What American employers have experienced this year and in 2023.
The higher rates reflect the costs borne by health insurers, which are seeing more claims for care that was postponed during the COVID-19 pandemic and a steady rise in the cost of pharmaceuticals as more innovative and effective drugs come to market, according to the study by PricewaterhouseCoopers.
Additionally, health plans have seen a surge in demand and utilization for behavioral health services, which has been hampered by a limited supply of in-network mental health professionals, who are also demanding higher reimbursement rates.
And while drug costs are rising, some of the medications may actually reduce future health care costs for those taking them. There are also new biosimilar drugs coming to market that cost a fraction of the originals.
Cost Drivers
Thanks to a continuing stream of pharmaceutical breakthroughs that are saving patients’ lives and/or improving their quality of life, insurers have to make coverage decisions. Many of the new drugs are costly, but they may also reduce overall health care costs in the long run as they may reduce the need for expensive intervention and emergency treatments.
Two classes of drugs that are on health insurers’ radar in 2024 and 2025 are:
GLP-1 agonists (annual cost: about $11,000).Various of this category of drugs treat type 2 diabetes, and can assist with chronic weight management and may reduce secondary cardiovascular events.
Most health plans offer coverage of GLP-1 agonists for type 2 diabetes. However, health plans won’t cover them solely for weight management, which is not considered an essential health benefit under the Affordable Care Act.
Central nervous system drugs (annual cost: about $22,000). This includes various drugs treating conditions such as Alzheimer’s, Parkinson’s, multiple sclerosis and schizophrenia.
While these medications may make it difficult for health plans to manage their costs, the report notes that despite the initial cost, health plans may see reduced medical costs as patient health improves.
Mental health services are also driving costs, and they were listed among the top three inflators of drug costs by health plans surveyed for the PwC report.
While the per member per month outlays for mental health services have historically been too low to be considered a cost driver of overall medical costs, spending on mental health has jumped 50% since the pandemic. As a result, behavioral health services are accounting for a greater portion of health plan spending.
The main factors affecting costs are a significant supply and demand imbalance for behavioral health services. Health plans are competing with each other to sign on mental health providers from a pool that is not enough to satisfy demand.
Counterbalancing Costs
There are three trends that could counterbalance some cost increases.
Biosimilars. — Biosimilars are biological products that are “highly similar” to and have “no clinically meaningful differences” from an existing Food and Drug Administration-approved reference product. One of the most recent drugs that has seen a flood of competing biosimilars hit the market is Humira (adalimumab), a medication that reduces the signs and symptoms of moderate to severe rheumatoid arthritis.
One report estimates that the savings generated by biosimilars in 2022 was $9.4 billion in the United States. Another analysis performed in early 2023 projects total savings from biosimilars to range from $125 billion to $237 billion between 2023 and 2027.
Health plans are increasingly focused on reducing wasteful spending, which is forcing them to look at:
Exploring new pharmacy benefit manager models. — This is in light of continuing reports of the country’s largest PBMs actually increasing the cost of medications for payers (health plans, self-insured employers and insureds).
Integrating medical and pharmacy benefits. — An example of this is a health plan pharmacy team identifying when members haven’t picked up prescriptions, aren’t taking medications as prescribed or not refilling prescriptions on time.
Connected benefits allow for real-time medical, behavioral health and pharmacy data analysis to help maximize management of chronic conditions, close care gaps and monitor prescription use and potential interaction.
A study of its own clients by health insurer Health Care Service Corporation found that large employer groups with integrated pharmacy and medical benefits saved an average of $516 per member per year in medical costs over a three-year period.
The Takeaway
As health insurance costs continue to rise, we can work with you to find health plans that will fit your and your employees’ budgets and help you look for actions to take that could have a positive effect on your rates.
According to a study by the Substance Abuse and Mental Health Services Administration, 10% of America’s workers are dependent on one substance or another.
The nation is still battling the biggest drug scourge: opioid and fentanyl. Provisional data from CDC’s National Center for Health Statistics indicate that in 2023 there were an estimated 107,543 drug overdose deaths in the U.S., 81,083 of which were opioid-related. While those are shocking statistics, the majority of addicts are hooked on other drugs or alcohol, and that includes millions of American workers.
A study by the American Addiction Center found that 22.5% of respondents admitted to using drugs or alcohol during work hours. The most common substance used during working hours is cannabis.
