The Squeeze Is On … Again

PUBLISHED OCTOBER 2024

The annual autumn ritual of open enrollments and employee benefit selections is upon us, with a five-word cautionary assessment for employers from the global consulting firm Mercer: “The picture is not encouraging.”

That was the takeaway from last month’s report drawn from a survey of more than 1,800 participants in employee-sponsored health plans. For a third straight year, it said, the increase in costs to provide coverage for employees topped 5 percent—specifically, 5.8 percent for this year. That three-year trend broke a string of comparative success that had seen increases holding closer to 3 percent for several years.

The culprits? Inflation overall, higher compensation in the health-care provider realm because of a labor shortage, increased numbers of hospital admissions and higher costs for pharmaceutical coverage, Mercer’s analysts said.

The worst part: That 5.8 percent hike is coming despite employers’ best attempts to find cheaper health plans and in-house strategies.

A review by the Kaiser Family Foundation calculates the cost of annual premiums for group health insurance in 2023 at $8,435 a year for single coverage—roughly $703 monthly—and $23,968 a year for family coverage, which is about $1,997 per month. By their reckoning, the average annual premium for both single and family coverage increased by 7 percent over 2022.

That’s rolling back onto small business owners and HR executives responsible for plan design and implementation.

“Business owners of all sizes in Kansas continue to tell us health-care affordability across the board remains a top issue,” said Matt All, President/CEO of Blue Cross and Blue Shield of Kansas. “Half of Kansans have delayed seeing a doctor or going to a hospital because of the cost of care, according to a survey we recently commissioned.”

So the cost of health care remains a top issue of concern for Kansas residents, second only to inflation, All said. “There is an immediate need for everyone in the health care community—from health plans to policymakers to hospitals—to keep costs and affordability in mind.”

Lindsey Zendejas is watching those efforts play out at the Robert E. Miller Group, where she’s a benefits unit leader. “For the most part, especially on the other side of impacts from COVID, out-of-pocket maximums have increased to thresholds that, in order to remain price-competitive, are at amounts that feel uncomfortable,” she says. “But that’s becoming the norm.”

Long gone, she said, are health plans that had deductibles of $300 to $500. “Now we’re having conversations with employers where a $3,000 deductible is the ‘rich’ plan,” with maximum out-of-pocket costs for employees reaching $8,000. “There are all kinds of ways to structure those so that the cost is not all passed to employees.”

Employers have embraced a number of initiatives to help contain costs, said Mary Amundsen, COO and managing director for Bukaty Companies.

“Carriers have identified lower cost/high-quality providers and will incent employees with lower co-pays to use those preferred providers,” Amundsen said. “Some carriers offer the option to enroll in narrow-network plans.” Members may have fewer options with providers but could still see richer benefits, she said. “Higher-deductible plans are more prevalent, but that popularity is primarily driven by the pre-tax savings HSA plans provide.”

With strategies varying by employer objectives, Amundsen said, “Our role is to identify cost-saving ideas so higher costs don’t have to be passed on to employees. You can do that by adjusting plan designs, encouraging preventive care, and promoting transparency tools that help members become more discriminating health care consumers.”

Matt McInnes, president and CEO of the McInnes Group, said that health plans continue to evolve away from offering significant premium savings by changing deductibles and out-of-pocket maximums. 

“Today, we are seeing more plans offering different pricing options based on network access, provider grading, and community health centers,” McInnes said. “These options are paired with a more traditional plan, ensuring that specific needs are met. We believe increasing deductibles and out-of-pocket maximums is not a sustainable strategy but rather a short-sighted way to shift costs to employees. Instead, we identify cost factors trending in the wrong direction and find ways to reduce them.”

Employers, said Zendejas, are becoming more comfortable with flex accounts, health-savings and health-reimbursement accounts. The latter, she said, “is a bit different, but a way to have more influence over increased costs passed on to members. We’re also seeing some employers participating in professional employer organizations or PEOs, but that’s not a fit for everyone.”

Another option, she said, was Individual Coverage Health Reimbursement Arrangements, or ICHRA, enacted by Congress in 2019 and modified in 2023, allowing employers to make payments to employees who have found their own health coverage from outside the business. “It’s still fairly new by comparison, but it allows employers to offer comprehensive coverage.” 

 The multiplicity of potential strategies, she said, “is definitely forcing everyone to use a different part of their brain.”

More than a decade after the full implementation of the Affordable Care Act, the broader employer market has stabilized; any fears that the vast majority of smaller employers would abandon traditional plans and send their employees to the federal marketplace have subsided. Despite higher overall costs, companies have doubled down on efforts to satisfy employee needs.

To get there, brokers have been compelled to up their game, those executives say.

“Employers we consult with are committed to maintaining a high-quality benefit plan,” McInnes said. “However, to achieve this, it has become imperative to provide long-term solutions. As brokers, our job is to keep costs sustainable. The days of sitting on your hands and hoping for a good renewal are over. With proper consultation and communication, we are confident in our ability to bend the curve successfully.”

Going back to employers with guidance that might limit the choice of physicians for employees is “not an easy conversation,” said Zendejas. “We’re here to partner with employers to deliver that message. I remember from open enrollments a few years ago when employees were visibly angry; there was a lot of anger behind certain changes and the increased costs. I can’t say that’s completely softened, but there is a higher awareness now, and employers are being candid with employees. They are demonstrating as best they can that they are committed to their employees and strategizing to come up with new ideas to offer coverage.”

Because employee benefits, along with salary, are primary factors driving employee retention and recruiting, said Amundsen, “We don’t anticipate employers dropping coverage. But given the price concerns, our job is to help implement cost-saving strategies and increase health care consumerism to ensure health care dollars aren’t wasted.”

From the insurer’s perspective, All said, BCBS of Kansas has embraced several key tactics, including partnering with hospitals and providers to provide incentives for high-quality care and services, “which has been shown to reduce costs and improve value,” he said.

The largest health insurance provider in Kansas is also pursuing value-based contracts, rebates, and partnerships to
enhance the value and manage the costs of drug plans. And it’s working to ensure an efficient use of premiums. While the average costs to administer plans for insurers nationwide amounts to 16 percent of the top line, “of every insurance premium dollar a BCBSKS member pays, 89 cents goes back directly to member care through claims by health-care providers,” All said.