In a decade-high surge, healthcare costs for U.S. employers are projected to rise significantly in 2024, with estimates ranging from 5.4% to 8.5%, according to healthcare benefit consultants from Mercer, Aon, and Willis Towers Watson. This alarming increase is driven by medical inflation, the high demand for costly weight-loss drugs, and the broader access to high-priced gene therapies. Amidst the tight labor market, however, workers may be spared from bearing the full brunt of this cost increase.
Over two-thirds of employers, according to a survey conducted by Mercer, a unit of Marsh McLennan, either have no plans to offload these cost increases to their employees or will only pass on less than the expected cost increase in 2024. This decision is grounded in a reluctance to impose further financial stress on workers, who are already grappling with inflation, in a time where employers heavily rely on health benefits as a retention strategy. Meanwhile, the U.S. economy is wrestling with soaring consumer prices due to pandemic-era spending levels and supply chain shortages.
U.S. Employers Bracing for Major Healthcare Cost Hike in 2024
Healthcare costs for employers in the United States are set to experience the largest increase in a decade in 2024, according to forecasts from healthcare benefit consultants. However, due to the tight labor market, workers might escape some part of the increase.
Causes of the Increase
Estimates from benefit consultants at Mercer, Aon, and Willis Towers Watson suggest a rise in employers’ healthcare costs by 5.4% to 8.5% in 2024. This escalation is attributed to factors like medical inflation, high demand for costly weight-loss drugs, and the broader availability of expensive gene therapies.
The Impact on Workers
Interestingly, over two-thirds of employers don’t intend to transfer any cost increases to their employees, or they will pass on less than the expected cost increase in 2024. This information is based on a survey by Mercer, a unit of Marsh McLennan. "They don’t want to add more financial stress on employees who are also coping with inflation, especially in this time where they’re really relying on their health benefits as a way to keep employees working for them," Beth Umland, Mercer’s director of health and benefits research, explained.
The Role of Inflation and High-Priced Medications
The U.S. economy has grappled with high consumer prices in the last year due to inflation triggered by pandemic-era spending levels and supply chain shortages. However, healthcare sector cost increases often lag behind economy-wide inflation because of contracts between insurers and providers like hospitals, which cover prices for different procedures and are signed months or years in advance.
Aon projected an 8.5% increase in employer healthcare costs next year, with weight-loss drugs alone contributing 1 percentage point of the total. Sales of Novo Nordisk’s Wegovy, a weight-loss drug, and off-label use of similar diabetes drugs have spiked due to high demand over the last year. Additionally, half a dozen gene therapies, each costing over $1 million, that were approved by U.S. regulators in the past year could significantly increase a company’s costs if just one employee undergoes gene therapy treatment.
Employers are seeking ways to mitigate these increasing healthcare costs. One strategy is the increased use of artificial intelligence (AI) to cut administrative staff expenses. Employers and insurers are also identifying less expensive hospital networks for certain procedures. "Employees are given incentive that says if you go here, you pay less," noted Janet Faircloth, senior vice president of Aon’s health innovation team.
The forecasted surge in healthcare costs for U.S. employers in 2024 highlights the growing financial challenges businesses face in offering health benefits to their employees. In response, businesses are looking to strategies like AI and network steering to keep these costs in check. However, the ultimate impact on employees, who are already grappling with inflation, remains to be seen. As the healthcare landscape continues to evolve, so will the strategies businesses adopt to manage their healthcare costs.