The Uphill Battle Of Rising Health Care Costs For Employers

Health care costs in the United States have been steadily climbing, and the burden on employers providing health care benefits for their workforce is intensifying year by year. A recent report by Aon forecasts a looming challenge: average costs for employers covering their employees’ health care are projected to surge by 8.5% in 2024, amounting to over $15,000 per employee. This steep rise marks a concerning trend, nearly doubling the previous year’s increase of 4.5%, setting off alarm bells for companies navigating their health care budgets.

Driving Factors Behind Escalating Costs

Let’s take a look at three pivotal elements that are steering this surge in health care expenses.

Inflation: The silent aggressor

Inflation, accounting for roughly half of the cost hikes, substantially impacts health care expenses. The health care sector experiences a delayed effect due to multi-year provider contracts. Renewals in these contracts are causing providers to demand higher fees, thereby stretching the impact of inflation over several years.

COVID-19’s lingering impact

The aftermath of the pandemic continues to cast a shadow over health care costs. Medical utilization, which plummeted during the peak of the pandemic, is now reverting to pre-COVID levels. This resurgence in medical usage is a driving force behind the escalating health care expenditures for employers.

Surging prescription drug costs

Prescription drug expenses are spiraling at an alarming rate, surpassing the growth rate of medical costs. The use of specialty drugs such as GLP-1 and medications initially designed for diabetes, which are now being utilized for weight loss, have doubled between 2022 and 2023.

Navigating The Way Forward

The tight labor market continues to discourage passing higher health care expenses onto workers. However, future projections indicate an inevitable shift towards significant changes in employee contribution as employers prepare for 2025. Employers are creating strategies to manage costs, including targeted plan adjustments to address expensive medications and treatments. In addition, a shift in vendors is anticipated to secure better prices and discounts on health care services. The focus on mental health services is also expected to intensify, acknowledging the importance of employee well-being.

How PEOs Are Revolutionizing Employee Benefits

In the face of these health care cost escalations, employers find themselves at a critical stage where innovative solutions are imperative. The strain of balancing employee well-being with financial sustainability requires a strategic approach. This makes the role of Group Management Services, a certified professional employer organization (CPEO), crucial. GMS extends a lifeline to businesses, offering access to various benefits through our master health care plan (MHP). Through pooled resources, negotiated rates, and streamlined administration, GMS enables companies to combat increasing health care expenses effectively. By leveraging GMS’ buying power and expertise, businesses can navigate these unprecedented times and provide quality health care benefits to their employees while maintaining a competitive edge in the marketplace. Get a quote from us today and end the open enrollment period on a high note.