Rising Healthcare Costs Compel Employers to Prioritize Plan Affordability
As healthcare benefits costs continue to rise, 67% of U.S. employers are focused on cost control over the next three years. This is in response to an expected 6% increase in healthcare costs in 2023, compared to the average 5% increase this year.
According to the 2022 Best Practices in Health Care Survey by consultancy WTW, 54% of respondents expect their costs to be over budget this year. The survey was conducted among 445 U.S. employers employing 8.2 million workers.
As healthcare costs continue to rise, cost management and employee affordability become increasingly crucial for employers. The WTW survey found that 52% of employers plan to implement new programs or switch vendors to reduce their total costs. However, 24% also intend to shift costs onto their employees through higher premium contributions.
Some of the strategies outlined by employers in the survey include:
Increasing Health Plan Budgets
More employers are choosing to increase their health plan budgets without cutting funds from other benefits or reducing employee pay. 20% have already taken this step, and an additional 30% plan to do so in the next two years. This trend may be attributed to a growing awareness of the importance of employee health and well-being, as well as increasing healthcare costs.
Providing Defined Contribution Plans
Employers are increasingly turning to defined contribution plans where each employee receives a specific amount based on their job tier within the company.
Currently, 41% of employers use this strategy, with an additional 11% planning to do so in the next two years. This approach offers both flexibility for the employer and potentially greater control for employees in managing their retirement savings. The amounts are invested in capital markets, and taxes are deferred until their withdrawal.
Evaluating Employee Contribution as a Percentage of Income
The use of employee health contributions as a factor in designing the benefits strategy is expected to increase dramatically in the next two years. Currently, 13% of employers consider this metric, but this number is predicted to jump to 32%.
This trend may be driven by a desire for cost-effectiveness and fairness in benefits allocation. Examining employee contributions as a percentage of income may allow for a more personalized approach.
Implementing Contribution Banding
Many employers are turning to contribution banding as a way to lower benefits costs for specific groups of employees or job classes. Approximately 28% of employers currently use this method, and an additional 13% are considering implementing it within the next two years.
Contribution banding involves structuring payroll contributions based on salary level or job classification rather than a set percentage across all employees. This strategy can help lower costs for certain employee groups and simplify benefits administration and communication for both HR and employees.
Offering Low-Deductible Plans
A low-deductible plan, with a deductible of $500 or less for single coverage through a preferred provider organization, was offered by 32% of surveyed organizations this year. Another 7% are considering offering such a plan in the next two years. This plan can provide employees more immediate and affordable access to healthcare services. As a result, it could improve overall employee health and reduce long-term healthcare costs for the company.
Battling Fraud, Waste, and Abuse
The WTW survey found that 27% of respondents currently have programs to combat fraud, waste, and abuse. Another 22% plan to implement such programs within the next two years. While sometimes expensive and time-consuming, these measures can help organizations detect and prevent financial wrongdoing and protect against related legal repercussions.
Increasing Out-of-Pocket Costs
Currently, 23% of companies have increased out-of-pocket costs if less efficient services or locations are used, such as nonpreferred labs or expensive imaging facilities.
Alternatively, organizations require the use of high-quality, cost-effective medical centers of excellence. These centers would provide specialized care in specific areas, such as oncology or cardiology, while also managing costs and improving outcomes.
An additional 19% are considering implementing these measures in the next two years. These changes are aimed at reducing healthcare costs while maintaining quality care.
Offering Concierge Navigation
As more companies prioritize employee wellness and health benefits, many are opting for concierge navigation services. Currently, 21% of companies offer this option to employees, even if they had to move to a third-party administrator from a traditional full-service health plan. Another 25% intend to follow suit by 2024.
Concierge navigation includes personalized support for healthcare decision-making, referrals to specialists, scheduling appointments, and navigating insurance claims and coverage options.
Improving Voluntary Benefits
According to the survey, 35% of companies expanded or improved their offering of voluntary benefits, such as supplemental health insurance, for employees. Another 27% are considering doing so in the next two years.
Often offered in addition to a standard company health plan, these benefits can provide financial support in a catastrophic event. This can include coverage for additional hospital expenses or disability income replacement.
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