Employers Brace for Historic Health Plan Cost Surge in 2024

A significant financial storm is brewing for American employers, as health plan costs are set to experience their steepest rise in years for 2024. Companies are bracing for median cost increases ranging from 8.5% to 9.5%, a substantial jump that threatens to impact bottom lines and employee benefit structures.

Leading consulting firms have painted a stark picture.

Aon, a global professional services firm, projects a formidable 9.5% increase. Willis Towers Watson (WTW) forecasts a 9.1% hike, while Mercer, another major player in human resources consulting, anticipates an 8.5% rise after employers implement plan design changes. Without these mitigating adjustments, Mercer estimates the increase would be an alarming 10.2%.

Several powerful forces are converging to drive these escalating costs.

High inflation continues to exert pressure across the economy, directly impacting the costs of healthcare services, medical supplies, and the wages of healthcare professionals. These rising operational expenses for providers inevitably translate into higher premiums for employers.

The pharmaceutical landscape is also a major contributor, particularly with the escalating costs of specialty drugs.

The emergence and growing popularity of GLP-1 medications, such as Ozempic and Wegovy, primarily used for diabetes and weight loss, represent a significant new expenditure. These drugs, while highly effective, come with a hefty price tag that employers are now grappling to incorporate into their benefits strategies.

Furthermore, the healthcare system is witnessing a rebound in utilization.

Following years of deferred care during the pandemic, many individuals are now seeking necessary medical treatments, screenings, and procedures. This pent-up demand, combined with an aging population and the prevalence of chronic conditions, is fueling increased claims and overall healthcare spending.

In response, employers are walking a tightrope, striving to manage these surging costs without unduly burdening their employees.

The competitive labor market means that shifting too much of the increase onto workers could make companies less attractive. Consequently, many organizations are opting to absorb a larger share of the cost increase themselves to maintain competitive benefits packages. On average, only about half of the total cost increase is typically passed on to employees through higher premiums, deductibles, or co-pays.

Companies are actively exploring various strategies to mitigate the impact.

This includes re-evaluating plan designs, enhancing pharmacy benefit management programs, and investing in preventative care and wellness initiatives. The goal is to find innovative solutions that control expenses while continuing to provide comprehensive and accessible health coverage for their workforces in this challenging economic climate.