Employer-sponsored health insurance has long been one of the most coveted employee benefits, providing millions of Americans—and their families—access to quality healthcare. However, amid rising costs and an uncertain business climate, what was once a straightforward offering is becoming more difficult for HR executives and employees.
In 2023, the cost of employer-sponsored plans jumped 7%, the fastest rise since 2011, according to KFF’s annual Employer Health Benefits Survey. Employees also feel the impacts, with 63% reporting concerns over healthcare affordability. And with 2024 health benefit costs expected to continue to rise (7%, according to PwC), the current trend is untenable for all parties.
In response, employers and employees must navigate a new “social contract,” sharing a commitment to better health and reaping the positive physical, mental and productivity benefits of employee wellbeing and good health.
While the current labor climate has challenged employers to meaningfully change how premium and plan design costs are shared with employees, the rising impact of healthcare inflation will demand employers seek alternative approaches to containing costs. One primary area of focus for employers will be to adopt stronger navigation and steerage methods so plan members seek higher quality care providers and sites of care while reducing inappropriate and unnecessary care.
To complement these network efforts, employees will have improved access to cost transparency and provider ratings in the coming years. Lastly, employers will work to improve their utilization management strategies within their prescription drug benefits to ensure their employees are getting the appropriate therapies for their healthcare needs.
For employees, this new “contract” will bring better resources and education to navigate their healthcare decision-making while demanding that employees become more engaged in their personal health journeys.
Pushing back against healthcare inflation
With healthcare inflation continuing at higher rates than wage increases and industry forecasts projecting added cost pressures in the coming years, the ability of employers and their employees to absorb the impacts of healthcare costs is reaching a breaking point. Employers are contributing more to their employees’ health costs than ever before.
While employers’ focus over the last few years has been to avoid passing along costs to employees (a direct result of a tight labor market), heading into 2024, employers are more likely to seek targeted areas to share some of these growing expenses.
In seeking the right balance for their employees, HR leaders must employ greater data management to help protect health equity. For example, studying utilization can result in offering multiple healthcare modalities, maximizing access and combating inflation resulting from healthcare labor shortages. In addition, these statistics can be used when negotiating with insurers, ensuring your company receives market-competitive rates and sets clear service level expectations to avoid higher costs.
Create the right provider network
Another key consideration in helping to control healthcare costs is for employers to take a more active role in optimizing their health plan network strategy.
Continuing health system consolidation has resulted in narrower networks and increased costs in some instances. Rather than simply selecting the provider network with the greatest name recognition, HR leaders should make decisions based on their specific strategy, using market data to define optimal primary care and specialist referral networks that align with high-quality, efficient hospital systems.
Further, health plans are growing in their abilities to share data and conduct their networking to build highly sensitive, directive networks that offer employees the best quality and most cost-effective care. Aligning with your health plan to “quilt” a high-performance network strategy in key markets will drive better outcomes and meet employer and employee needs.
In addition, employer network strategies should contemplate steering plan members towards Centers of Excellence (COE) for targeted, often more complex conditions. Choosing a COE aligned with employee healthcare care needs—oncology, bariatric, musculoskeletal health issues, etc.—is one way to create the most effective network. COEs have measurable outcomes data to ensure employees receive the most optimal care for their conditions.
Avoid the poison pill with health benefits
A central driver of U.S. healthcare inflation is the impact of significant increases in the development and go-to-market pricing of new drugs, specifically in the metabolic (obesity, diabetes) and rare condition medication classes.
According to UnitedHealthcare, GLP-1s for weight loss now represent nearly 5% of total pharmacy spend. While employers are working to manage the growing impact of GLP-1 medications and how they are covered, the future wave of pharmaceutical innovation will come via cell and gene therapy drugs. These medications, which combat high-severity, rare diseases by modifying a patient’s genes, have come to market with six- and seven-figure price tags and minimal ability to impact the cost.
While the employer exposure to paying for these medications is still fairly low given the rare conditions they combat, that risk will increase meaningfully this decade. There are currently 27 approved cell and gene therapy medications in the U.S. Research suggests that the number of approved therapies is likely to increase to over 60 by 2030, and today’s $5.2 billion gene therapy market is estimated to grow tenfold by 2030.
These future market dynamics, coupled with the legacy challenges of effectively managing the employer’s Pharmacy Benefit Manager (PBM) contract, require new ways of defining coverage and managing the appropriate utilization of these therapies.
In response, employers will need to take a stronger position on their formulary strategy and utilization management programs, including authorization requirements and exclusions, to build a plan that creates the right balance of access and cost. Employers will demand PBM partners work for them in new and innovative ways, in step with manufacturers seeking methods to maximize their profit margins.
Clear and empathetic communication with health benefits
As employers navigate the current healthcare landscape, there is an added need for clear, empathetic and personalized communication with employees. While formulary exclusions may help with costs, they can also cause employee disruption and a lack of trust with their employer. This could impact attraction and retention in a competitive labor market—especially if competitors aren’t using formulary exclusions to address increasing healthcare costs.
To successfully create a new social contract with employees, employers must navigate a balanced approach to shared accountability and fiscal responsibility while ensuring their most coveted resource, their employees, can access affordable and high-quality healthcare options.
At the other end of the contract, employees must embrace change. There will continue to be greater plan choices. As employers make adaptations to continue offering employees access to quality healthcare, employees must be flexible and accepting of the ever-shifting landscape.
These difficult decisions and adjustments to plan offerings can help employers successfully navigate the current, complex healthcare landscape, fostering a new social contract with employees. Beyond benefits to a business’ bottom line, this new contract helps employers ensure the betterment of individual employees through quality, accessible healthcare that enhances the overall resilience of the organization.