USI Offers Employers Strategies for Addressing Impact of Rising Health-Care Costs

Despite many COVID-19 restrictions ending, employers are still dealing with myriad challenges set in motion by the pandemic, and they need strategies to manage them in 2024.

USI Insurance Services has published a new report with information and tips for employers to help reduce the impact of rising health-care costs.  

“Employers are still dealing with challenges the pandemic set into motion,” the USI 2023 Employee Benefits Market Outlook states. “Benefits spending continues to be impacted by increasing health care costs.”

The report set out to provide an overview of the top challenges facing employers, along with insights and ways employers can reduce the impact of cost-driving issues to prepare their plans for 2024, according to USI.

In August 2022, Aon reported that average health-care costs for U.S. employers were expected to increase this year at a slower rate than inflation.

Average costs for U.S. employers that pay for their employee health plans were forecast to rise 6.5%, to more than $13,8000 per employee in 2023, lower than the 7.1% inflation level during 2022, according to Consumer Price Index data from the Bureau of Labor Statistics.

High inflation, a surge in demand for health-care services delayed by the COVID-19 pandemic and ongoing staffing challenges, particularly for certain businesses, are among the challenges employers are having to grapple with, the USI study found.

USI predicted the following factors will challenge employers to manage health-care costs:

• Difficulty filling open positions has led to 21.1% wage growth for health care workers since 2020, compared to 13.6% for other private-sector employees, data from Fitch Ratings shows;
• The cost of medical-care commodities, including medical equipment and supplies, as well as prescription and over-the-counter medications, rose 5.5% over the past year, according to the Bureau of Labor Statistics;
• The price of more than 1,200 different medications increased faster than inflation between July 2021 and July 2022, found a 2022 report from the Department of Health and Human Services; and
• Emerging cell and gene therapies will also continue to affect the cost of health care, as the most expensive treatment approved for use in 2022 costs $3.5 million per claimant, USI data shows.

Employers’ benefit spending continues to be impacted by concerns about health-care costs rising in 2023, wrote Arthur Hall, USI’s employee benefits national practice leader, in the executive summary of the report.

With these factors continuing to challenge employers, “Many businesses have experienced  their worst yearly renewal in 2022 as compared to the past five years,” because rates were higher in 2022, the report found.

Renewal of health-care benefits is the yearly re-enrollment during which insurers adjust their rates and offerings, and employers select plans.

USI data found that encouraging preventative care and reducing the cost of claims may also help employers cut costs, as analysis shows that for many, 5% of plan members are responsible for 60% of claims—moreover, many stem from undiagnosed conditions or mismanaged chronic disease care, according to the report.

“Routine preventative care and chronic disease management helps improve employee health, which can lower the overall cost of claims,” USI’s report stated. “Utilization and claims data can help you understand what’s driving top claims costs and which solutions to implement.”

The report also advised employers to explore transferring more of their health-care costs to employees through plan design changes. By switching from a “rich” preferred provider organization plan to a high-deductible health plan, employers can reduce premium by as much as 30%, USI finds.

High-deductible health plans can be paired with a health savings account for employees as an additional benefit for employees.

“Making additional changes, like funding a health reimbursement arrangement, can help reduce your overall costs while maintaining benefits for employees,” the report added. “Self-funded plans can eliminate certain state-mandated coverages from their plan design for additional savings.”

Alternative funding, such as level-funded or self-funded health-care plans, may be better suited to some employers than others, according to the report. USI found that employers switching from fully insured to level-funding for plans can save an estimated 5% to 10% on the premium.

“These types of [alternative funded] plans provide savings opportunities by only paying for claims incurred, eliminating carrier profit and premium taxes, allowing for flexible plan design and providing claims data transparency, which allows employers to implement targeted disease-management,” the report stated. “For employers that already have a level-funded plan, unbundling and marketing plan components individually can result in a more customized plan and greater savings.”

The report therefore recommended that employers start the renewal process by understanding the components for total health-care costs and identifying ways to manage fixed and variable costs. By understanding the components driving the cost of renewal, employers may be able to begin at a better point for negotiating prices with an insurer, according to the report.

“With little incentive for insurance companies to control the cost of health care, employers will need to find other ways to mitigate the impact on their health plans,” Hall wrote.

USI found the approach may help employers lower the initial proposed renewal cost between 5% to 7%, states the report.

Employers must select from, essentially three options for employee health care:

• Self-insured plan, in which the employer collects premiums from enrollees and takes on the responsibility of paying employees’ and dependents’ medical claims;
• Level-funded plan, in which the employer pays a health carrier a set monthly payment to cover the estimated cost for expected claims, administrative costs and stop-loss insurance premiums; or
• Fully insured or fully funded plans, in which the employer buys the health plans from an insurer.