In recent times, health insurance costs have seen a remarkable surge, impacting businesses and their employees significantly. According to insights from prominent benefits consulting firms Mercer and Willis Towers Watson, shared exclusively with The Wall Street Journal, employer-based health coverage expenses are anticipated to rise by approximately 6.5% in 2024. Willis Towers Watson (WTW) goes a step further, predicting that this increase will be the most substantial in over a decade.
This pronounced hike in health insurance costs is poised to have a substantial impact, further inflating the already hefty price tag for employer-sponsored health plans. On average, these plans already cost more than $14,600 annually per employee, making health insurance one of the most substantial expenses for numerous American companies, not to mention a financial strain on families.
For individuals relying on insurance plans offered under the Affordable Care Act, the outlook isn’t much better. Premiums are expected to escalate by approximately 6% in the upcoming year, a trend that aligns with the current year’s increase, according to analyses of public insurance filings by health-research nonprofit KFF.
Several factors contribute to this accelerated growth in health insurance costs. Hospitals are grappling with elevated labor expenses, and there’s an increasing demand for costly medications to combat diabetes and obesity.
These factors have culminated in a scenario where businesses of all sizes, whether they rely on insurers for health coverage or are self-insured, are bracing for substantial increases in their health insurance expenditures.
The approaching annual fall open-enrollment period will be the time when many workers learn about their health coverage options for 2024. Unfortunately, the prognosis isn’t optimistic; employees will likely have to allocate a more substantial portion of their paychecks to health insurance as overall expenses surge.
Some employers may also shift a larger share of the cost burden to employees to offset these increases. Nonetheless, in a labor market that remains competitive in various sectors, employers are expected to bear the majority of the burden.
One such company, Bench Dogs, a retail-display manufacturer, faced a staggering 24% increase in health coverage costs during its plan renewal in July. Remarkably, they did not increase the proportion of insurance costs covered by employees, currently set at 20% for single workers and half for those covering a family.
Rich Broadbent, the company’s president and owner, cited concerns about burdening their approximately 75 employees, especially as competitors attempt to lure them away. While the company has raised its prices to cope with mounting costs, if this strategy isn’t sustainable in the future, workers may inevitably face increased out-of-pocket healthcare expenses. It’s a challenging predicament, as Broadbent expressed.
For several years, health coverage costs nationwide experienced relatively modest growth, partly due to the pandemic’s impact on reducing doctor and hospital visits. However, hospitals found themselves compelled to raise wages for nurses and absorb other rising costs.
To counteract these growing expenditures, hospital systems have successfully negotiated price increases with insurers. This tactic, while delayed due to the non-annual renegotiation of insurer contracts with hospitals, has started to affect insurance rates this year and is poised to accelerate in 2024 for numerous employers.
Tim Stawicki, the chief healthcare actuary at WTW, aptly compared this phenomenon to a delayed reaction, with inflation from a year ago finally making its way into contracts.
A survey conducted by WTW involving over 450 employers in June and July revealed that they anticipate a 6.4% average increase in health coverage costs for the next year, excluding any impact from plan design adjustments.
If realized, this increase would mark the most substantial uptick in this metric since 2012. Additionally, rising drug spending, particularly on weight-loss and diabetes medications like Ozempic and Wegovy, along with competitors like Mounjaro, is contributing to the escalating costs of health coverage.
It’s worth noting that many employers do not cover medications for weight loss, and those that do are taking measures to restrict access. Despite these restrictions, the utilization of such drugs is soaring, as observed by Debbie Ashford, the chief actuary for health solutions at Aon, a health-benefits consultancy and brokerage.
Aon projects that employer plan costs will surge by 8.5% in the upcoming year, representing the most substantial increase in over a decade.
Amid labor shortages and fierce competition for talent, many employers are likely to absorb the majority of the surging health coverage costs to maintain attractive benefits packages. Beth Umland, a director of research at Mercer, suggests that this approach is in line with what many employers are expected to do.
Mercer’s survey, which included approximately 1,700 employers, projected a 6.6% increase in healthcare costs for 2024, excluding changes in plan design that could potentially increase workers’ out-of-pocket expenses.
When factoring in these adjustments, Mercer estimated a 5.4% increase, consistent with the 2023 estimate but representing a departure from several years of mostly smaller increases.
In the individual insurance market, where consumers often purchase their ACA plans with federal subsidies, the outlook for 2024 is comparable to the current year but demonstrates an upward trend compared to previous years.
According to KFF’s analysis of insurer filings, insurers are seeking a 6% median increase for individual ACA plans in 2024, as opposed to the 7% increase they secured in 2023.
Insurers are justifying their requests for higher rates by citing the ripple effects of inflation coursing through the healthcare sector. Cynthia Cox, a vice president at KFF, highlights how inflation is a prominent factor in the ongoing healthcare cost surge.
In summary, the escalating health insurance costs, both for employers and individuals, paint a challenging picture for the upcoming year. As hospitals grapple with rising labor expenses and pharmaceutical spending surges, the burden falls on businesses and employees.
Employers are faced with the dilemma of balancing competitive benefits packages while absorbing the lion’s share of these escalating costs. Meanwhile, individuals purchasing insurance plans under the Affordable Care Act may also experience higher premiums. These factors collectively underscore the complex and evolving landscape of healthcare expenses in the United States.