Soaring Health Costs Push Employers to Shift More Costs to Workers

Health care costs are a major issue for employers this year, and many are responding with an “unavoidable” strategy: passing on more of those costs to employees.

The average health benefit cost per employee is expected to top $18,500 this year, with employers reporting soaring costs as one of their top concerns related to operating costs, according to a recent survey of chief financial officers (CFOs) by consulting firm Mercer. 

As employers grapple with rising benefit expenses, many are looking to employees to absorb a larger share of the burden.

Nearly half of CFOs surveyed (45%) said they intend to place a stronger emphasis on plan design changes in the coming years, including measures such as raising deductibles. Mercer analysts said that despite ongoing concerns about health care affordability, many finance leaders see shifting some additional costs to workers as “unavoidable” in the current environment. 

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A smaller number of CFOs (38%) support raising employees’ premium contributions, which would hit everyone’s paycheck whether they use health care or not.

“Given the challenges associated with rising health care costs, our research indicates that company leaders are increasingly open to all potential cost-management strategies as they seek to mitigate the impact of rising costs,” said Beth Umland, Mercer US’s director of health research.

Impact on Employees 

Health care costs continue to climb for employers, driven in part by expensive new gene and cell therapies, as well as growing use of high-cost treatments and medications such as GLP-1 drugs.

Related Tool: GLP-1 Calculator

While increasing costs for employees is not surprising, given the current economic climate and the trajectory of health care costs, experts warned those decisions have consequences. For instance, passing along health care costs can weigh heavily on employees’ minds and wallets. 

“They’ve got to look at this through the lens of [employees]. They’re going, ‘Oh my god, I’m getting increases on the premiums I pay, then every time I’m going to the doctor, I’m paying more,’ ” Tournet said, explaining that increasing both premiums and deductibles has become a common strategy. 

According to an April SHRM pulse survey, 27% of U.S. workers identified high out-of-pocket costs as their primary complaint about their current benefits, while 52% of HR professionals identified high out-of-pocket costs, such as premiums and deductibles, as the primary benefits issue affecting employees.

That pressure extends beyond health care costs alone and can shape how employees view their overall total rewards package. As employers push more costs onto workers, “you have upset employees who are already dealing with extremely difficult financial times,” Tournet said.

Financial confidence among employees is at its lowest level since 2012, with just 53% of workers saying they feel in control of their finances, according to MetLife.

As costs shift to workers, financial stress increases. And even if employers invest in other areas, those efforts may go unnoticed if core benefits like health care feel unaffordable, Tournet said. The result is a growing disconnect: Employers may be spending more than ever on benefits, while employees feel they’re getting less. 

Other Cost Strategies

Although pushing more costs to employees is a common strategy, many employers appear wary of relying too heavily on cost-shifting strategies that could further strain employees or hurt morale and retention.

A significant number of CFOs expressed interest in pursuing approaches that control spending without directly increasing employee costs, according to Mercer.

Nearly half of CFOs support offering plans with curated providers, such as high-performance networks or variable copay plans — a strategy that addresses the big differences that exist in provider costs and quality. Roughly the same number want to emphasize clinical management, another way to control costs without making employees pay more. 

Overall, most CFOs recognize that a multi-pronged approach will be needed to successfully manage growing health care costs in the coming years, Mercer analysts said.

“Companies will need to consider more aggressive tactics than they may have used in the past to achieve sustainable cost growth,” said Sunit Patel, Mercer US’s chief health and benefits actuary.