Redefining Healthcare Benefits: New Economic Realities

November 28, 2023
Plan sponsors are well aware of the high cost of healthcare in America

Plan sponsors are well aware of the high cost of healthcare in America. They expect their healthcare benefit costs to continue rising. As reported by Marsh & McLennan Agency in its “2023 Benefits Trends: The evolving workplace,” U.S. employers can expect health benefits cost per employee to increase by 7%. This is equivalent to an overall cost of over $13,800 per employee and double what employers’ health care budgets were in 2021 and 2022. High-cost prescription drugs and gene therapies were cited as a particular source of frustration for employers. Also contributing to high health benefit costs are increases in healthcare utilization, claims, and employment trends such as demand for more mental health benefits. Here is how the health benefit landscape is evolving.

New Benefits, Rising Health Spending

During the pandemic, many people felt isolated and depressed which led to a growing interest in mental health services. In 2022, this prompted 23% of employers to add these services to their employee benefits package. These benefits, however, weren’t the only contributors to the new health benefit economics. Annual health spending in the U.S. rose by 9.7% in 2020 to $4.1 trillion. Subsequently, health care costs have continued to outpace inflation over the past three years with expectations that this trend will continue.

While the average estimated increase in health benefits has been 7%, in 2023, many employers have adopted significant plan changes and new cost management strategies which can help hold down those increases to an estimated 5.6%. Tackling the costs of hospital care, home health care, prescription drugs, physician services, etc. now demands new programs which more employers are gravitating towards. Further adding to the cost burdens is the ensuing shortage of clinical staff, from nurses and physicians to medical technicians.

New Health Benefit Cost Containment Strategies

Understandably, plan sponsors are looking for ways to contain costs without having to shift more expenses to their plan members. Among the strategies they are looking at are integrated care management from the pharmacy benefit managers (PBMs) and health plan providers, as well as supplemental pharmacy coverage. Additionally, they are turning to targeted disease management programs to lower costs through improved outcomes particularly for those medical conditions such as chronic obstructive pulmonary disease (COPD), diabetes, and musculoskeletal conditions.

Another strategy employers are adopting is the use of high-value care networks including alternative networks, high performance networks and centers of excellence. Their expectation is that using these providers can provide savings through their emphasis on early detection and disease prevention. Population health management is also being embraced by employers as it too offers greater integration of care, data capture, and additional opportunities to better identify individuals who currently, or in the future, will demand more targeted health care services. Not surprisingly, implementing programs that target high-cost specialty drugs is also a top priority for employers, 50% of whom say they are being proactive with focused initiatives that help manage specialty drug costs.

While containing their rising health benefit costs is a primary motivator for employers, they also recognize the importance of having strong health benefits both to attract and retain employees.