by chronic health conditions, catastrophic health claims and rising prescription drug prices, health care costs will experience a sizable hike next year, employers say.
U.S. corporate employers project a median health care cost increase of 7 percent for 2024, according to new data from the International Foundation of Employee Benefit Plans (IFEBP), a nonpartisan group with more than 31,000 members. It's the second year in a row that employers have projected a 7 percent hike.
The foundation's survey of 171 employers, conducted in early August and released this week, is important information that indicates that inflation continues to have an impact, although the numbers are not too surprising, said Julie Stich, vice president of content at IFEBP.
"This is consistent with what we were expecting to see," she said.
"What we're seeing is certainly the impact of inflation overall and what that is doing for some of the medical trends, what it's doing to supply and labor shortages and costs of goods and services, and shortages in supplies and staffing and how that's impacting providers," Stich explained. "And those costs are being passed along to employers."
The projected increases for 2024 are in line with what employers foresaw last year for 2023, but they are higher than what employers projected for 2021 and 2022, when fewer employees were utilizing routine health care—such as preventive screenings and regular checkups—because of the COVID-19 pandemic. In those two years, employers projected annual cost hikes of between 4 percent and 5 percent.
What’s Driving Higher Health Costs?
Utilization due to chronic health conditions was the top reason employers identified as contributing to a rise in medical plan costs for 2024, cited by 22 percent of respondents, followed closely by catastrophic claims at 19 percent.
These trends could partly be attributed to later, more dramatic diagnoses after many employees skipped or delayed screenings such as mammograms and colonoscopies during the pandemic, Stich said.
"Someone could have delayed a screening, then discovered a cancer diagnosis that perhaps could have been found earlier," she explained. "And that can end up being chronic or ongoing, or it could be a catastrophic claim."
Specialty and costly prescription drugs and cell and gene therapies (16 percent) and medical provider costs (14 percent) rounded out the most-cited reasons for the projected hike in medical costs.
While the lasting results of missed health screenings during the pandemic—including cancer and other diagnoses—may play a role in higher health care costs, utilization of such screenings is projected to be down in 2024, as more employees caught up on care in 2023. Just 4 percent of employer respondents said the primary reason for cost increases is increased utilization due to delayed preventive or elective care during the pandemic. That's a drop from 12 percent last year.
Will Costs Be Passed On to Employees?
Will employers be passing the higher costs on to their employees? Some may, but that likely won't be the main strategy. Just 16 percent of employers said they plan to share costs with employees by raising deductibles, coinsurance, copays or premium contributions. That's down from the 22 percent of employers that said they would pass along costs last year.
That finding is also in line with research out from Mercer earlier this year, which found that 45 percent of employers said they were not going to pass higher costs on to employees.
That's likely because the labor market is still tight, and employers want to offer competitive and affordable benefits to woo and keep workers.
"It speaks to the impact of benefits on both attraction and retention," Stich said. "Employers are likely anticipating, 'If we make our employees pay more, will that put us out of alignment with what our competitors for talent in our industry or in our locale are doing?' They don't want to price themselves out of the running."
Instead, the primary strategy employers told IFEBP they would embrace to manage rising health care costs was utilizing control initiatives, such as requiring prior authorization, embracing disease management or adding nurse advice lines (cited by 22 percent of respondents).
Other cost containment strategies included work and wellness programs (13 percent); plan design initiatives, such as having dependent eligibility audits, offering high-deductible health plans, or requiring spousal surcharges or carve-outs (12 percent); and purchasing/provider initiatives, such as offering telemedicine, price transparency tools and centers of excellence for employees (12 percent).
Stich recommended that HR and benefits leaders take a strategic look at their benefits package and evaluate what they're offering and if those benefits are resonating with their workforce.
"They should look at utilization," she said. "It really behooves them to look at the package as a whole and look at the costs that they're paying and trying to see if they're getting the most value for the benefits dollar that they're spending."