Employers cite healthcare costs as obstacle to recruit and keep workers

As the job market continues its hot trajectory, what’s thwarting employer efforts to attract and retain talent? Well, it’s not just competitive wages or culture woes. It’s healthcare costs, employers say, as the amount that employees pay for medical care and insurance rises to unsustainable levels and takes a toll on employees’ finances.

Unmanageable healthcare costs foil employer efforts to attract and retain talent as 73% of organizations say it crowds out salary and wage increases and 82% report it impacts their ability to remain competitive, according to a new survey of more than 150 employers conducted by the National Alliance of Healthcare Purchaser Coalitions and its members.

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“The consensus among many of the responding employers is that attracting and retaining employees has become a street fight,” says Michael Thompson, National Alliance president and CEO. “Concerns about a recession and runaway inflation make it even more critical that employers are able to hire and keep top talent, and getting unreasonable healthcare costs under control can have far-reaching impact on wages and ability to compete.”

Indeed, the National Alliance survey finds that attraction and retention has never been a bigger priority, with the majority of employers (78%) strongly agreeing it’s of greater importance now and 100% saying that health and wellbeing benefits are critical to achieving that priority. To learn more about how to contain healthcare costs, attend the upcoming Health & Benefits Leadership Conference taking place in Las Vegas from May 3-5. Learn more and register here.

Healthcare costs are rising across the board thanks to a confluence of factors, including soaring inflation, economic instability and increased healthcare utilization as a result of the pandemic. The National Alliance also cites drug prices (93%), high-cost claims (87%) and hospital costs (79%) as the most significant cost drivers of employer-sponsored health benefits coverage for employees and their families.

Even though employers have largely been doling out salary increases, they often pace the rate of cost of living. Meanwhile, medical costs keep increasing, too. And it’s causing issues from employees’ points of view and prompting many to explore other job opportunities in search of better pay and better benefits.

Related: 2023 looks to be a ‘banner year’ for salary increases

Consulting firm Willis Towers Watson finds that U.S. employers project their healthcare costs will jump 6% next year, compared with an average 5% increase they are experiencing this year. Most employers see little relief in sight, as seven in 10 (71%) expect moderate to significant increases over the next three years. In another report, WTW found that global healthcare costs are projected to jump 10% in 2023—the highest level in nearly 15 years.

Employers, though, are trying to make efforts to hold down costs. According to the National Alliance survey, almost half (47%) of employers are using centers of excellence, and within the next one to three years, many employers are considering tiered networks (46%), site of care (43%), contracting and performance guarantees tied to Medicare pricing, and reference-based pricing (36%).

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Other leading health strategies that employers are embracing include considering high-cost claim management (94%), expanding mental health and substance use access and quality (94%), looking for hospital quality transparency (93%) and price transparency (91%), and adopting whole-person health that covers both physical and emotional wellbeing (90%).

Experts also warn that shifting rising costs to employees in a competitive job market is not the way to go if it can be helped.

“Employers face tough choices about how to manage cost increases for the company while keeping coverage affordable for employees and attracting scarce talent in a tight labor market,” Lindsay Hunter, senior director of health and benefits at WTW recently told HRE. “Many employers are drawing a line in the sand to avoid making changes to benefits programs if that will interfere with recruiting talent.”

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Kathryn Mayer
Kathryn Mayer is HRE’s former benefits editor and chair of the Health & Benefits Leadership Conference. She has covered benefits for the better part of a decade, and her stories have won multiple awards, including a Jesse H. Neal Award and honors from the American Society of Business Publication Editors and the National Federation of Press Women. She holds bachelor’s and master’s degrees from the University of Denver.