The current rate of inflation in the US is the worst it has been in over 40 years. Inflation is putting the pinch on pocketbooks everywhere—reflected in rising costs for fuel, food, housing, durable goods, and, most recently, services. Businesses are struggling to break even between production costs and labor costs, including employer-sponsored benefits. 

 

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For many years, the employer-provided health insurance premiums have risen faster than inflation as measured by the Consumer Price Index (CPI). Now, with inflation above 9% per year, employers rightfully worry about how high 2023 health care expenses might climb.  

 

Business leaders are striving to stay competitive in a tight labor market by providing benefits that support the workforce of the future. In this article, we will explore recent trends in employer health benefits costs, what is driving the surge in expenses, and what analysts predict will happen next. Additionally, we will share what actions business leaders are taking to control healthcare costs. 

 

Recent Trends in Employer Benefits Costs 

According to the US Bureau of Labor Statistics, in March 2022, employer costs for employee compensation averaged $40.90 per hour worked. Additionally, employers spent $12.74 per hour (31.2% of total compensation) on employer-sponsored benefits, up from $12.18 in Spring of 2021.  

 

Reasons Behind Surging Healthcare Costs 

There are many factors contributing to rising healthcare costs. According to employer benefits provider Transamerica Life Insurance, “US healthcare is suffering from a ‘COVID-19 pandemic hangover,’ including inflation, labor shortages and supply chain problems.” Employees deferred voluntary procedures and routine medical exams. Today, patients are making up for lost time and the costs are adding up quickly. The pandemic also exacerbated mental health conditions; along with increased anxiety and depression, the past two years have shown a substantial increase in addiction. Finally, the rising cost of prescription drugs continues to drive cost inflation. 

 

Analysts Predict Rise in 2023 Health Insurance Premiums  

Employers must act fast to stay ahead of rising healthcare costs. Most are already making action plans; 94% of employers intend to emphasize managing healthcare costs as a top priority over the next two years, according to Willis Towers Watson. 

 

Unfortunately, employer benefits industry analysts predict further inflation in the cost of employer healthcare benefits. After reporting a 7% rise in medical costs in 2021, PwC predicted a further 6.5% increase in 2022. A 7.6% increase in employer costs was projected by Willis Towers Watson as well. 

 

Health insurers have submitted their planned increases to state insurance regulators for approval, and it is clear premiums will rise substantially. In New York, insurers requested increases as high as 30% in some cases. Reports by the Times Union newspaper claim, “the average premium increase requested by insurers for small group employers with less than 100 employees was 16.5%.”  

 

ACA Safe-Harbor Amount Will Increase in 2023 

For the 2023 plan year, employers once again need to ensure health insurance plans provide Minimum Essential Coverage under the ACA. According to Mercer, “the 2023 play-or-pay federal poverty line (FPL) affordability safe-harbor amount for calendar-year plans will increase to $109.85 per month — a fairly significant hike from the 2022 amount of $103.15.” 

8 Tips for Controlling Healthcare Costs 

How can employers contain their health benefits costs while still ensuring a high quality of care for employees? Here are eight tips to consider: 

 

1. Do not count on passing the increase on to employees. Small businesses often contain burgeoning healthcare costs by shifting the burden to employees through cost sharing. But experts say it won’t work well for 2023. That is because employee salary increases have not kept up with inflation, and workers are tapped out due to soaring costs for life’s necessities. They simply will not be able to afford higher deductibles, premiums and co-pays next year. More employers are considering low/no deductible plan options as well as free employee-only coverage. Mercer reports, “just under one-third (29%) of small employers already offer no-cost employee-only coverage.” 

2. Shop around with a benefits broker. There’s a lot to consider when trying to compare plans and premiums, including “pharmacy and medical rebates, spread pricing, shared savings, commissions and overrides” as stated by Benefits Pro. Your broker can help analyze plans side-by-side and cut through the terminology to find the best coverage at the lowest cost. Remember, the key here is value, not cost alone. 

3. Help employees become more proactive about their health. Healthier employees cost less to insure. High deductibles create an obstacle to employees seeking care, especially early in the year. Consider offering FSA or HSA and making a beginning of the year employer contribution to get employees going with their preventative care. Additionally, Willis Towers Watson reports “66% of employers plan to revamp health and wellbeing programs to support remote workers.” 

4. Include virtual care in your insurance plans. By the end of 2023, Willis Towers Watson predicts “95% of employers will offer virtual for medical and behavioral health with expected benefits of helping decrease costs and improve outcomes.” 

5. Become more data driven. To lower or contain costs, you need to understand what is driving them. You will want to work with insurers, brokers, and third-party admi
   nistrators that offer good data transparency, accurate tracking of cost trends, and thorough analysis of health costs to help guide your decision-making. Further, take advantage of benefits cost reporting and analytics features within your own HCM system. 

6. Narrow your network. Once you have the data stream, you can lower costs while maintaining good outcomes by analyzing claims. This data can help you determine the providers and facilities your employees visit that deliver the best value. Use claims data to narrow your network, so employees gravitate toward more cost-effective providers.  

7. Optimize medical utilization mix. Your broker can help you use claims data to spot areas where patients over-utilize high-cost services that don’t deliver better results, such as 3D imaging in situations where 2D delivers the same effectiveness. When plans optimize for utilization, employers can save big. 

8. If self-insured, review your formulary plan carefully. More and more high-priced specialty drugs have come onto the market to treat chronic conditions such as high cholesterol, heart disease, cancer and diabetes. Reports from Benefits Pro show “total dollars spent on specialty-drugs doubled in the past 10 years and now account for 50% of plan drug spending.” Some specialty drugs are modern-day miracles; others do not result in significantly better outcomes than lower-cost and generic drugs. If your business self-insures, it is vital to determine which drugs represent real value and which should be left off the formulary. 

 

Even in an era of high inflation, there is still a lot leaders can do to help contain workforce healthcare costs. Asure can also help your business reduce the burden of benefits administration by streamlining online open enrollment, plan setups, and payroll deductions. If you’d like to speak to an HR representative about your business, contact us.