Those who work from home at least part of the time are more likely overall to abuse drugs or alcohol than those who work in offices. Overall, people who work from home part-time or full-time are about 10% more likely than people who work full-time in offices to get drunk at work.
As an employer, the costs are great if you have someone on staff who has a substance-abuse problem. Workers with addictions to drugs are alcohol have:
Lower or lack of workplace productivity;
Higher health care costs;
Increased absenteeism and presenteeism;
Diminished quality control;
More disability claims;
Increased workplace injuries;
Lower morale;
Higher job turnover; and
Employee theft.
How Your Health Plan Can Help
If you have an Affordable Care Act-compliant health plan, it will offer access to mental health and substance abuse treatment, which is considered one of 10 essential benefits plans must offer.
The ACA requires health plans to pay for prevention and early intervention as well for substance abuse issues.
Health care plans also have to comply with a “parity” law, which requires them to treat mental health issues the same way they do physical diseases. Since the COVID-19 pandemic demand for mental health services has soared, straining both providers of those services and the health plans.
The Centers for Medicare and Medicaid Services in 2024 also started requiring all ACA-compliant health plans to contract with at least one substance use disorder treatment center and one mental health facility in every county where they are available in the plan’s service area.
What Else Can You Do?
Some employers have tried to help employees tackle their addictions or abuse problems by implementing workplace prevention, wellness and disease-management strategies. These programs improve health, which lowers health care costs and insurance premiums and produces a healthier, more productive workforce.
Considering offering an employee assistance program. These programs offer temporary free access (typically a set amount of sessions) to a number of services like counseling as well as substance abuse assistance. These sessions are confidential and the employer will not know if an employee is accessing them.
Consider offering more accessible substance use management solutions, like digital and telehealth-based solutions. There are a growing number of these types of service providers, which make accessing counselors more convenient and cost-effective.
Offer confidential screenings and assessments. There are a number of screening, brief-intervention and referral-to-treatment modules available to help people confront their drinking or drug use and get the help they need.
Every year employees across the country choose the wrong group health plan from their employer because they don’t understand the coverage and what type of plan is best for their circumstances.
This ends up costing them hundreds if not thousands of dollars in unnecessary medical and premium outlays each year. But you can help them avoid leaving money on the table by educating them with helpful materials and a process that lets them find the plan that is best for their life circumstances.
The 2023 “Aflac WorkForces Report” found that while 51% of employees have a solid understanding of their total annual cost for health care coverage and care, just 39% have a full understanding of their health insurance policy. Additionally, 30% of employees say they need more information surrounding their benefits.
To help your staff choose the plan that best fits them requires an educational effort and outreach, but it should not consume all of your time. Sometimes shorter presentations, resources in print and electronic formats, followed by individual assistance in helping staff pick the right plan is the best approach.
By giving your communications strategy a boost, you can improve employee confidence in their benefits decisions and save a lot of money and headaches along the way.
Educating Employees
Don’t inundate your staff with educational materials that get bogged down in jargon and that are long and complicated. Often clear and concise materials are best, especially ones that use bullet points and infographics.
Benefits experts caution that human resources personnel should not go too far into the weeds in terms of being technical. Instead, provide bite-sized chunks of information that can help them whittle down their choice to a few plans.
The materials should give different scenarios for workers to help them decide on a plan. The documents can point them towards the right type of plan depending on their life circumstances, like:
A 27-year-old single female employee with no health problems, spouse or dependents.
A 46-year-old married father of three young kids.
A 58-year-old divorced woman with high blood pressure and asthma.
One thing that can really help your employees is an online calculator. Most health plans today offer these tools to help employees figure out which plans being offered best fit their needs. They plug in some simple details and the calculator will evaluate all of the plans on offer and recommend which one works best for them.
The tool compares out-of-pocket expenses, copays, coinsurance and premium costs in order to whittle down the plans. Some will even look for plans with the enrollee’s family doctor.
If the calculator doesn’t include this last feature, the employee should take it upon themselves to check before committing to a plan.
Here are the most important items that your workers should be considering:
Their Family Doctor(s)
Even if you are offering the same plans as last year, it’s a good idea to tell your employees to check the plan to see if their personal physician or their kids’ pediatricians are on the list of providers. Health plans make changes every year, so it’s important to check.
