Benefits August 22, 2023

Employer Health Care Costs Expected to Climb in 2024

Employers will pay more than $15,000 per employee to provide health benefits in 2024, Aon projects.

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Without implementing any employee cost-sharing increases or other cost-saving strategies, employers should expect major health care cost increases in 2024, according to Aon. 

Average costs for U.S. employers that pay for their employees’ health care will increase 8.5% to more than $15,000 per employee, the firm predicted. 

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Such an increase would nearly double the 4.5% rise in health care budgets that employers experienced from 2022 to 2023. On average, Aon estimated that the budgeted health care plan cost for employers this year is $13,906 per employee. 

Aon uses its Health Value Initiative database, which captures information from more than 800 U.S. employers representing approximately 5.6 million employees and $77 billion in 2023 health care spending, to track this data.  

Mercer had previously found that per-employee health benefit costs topped $15,000 in 2022, with smaller employers—those with fewer than 500 employees—spending more per capita than large employers.  

These rising health care costs and budgets have the potential to eat into employer budgets for other benefits that employers offer, including financial wellness, student loan benefits, retirement contributions and more, panelists at the PLANSPONSOR National Conference discussed in June.  

Rising Drug Costs 

Debbie Ashford, Aon’s North American chief actuary for health solutions, said in a press release that even though inflation is subsiding, the cost of health care is still growing, as medical providers push insurers for larger cost increases to cover the higher costs of wages and supplies they endured during the past few years but were unable to pass on to payers. 

“Other contributing factors adding pressure on health care cost trends are the proliferation of newly indicated weight-loss drugs, new technologies, [the] severity of catastrophic claims and increasing share of specialty drugs,” Ashford stated. 

According to the Business Group on Health—a nonprofit organization that represents large employers’ perspective on optimizing workforce strategy through various health, benefits and well-being solutions—pharmacy costs continue to affect trends and affordability.  

The organization’s 2024 Large Employer Health Care Strategy Survey, which gathered data from 152 large employers between June 1 and July 18, found that 91% of employers reported concerns about pharmacy costs. This comes as employers experienced an increase in the median percentage of health care dollars spent on pharmacy, to 24% in 2022 from 21% in 2021.  

For 2024, employers said they planned to deploy various pharmacy management strategies, according to Business Group on Health.  

In addition, half of employers said cancer was the No. 1 driver in health care costs, and 86% said it ranked among the top three. Last year, cancer overtook musculoskeletal conditions as the top driver of large companies’ health care costs for the first time, according to the survey.  

Employers Hesitant to Shift Cost to Participants 

Because of the tight labor market, Farheen Dam, Aon’s North American health solutions leader, stated that plan sponsors are hesitant to shift significant costs to plan participants and make benefits less affordable. 

Aon’s analysis found that employees in 2023 are contributing about $4,675 for health care coverage, of which $2,682 is paid in the form of premiums from paychecks and $1,993 is paid through plan design features, such as deductibles, co-pays and co-insurance.  

While the rate of health care cost increases varies by industry, the professional services industry showed the highest average employer cost increase at 7.5% from 2022 to 2023, while the manufacturing industry had the highest average employee cost increase at 2.9%.  

The retail and wholesale industry had the lowest average change in employee contributions, dropping 0.5% from 2022 to 2023.  

To help plan sponsors manage their health care spending, Aon developed a Health Risk Navigator, which is aimed at helping employers make better decisions to “optimize reinsurance coverage, improve budget planning and implement targeted care management programs by using machine learning and risk simulation to analyze historical claims and demographic data for each individual employee.” 

Compliance August 22, 2023

ERISA Plan Litigators Use ‘More Credible’ Tactics in First Half of 2023

Mid-year report finds there were fewer cases filed, as plaintiff law firms catch up on those they brought in 2022, but new entrants are using more accurate fee and service benchmarking data, Euclid Fiduciary finds.

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Excessive plan fee and imprudent plan management litigation was lower in the first half of 2023 than it was last year, but plaintiff law firms also appear to be getting smarter in their arguments, according to analysis from Euclid Fiduciary.

There were 21 excessive fee and fiduciary imprudence cases in the first half of 2023, far off the 89 filed for the full year 2022, according to the fiduciary insurance underwriter. The firm forecasts 45 filings this year overall, almost 50% off last year’s pace.

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But the smaller case load is more indicative of plaintiff law firms catching up with a robust 2022 than of an easing of future litigation, says Daniel Aronowitz, the managing principal in Euclid Fiduciary.

“The number of cases are down as the big firms are digesting their cases,” Aronowitz says.

This year’s slowdown is “likely temporary,” he says, noting in his mid-year analysis that there continue to be demands from plaintiff firms for plan administration information, many of which “turn into lawsuits.”

Excess Fee and Investment Imprudence Lawsuits by Year

2023 projected
45
2023
21
2022
89
2021
60
2020
101
2019
35
2018
22
2017
51
2016
56
Source: Euclid Fiduciary
Overall, Aronowitz says the trend toward excessive fee cases, which have been dominating plaintiff filings in recent years, does appear to be dwindling, with a shift toward investment underperformance claims. Among new claims, trends include claims about providers making income from plan participant assets and allegations of imprudence resulting from providers choosing investment funds in the wrong share class.

2023 Excess Fee and Investment Imprudence Claims, by Type

Excessive RK fees
13
Excessive investment fees
10
Imprudent investment claims
13
Wrong share class
9
High fee / Underperformance of active TDFs
5
Excess float income
5
Proprietary funds
3
Excessive managed account fees
1
Other (self-dealing)
1
Source: Euclid Fiduciary

New Entrants

While the overall slowdown was not surprising, Aronowitz says, given the raft of complaints filed in 2022, the more interesting development is that two new plaintiff law firm entrants, Wenzel Fenton Cabassa PC and Christina Humphrey Law PC, have been making more “thoughtful” arguments.

“Whereas many historical excess fee filings have used artificially inflated fee data and misleading comparisons, these new firms assert somewhat more credible recordkeeping fee claims based on plan services, and some complaints even include participant fee disclosures with accurate fees charged to participants,” Aronowitz wrote in his analysis.

Many excess fee complaints base their case on Form 5500 filings, dividing plan size by number of participants, which Aronowitz argues is often “inflated or just plain wrong.” Firms Wenzel and Christina Humphrey, meanwhile, filed complaints using participant fee disclosures, which he writes are more accurate.

“We consider this historic for the excess fee genre, as most law firms pretend that there is some kind of mystery as to what participants pay for recordkeeping,” he wrote.

The plaintiff law firms are also introducing “new theories of liability” that allege imprudence against plan sponsors who do not monitor interest float and other indirect income being made by recordkeepers, Aronowitz wrote.

The first float claims were included in four complaints by Wenzel Fenton, then copied by another law firm, he notes. In Barner v. McLane Co. Inc., the plaintiff alleges that investment firm Merrill Lynch allowed participant deposits or money withdrawn from the plan from individual accounts to first pass through a Merrill clearing account, with Merrill allegedly being able to keep “millions of dollars” from investment earnings and interest.

Meanwhile, eight complaints, including four from the Christina Humphrey law firm, focus on whether plan sponsors are providing the lowest-fee share classes in plans.

“Plaintiff firms know that share class claims are the most difficult claims to dismiss at the pleading stage and will remain a staple of excessive investment fee claims,” Aronowitz wrote.

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