Health Insurance Costs Are Rising (Again). What Can Companies Do?

Check out the stats—and strategies to lessen the sticker shock

The annual open enrollment period for individuals is here, and many companies will be reviewing and making changes to their plans at the start of next year. In both cases, the cost of health insurance may be an unpleasant surprise. 

Here’s a review of what the increases may be and how organizations can better weather the blow.

How much will plan premiums rise?

Unfortunately, US “employers are bracing for the largest increase in health insurance costs in a decade,” based on “forecasts from healthcare consultants.” Several major benefits consultants “see employer healthcare costs jumping 5.4% to 8.5% in 2024.”

These numbers roughly match up with annual filings that health insurers provide state regulators for plans regulated by the Affordable Care Act (ACA): “For 2024, across 320 insurers participating in the 50 states and DC, this analysis shows a median proposed premium increase of 6%.”

ACA-compliant plans are a small proportion of the total market, but these filings’ detailed numbers serve as a useful proxy for what prices will do across the board.

In addition, the consulting firms Mercer and Willis Towers Watson “found that health plan costs could jump by 6.6% next year, assuming employers made no cost-cutting changes to their current plans.” With such cuts, their projected number is 5.4%. All these estimates contrast with average annual increases of 3% to 4% over the last decade.

However, many employees may not feel the impact—yet. A competitive labor market makes most employers hesitant to pass on the increased insurance costs to employees. A Mercer survey “found over two-thirds of employers either do not plan to shift any cost increase to their staff or will pass on less than the expected rise in 2024.” Doing otherwise could increase turnover when workers are grappling with inflation and may not have trouble finding another job.

Why are health insurance costs rising?

The short and obvious answer is that the cost of healthcare is rising. Among the lesser factors are “changes in pandemic-related costs and the unwinding of Medicaid continuous coverage.” More prominent influences are increased “utilization” of healthcare by individuals, which makes sense with an aging population, and price growth in medical products and services.

“The primary driver of the premium increase is the increases in the cost of healthcare. The increases are associated with increases in the ‘unit’ cost of services primarily from hospitals, physicians, and pharmaceutical companies,” reported Anthem Health Plans, a brand of Elevance Health.

So, the ultimate, most significant reason for price increases is what’s been driving almost everything up: inflation. However, the rise in insurance is especially steep next year because of a brief lag effect that’s unique to the industry.

Usually, healthcare inflation is higher than broader inflation every year. However, the last two years have been different, with medical costs holding steady to their historical averages while other products and services shot up significantly. It’s because “contracts between insurers and providers are typically negotiated for a year or more,” which delayed the recent inflation hitting the sector. This pause is now over.

“Significant inflation in the cost of goods and services in all sectors of the economy has had a profound impact on the cost of medical services,” according to Blue Cross Blue Shield of Rhode Island.

How do employers plan to handle higher insurance costs?

Roughly two-thirds of US workers get their benefits through healthcare plans offered by medium and large employers, and the job market remains hot, with the most recent “US weekly jobless claims at a nine-month low.”

Many employers seek to control costs with debatable strategies, such as “cutting off insurance coverage” for expensive, novel weight-loss drugs or fertility treatments. And many experts say that companies will start to use artificial intelligence (AI) to find ways to lower expenses while more closely scrutinizing access to all expensive treatments.

However, measures like AI aren’t necessarily on the immediate horizon and may not be available as soon for smaller businesses. All employers offering health insurance need to find ways to control costs now, striking a balance between minimizing overhead while staying competitive in the employment market.

Actionable strategies for controlling costs

Employers looking to mitigate expensive increases to benefits as they consider new plans have some options, including:

1. Shop around for plans and look for creative solutions.

The advice to comparison shop is pretty straightforward, as there’s variance between how much different plans will bump their costs. The rate filings for ACA-regulated health plans showed increases as low as 2% and as high as 10% in 2024, so there may be cheaper options.

However, employers can also get creative. For example, a smaller company that previously opted for a generous plan may cut costs by choosing a less comprehensive plan and layering supplemental or catastrophic coverage on top of it.

2. Invest in employee health—if the organization meets size thresholds.

Implementing employee wellness programs, from education to incentives for proactive health services, can pay off significantly in decreased healthcare utilization and subsequent costs. Employee wellness also has benefits for productivity and retention among most companies.

However, this strategy really only impacts healthcare costs for organizations of roughly 100 employees or more. Smaller companies offering community-rated plans could have the healthiest employees in the world, but they are still subject to the overall health of the community’s participants. Nevertheless, businesses that approach the 100-person threshold start to obtain cost-cutting incentives to improve employee health, so explore these options if they apply.

3. Work with experts

All these suggestions rely on using qualified, experienced brokers and advisors who can help companies find ways to save. In addition to essential evaluations of plan prices and benefits, an expert can suggest creative ways to structure benefits that remain valuable, running the numbers on different scenarios.

The details may be complex, but the mission is simple: help you figure out creative solutions that provide a competitive benefit for employees—but do it at a price that’s as affordable as possible.

Karp HR Solutions helps businesses master the mix of finance and human resources. Contact us today for a free consultation.