Getting the Financial Balance Right
This is important as some people end up spending more up front on higher premiums in exchange for lower out-of-pocket maximums and/or deductibles. But for a young, healthy person that rarely visits the doctor, that may not be the best option and they may be unnecessarily spending too much on premiums for overly generous benefits they may not even use.
You should ask your employees to look at the deductible they had in the last year and see if they reached it. Then:
If they did not, they should consider reducing their premiums in exchange for a higher deductible.
But if they surpassed the deductible or came close, paying more for a plan with a lower deductible might save them money overall. If this is the case, they should also look into the plan’s cost-sharing (copays and coinsurance) rules for medical expenses that kick in beyond the deductible.
Besides that, the deductible levels, copays and coinsurance levels must also be considered. They should understand how much they can be out of pocket.
Worst-Case-Scenario Calculation
It’s important that your employees understand the implications for them if they suffer a medical crisis.
For a full perspective, they can:
Calculate the total premium they will pay for the entire year (their monthly premium contribution x 12), and
Add the out-of-pocket maximum for the plan.
The total is how much they would have to pay overall if they suffered a medical crisis.
One Last Thing…
Finally, you should consider offering your workers a package of other voluntary benefits that will help fill any gaps in their main health coverage.
Supplemental plans you should be offering include accident, critical illness, or long-term care coverage should they have an unexpected accident or serious illness.
Sales of voluntary group benefits grew at a record pace in 2023 as more employers expand their offerings and demand continues booming as employees seek out benefits that can defray costs, according to new research.
Premiums collected for employer-sponsored voluntary benefits jumped 6.7% during the year to an aggregate $9.3 billion, with all lines of coverage contributing to the growth, according to the Eastbridge Consulting Group’s annual “U.S. Voluntary/Worksite Sales Report”.
The findings underscore the value that employees place on these benefits, particularly in defraying health care-related costs.
According to the report, in 2023:
Group term life insurance premiums increased 10% from the 2022 level.
Group universal life and whole life were up 9%.
Critical illness insurance premiums were up 7%.
Hospital indemnity premiums were 6% higher.
Dental coverage was up 5%.
Short-term disability coverage was up 4%.
Accident insurance rose 4%.
The Biggest Driver: Personal Finances
One of the main drivers of this surge in employee uptake of voluntary benefits is that they can often defray expensive and sudden expenses.
With the increase of high-deductible health plans and the resulting potential high out-of-pocket expenses workers may face, they are gravitating towards products that can provide much-needed cash in case of an unexpected event. These include many of the benefits that have seen strong sales growth in the last few years:
Accident insurance — This coverage provides a lump-sum cash payment to an individual due to an event covered under the policy. The funds can be used as needed to help cover things like deductibles, out-of-pocket medical costs or everyday living expenses.
Critical illness insurance — This provides a lump-sum payment or monthly payments to help cover expenses if a policyholder is diagnosed with a serious illness covered by the policy. This type of insurance supplements their existing health insurance and is designed to help them focus on recovery instead of costs.
Hospital indemnity — Hospital indemnity insurance supplements existing health insurance coverage by helping pay expenses for hospital stays. Depending on the plan, the insurance gives the policyholder cash payments to help pay for the added costs that may arise while they recover.
Other products that help policyholders save money include dental and vision insurance, pet insurance (in the face of massive increases in veterinary costs), income protection and telemedicine services.
The Takeaway
There are a number of other voluntary benefits that employers can offer, but the above are the ones that directly can help your employees if medical bills hit unexpectedly.
Premiums for these various coverages are either paid by the employer, split between the employer and employee or solely paid by the worker. Arrangements will vary between employers. Premiums are often reasonable.
More importantly, these coverages offer peace of mind that in the event of an accident or illness, the related expenses won’t break the bank.
The Department of Labor’s new fiduciary rule, which mainly applies to 401(k) plans, will also affect employers who offer their staff health savings accounts.
The new rule, which takes effect September 2024, bars employers from providing advice to their workers on how they should invest the funds in the HSA they offer. It should be noted that just offering an HSA does not, in and of itself, make a sponsoring employer a fiduciary, as long as the employer doesn’t cross the investment advice line.
While HSAs are used to save for medical costs in the future, account holders can invest the funds in them just like they can with 401(k) plans and allow those returns to accrue over the years. HSAs are also portable, meaning they can be moved from one employer to the next, and they can be kept until retirement years.
