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Mitigate Rising Healthcare Costs

posted by TrueNorth Employee Benefits on Wednesday, May 31, 2023

Industry experts project a 6% to 8% increase in employers’ health care costs in 2023.

Employers may see a greater increase should they fail to take effective action to curb rising costs. As companies brace for further health care cost hikes in 2023, they're desperately searching for solutions to manage their growing costs and address the long-term impacts of these increases on their organizations.

What's causing the increase?

There are several reasons why employers’ health care costs are increasing. While most employers experienced reduced claim costs during the COVID-19 pandemic, medical plan costs have begun returning to pre-pandemic levels as health care utilization rebounds, outplacing inflation, and wage increases.

Utilization has especially increased for employees dealing with severe chronic diseases and late-stage cancer due to missed or delayed care during the pandemic. Further, some employees are facing long COVID-19. Even employees who recovered from COVID-19 are experiencing cardiovascular and neurological diseases, causing employers’ health care costs to increase. In addition, rising expenses among medical providers and specialty and novel prescription drugs are exacerbating employers’ health care costs. The projected annual costs trend for outpatient prescription drugs is expected to approach double-digit levels—the highest rate since 2015— due to price increases and new specialty drugs.

Inflation is also causing health care costs to rise, and it will likely drive up costs moving forward. Additionally, there’s been an increase in hospital closures, physician retirements and health care worker quits. In fact, 3% of health care workers quit each month of 2022, according to the U.S. Bureau of Labor Statistics. The recent trend of consolidation among hospitals, physician practices and commercial insurers is also triggering higher health care prices for private insurance. Altogether, these developments are putting further pressure on the health care system and causing costs to increase.

What can you do?

Planning is critical for employers to develop cost-saving strategies in 2023. Traditionally, many employers have addressed rising health care costs by shifting a greater share of costs onto their employees. While some employers plan to stick with this strategy, savvy employers will recognize the potential chilling effect this can have on recruiting efforts due to the state of the labor market. Employers should understand that employees are already financially strained due to inflationary pressures. However, employers’ budgets may be limited, so increased health care spending will likely restrict spending elsewhere. In 2023, employers should be open-minded regarding strategies that could help manage their health care costs while attempting to improve affordability for employees, such as investing in telemedicine or incentivizing employees to seek cost-effective care options. Some organizations are negotiating with providers, as some carriers are currently offering discounts and reduced management fees.

Additional Cost Mitigation Strategies include:

• Modifying health plan designs
• Incorporating health care analytics
• Improvin employees' health care literacy 

Rapidly increasing health care costs will likely continue to impact employers for the foreseeable future. Savvy employers will look to implement effective strategies now to rein in these costs and keep employees healthy. Employers who proactively implement strategies to address rising health care costs will be better positioned to meet their employees’ needs and find long-term solutions to mitigate costs.

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