Health Inflation Pushes Employers to Pass on Costs to Workers

Employer-sponsored health plans in 2024 may resort again to passing costs on to their workers as medical inflation heats up, aided by demand for weight-loss drugs such as Wegovy, employee benefit advisers say.

Medical plan costs are forecast to rise 7% to 7.5%, and costs for outpatient prescription drugs are expected to go up 10%, according to the Segal Group Inc., a benefits consulting company.

The focus on rising costs comes as open enrollment starts in October for many employers. Employers in recent years have tried to avoid passing on cost increases to their workers to keep health costs more affordable and to aid recruitment and retention during labor shortages. But as inflation catches up to health-care costs, there is less room for avoiding some shifting of the costs to employees, advisers say.

Employer-sponsored insurance covers almost 159 million nonelderly people in the US, according to health-care research institute KFF. It is the largest source of health insurance for people under 65.

If employers don’t make any changes to their plans next year, their average costs would be more than $15,000 per employee, health benefits consultant and broker Aon plc forecast. In addition to health-care price increases, medical use is rising back to pre-Covid levels, Debbie Ashford, chief actuary for health solutions at Aon’s North American unit, said in an interview.

The expected cost increase is “the highest it’s been in about a decade,” she said.

High inflation in recent years, which has lagged in the health sector due to multiyear contracts with providers, is the major driver of the 8.5% increase that Aon forecasts for 2024, Ashford said.

A “significant uptick” in the use of expensive drugs for weight loss, such as Wegovy, is responsible for nearly one percentage point of that increase, Ashford said. Use of the drugs has doubled over the past year, Ashford said.

Obesity Drugs

The advisory firm Willis Towers Watson forecasts a 6.4% increase in employer health plan costs in 2024, or 6% after changes are made, Levin-Scherz said.

About 38% of employers it surveyed cover anti-obesity drugs, Jeff Levin-Scherz, population health leader of health and benefits for North America, said in an interview.

Bloomberg Intelligence estimates weight-loss drugs like Wegovy cost $17,500 in 2023 for 32 weeks of coverage.

Many employers are considering ways to restrict access to them, Levin-Scherz said.

Coverage of weight-loss drugs might be based on more restrictive eligibility criteria, which is usually a body mass index of at least 27 and medical complications such as diabetes, or participation in weight-loss programs, Levin-Scherz said.

High-Deductible Plans

Health insurers and health plan administrators also see employers moving back to an emphasis on high-deductible plans to try to mitigate cost increases.

Adopting high-deductible health plans, which shifts costs to plan members, was the top response for mitigating costs in Segal’s annual survey. The survey was conducted in the summer of 2023 of health insurers, pharmacy benefit managers, and plan administrators that represent more than 80% of the commercially insured and self-insured market.

“They’re expecting increased popularity in high-deductible plans,” Eric Miller, vice president and consulting actuary in Segal’s national health consulting and analytics practice, said in an interview. He said some cost-shifting is inevitable, though employers try to limit it.

Enrollment in high-deductible plans, which typically cost less in premiums, had dropped from a high of 49% of privately insured adults in 2020 to 44% in 2021 and 2022, according to the Employee Benefit Research Institute.

An earlier push by some employers to move employees into high-deductible plans led to concerns that they “don’t work well for everybody in the population, particularly low-paid folks,” Beth Umland, a partner and director of research for health and benefits at human resource consulting firm Mercer, said in an interview.

Addressing affordability for employees remains a focus for most employers, she said.

Mercer forecasts that health benefit costs will rise 5.4% in 2024 after health plans make changes to trim costs.

Protecting Low-Wage Workers

Some employers are taking actions to try to protect low-wage workers, Randa Deaton, vice president of purchaser engagement for the Purchaser Business on Health, said in an interview. The group represents 40 employers that cover 21 million people.

One PBGH member, who Deaton wouldn’t identify, is facing quotes of a 25% increase in premiums for its fully insured plan, she said.

“To offset the cost they are going to ensure that they address affordability for lower-wage workers, having a higher percent of sharing for higher-wage workers,” she said. Lower-wage workers would pay a lower share of their income for their health-care costs under the employer’s plan.

Big cost increases also are spurring more innovation with centers of excellence—hospitals and other medical providers that deliver high-quality care for lower prices. Employees are given incentives, such as lower cost-sharing, to use providers in such networks.

The number of conditions covered by centers of excellence continues to expand, Sunit Patel, a senior partner and chief actuary at Mercer, said in an interview.

Such centers initially were used primarily for relatively infrequent instances such as transplants, he said. They have now been expanded to cover cancer and musculoskeletal surgeries, he said.

Plans with narrower, more efficient networks are also likely to see a boost as a result of the cost increases.

New York-based health plan administrator Centivo, which administers self-funded plans with low-cost primary care-centered provider networks, has experienced a doubling in the number of clients to 90 employers covering about 75,000 people, CEO and founder Ashok Subramanian said in an interview.

Smaller companies are seeing “staggering increases” in their health costs—as much as 63%, Subramanian said.

Employers are “asking for more granularity, more transparency, more detail into the underlying drivers of why the costs are allegedly going up,” he said.

He said he expects more business in 2024 as employers try to control costs. “We do expect this trend to continue.”