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Will employer healthcare costs boom in 2024? 4 driving trends

employer healthcare costs

With 2024 right around the corner, ongoing inflation will likely mean higher employer healthcare costs in the new year.

A report released by Aon, a global professional services firm, predicted 2024 employer healthcare costs will grow by 8.5%, totaling more than $15,000 per employee. This figure nearly doubles what Aon reported in 2023.

Meanwhile, the Business Group on Health’s 2024 Large Employer Health Care Strategy Survey predicted a 6% increase. While this is 2.5% less than Aon’s report, both predict a potentially sizable increase in healthcare costs.

In this article, we’ll explore the four primary drivers of healthcare costs and ways that employers plan to manage them.

Driver #1: Mental health challenges

The COVID-19 pandemic’s impact on mental health continues. Many employees still have symptoms related to depression, anxiety and substance use disorders. This is echoed in the findings from the Business Group on Health survey:

  • Three-quarters of employers (77%) reported an increase in mental health concerns among employees in the aftermath of the pandemic, compared to 44% in 2023.
  • employers (16%) anticipate an increase in mental health concerns.

In response, many employers plan to expand access to mental health services, provide more options for support and reduce cost barriers to care. Organizations may also explore manager and mental health employee trainings, anti-stigma campaigns and flexible working arrangements that allow employees to discreetly seek mental healthcare during regular working hours.

Driver #2: Pharmacy costs

Pharmacy costs will continue to impact employers significantly in 2024. In addition to high-cost drugs, relationships with pharmacy benefit managers are also a key concern for employers. The BGH survey revealed the following about prescription drugs and pharmacy costs:

  • Employers experienced an increase in the median percentage of healthcare dollars spent on pharmacy, up from 21% in 2021 to 24% in 2022.
  • Most employers (92%) were concerned or very concerned about high-cost drugs in the pipeline and 91% were concerned or very concerned about the pharmacy cost trend overall.
  • Seventy-three percent of employers say finding more transparency in PBM pricing and contracting is a priority and 58% say they want to see additional reporting and better provider quality measurement standings.

Employers may implement pharmacy management strategies to address rising drug costs. These could include

  • prioritizing transparent PBM practices, e.g. requesting detailed reports;
  • auditing PBM services;
  • requiring compensation;
  • pricing disclosures;
  • negotiating contract terms; and
  • plan design changes to address costly medications and treatments, e.g. prior authorization, step therapy and site of care management.

Driver #3: Cancer treatment

Preventive screenings were disrupted during the pandemic, according to BGH. As a result, employers are anticipating more late-stage cancers among workers. Consider the following:

  • Fifty percent of employers report cancer is the number one driver of healthcare costs and 86% say it’s among their top three drivers.
  • Half of employers (53%) will offer a cancer-focused center of excellence approach in 2024, with an additional 23% considering this strategy by 2026.

In response to rising cancer care, employers may encourage advanced screening measures and maintain full coverage of recommended prevention and screening services. Employers are also monitoring oncology clinical advancements (e.g., biomarker testing and immunotherapies) and helping guide employees to high-quality care to improve health outcomes.

Driver #4: Healthcare delivery

Healthcare innovations, particularly onsite or near-site clinics and virtual care, gained popularity during the pandemic. Though demand is starting to level out, such types of care continue to be critical for employees as they prioritize primary or preventive healthcare. The BGH survey revealed the following views about healthcare delivery:

  • Fewer employers thought virtual care would significantly impact healthcare delivery in 2023 (64%), compared with 2021 findings (85%). Regardless, 2023’s figure is still relatively high and above pre-pandemic survey results.
  • Employers’ number two priority for 2024 is implementing more virtual health opportunities. In addition to expanding, they’ll evaluate partnerships and consider vendors that can integrate with others.
  • More than half of employers (53%) offered onsite clinics in 2023, and the same percentage is expected to do so in 2024, signaling a plateau in the offering. Some employers have migrated to a hybrid or remote work environment, reducing the need for health services at the workplace.

While the necessity of virtual healthcare was most evident during the pandemic, it remains an important component of strategies to improve employee health outcomes. More employers are looking to expand healthcare offerings, including virtual care, to better support primary care and mental health.

Strategies to combat increasing employer healthcare costs

Heightened healthcare costs are likely to continue to impact employers. Looking ahead to 2024, many employers are focusing on mental health, medications, cancer and healthcare delivery. To combat rising costs, employers are working to improve employee health outcomes, reduce unnecessary services and prioritize prevention and primary care.

Additionally, it may be advantageous for employers to focus on benefits education and employee communication. The goal is to help employees understand their benefits and how to use and maximize them. Many employees are looking for ways to stretch their hard-earned dollars further and employers can step in to provide much-needed guidance.

If you’d like to explore how you can incorporate these strategies into your current employee benefits, don’t hesitate to contact us today. Our team of experts are ready to determine your exact needs and what solutions could be beneficial for your employees and organization.

This Benefits Insights is not intended to be exhaustive, nor should any discussion or opinions be construed as professional advice. © 2023 Zywave, Inc. All rights reserved.

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