Cost Mitigation Strategies as Health Care Costs Continue to Rise

In 2023, organizations face the difficult task of reining in rising costs and keeping employee coverage affordable while trying to remain attractive to current and prospective talent despite their shrinking budgets. Industry experts project a 6% to 8% increase in employers’ health care costs in 2023. Employers may see a greater increase should they fail to take effective action to curb rising costs, such as expanding telemedicine options and digital health care resources. These efforts are further complicated by record-high inflation, marketplace consolidation and ongoing labor market issues. As employers brace for further health care cost hikes in 2023, they are desperately searching for solutions to manage their growing costs and address the long-term impacts of these increases on their organizations. 

There are several reasons why employers’ health care costs are increasing. While most employers experienced reduced claim costs during the COVID-19 pandemic, medical plan costs have begun returning to pre-pandemic levels as health care utilization rebounds, outplacing inflation and wage increases. Utilization has especially increased for employees dealing with severe chronic diseases and late-stage cancer due to missed or delayed care during the pandemic. Further, some employees are facing long COVID-19. Even employees who recovered from COVID-19 are experiencing cardiovascular and neurological diseases, causing employers’ health care costs to increase. In addition, rising expenses among medical providers and specialty and novel prescription drugs are exacerbating employers’ health care costs. The projected annual costs trend for outpatient prescription drugs is expected to approach double-digit levels—the highest rate since 2015— due to price increases and new specialty drugs.

Inflation is also causing health care costs to rise, and it will likely drive up costs moving forward. Additionally, there’s been an increase in hospital closures, physician retirements and health care worker quits. In fact, 3% of health care workers quit each month of 2022, according to the U.S. Bureau of Labor Statistics. The recent trend of consolidation among hospitals, physician practices and commercial insurers is also triggering higher health care prices for private insurance. Altogether, these developments are putting further pressure on the health care system and causing costs to increase.

Planning is critical for employers to develop cost-saving strategies in 2023. Traditionally, many employers have addressed rising health care costs by shifting a greater share of costs onto their employees. While some employers plan to stick with this strategy, savvy employers will recognize the potential chilling effect this can have on recruiting efforts due to the state of the labor market. Employers should understand that employees are already financially strained due to inflationary pressures. However, employers’ budgets may be limited, so increased health care spending will likely restrict spending elsewhere. In 2023, employers should be open-minded regarding strategies that could help manage their health care costs while attempting to improve affordability for employees, such as investing in telemedicine or incentivizing employees to seek cost-effective care options. Some organizations are negotiating with providers, as some carriers are currently offering discounts and reduced management fees. Other cost mitigation strategies include:

– Modifying health plan designs—Rising health care costs are causing employers to reevaluate their health care plan designs and offerings to include cost-reducing features. Some employers might even consider shifting to self-funded or partially self-funded plans in search of cost effectiveness. Additionally, employers are using health reimbursement arrangements and/or health savings accounts to incentivize employees to make cost-effective health care choices. Many organizations are also implementing wellness programs to improve the overall wellbeing of their workforce by encouraging individuals to exercise daily, eat a balanced diet, reduce stress and visit the doctor as needed. 

-Incorporating health care analytics—Employers are increasingly relying on health care data to understand potential cost drivers and underlying claims. These data analysis initiatives include claims audits, utilization analysis, data warehousing and predictive modeling. Many employers are using claims and diagnostic information to establish and measure workforce wellness initiatives in an effort to control health care costs. By gathering data and using it to predict where and when increased costs may occur, employers can determine the best strategies to address growing health care costs. 

-Improving employees’ health care literacy—Health care literacy initiatives are leading employers’ cost-saving strategies in 2023. Improving employees’ health care knowledge is vital to building a healthy and resilient workforce and reining in overall health care costs. More informed employees are increasingly likely to reduce health care costs by making better care choices. For example, employers are guiding employees to in-network providers so they can avoid unnecessary out-of-network care, thus reducing overall medical expenses for both parties. Many employers are also creating user-friendly benefits portals to educate employees and provide them with critical information, such as health plan options, forms, enrollment calendars and links to additional health care resources.

 Rapidly increasing health care costs will likely continue to impact employers for the foreseeable future. Savvy employers will look to implement effective strategies now to rein in these costs and keep employees healthy. Employers who proactively implement strategies to address rising health care costs will be better positioned to meet their employees’ needs and find long-term solutions to mitigate costs. 

© 2023 Zywave, Inc. All rights reserved.

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