Since HSAs were established 20 years ago, they have typically been exempt from ERISA, but this new rule changes that.
The rule states that a fiduciary may not receive a fee in connection with providing investment advice, which could occur when, for example, an individual recommends an HSA investment, investment strategy or rollover and receives a commission.
More importantly for employers, the new rule expands the definition of fiduciary advice to cover a one-time recommendation.
Investment Education
That doesn’t mean that employers can’t educate their workers on the features of their HSAs. That’s because under current Department of Labor regulations, there has been a long-standing exception from fiduciary status if an individual or organization is providing “investment education.”
For example, employers may provide a wide range of information about the HSA program they offer, including the types of investments account holders have access to, without assuming fiduciary status. Topics that do not create a fiduciary relationship include information about:
The benefits of participation,
The benefits of increasing contributions,
Investment fund strategies and objectives, and
Fees and expenses.
To avoid fiduciary status, you simply should refrain from recommending how employees invest their HSA funds.
You should also check to see if your HSA provider offers investment advice regarding your employees’ accounts. If you have concerns, please reach out to us.
The 2024 “State of Employee Benefits Report” by benefits administration provider Benefitfocus found that 45% of Gen Z workers and 43% of millennial workers surveyed were enrolled in HDHPs. The report notes 84% of employers offer both HDHPs and traditional health plans to ensure that they can met the needs of a multi-generational workforce.
It emphasizes that employees often choose health plans that will end up costing them more than it should in terms of out-of-pocket expenses or premiums, and that employers should help by providing assistance and education.
Study Findings
The trend of more Gen Z workers gravitating to HDHPs makes sense, since these plans are best suited for younger individuals who are generally healthier and have fewer health problems than their older counterparts — Gen Xers and Baby Boomers.
HDHPs feature higher deductibles and more out-of-pocket expenses in exchange for lower premiums upfront. The plans are typically tied to a health savings account (HSA), which employees can fund with pre-tax dollars to reimburse for health-related expenses.
But employers are cautioned against offering just HDHPs as they are not a good fit for everyone, particularly those who are regular users of their health plans or have chronic conditions that require more doctors’ visits, medical procedures and medications.
The study suggests that employers should offer a mix of plans that will meet the needs of their workforce. It found that:
64% of health plan enrollees selected a traditional plan in plan year 2024, compared to 69% in 2022.
Across generations, higher-salaried individuals choose HDHPs over traditional plans.
Generation X has the highest premiums compared to other generations, across all plans.
The average employer covers 78% of their employees’ health insurance premiums, up from 74% in 2022. Despite the increase, employees are still facing higher premium outlays.
Participation in HSAs and flexible spending accounts fell 20% from 2022 to 2024, indicating that employers are not doing enough to educate their staff about these tax-advantaged accounts.
One of the keys to a successful employee benefits program is to ensure that your workers are all choosing a plan that is best for their life situation. Choosing the wrong plan could end up costing them more in either:
Upfront premiums for an unnecessary expensive plan with strong benefits that the employee may not use because they are young and/or healthy, or
Out-of-pocket expenses if they choose a plan that has a high deductible when they are frequent users of medical services, either due to pre-existing conditions or other issues that crop up later in life.
What You Can Do
The report recommends that employers:
Focus on assistance and education — The study found that 70% of workers want help from their employer to better understand the employee benefits they are enrolled in or are considering.
To help your staff choose the plan that’s going to give them the most bang for their buck, your guidance and advice can be crucial. During your educational sessions, provide scenarios of how choosing the wrong plan can financially burden an enrollee. Provide tools that can help them ascertain which plan is right for them.
Offer a mix of plans — To ensure that employees have access to the health plan that is best for their health circumstances and budget, you should offer a mix of HDHPs and traditional health plans like health maintenance organizations and preferred provider organizations.
You can tailor your employee benefits educational sessions to each generation. Make sure not to overgeneralize, as there are instances when a younger person should be in an HMO or PPO.
Offer voluntary benefits — Not all voluntary benefits are created equal, and some add more value than others. These plans complement an existing health insurance plan by providing a financial backstop when faced with an unexpected medical emergency. They include:
Accident insurance
Critical illness/specified disease insurance, and
Hospital indemnity insurance.
As well, benefits that help with other unexpected expenses that life deals increasingly burdened employees, are growing in popularity:
