Companies are seeing health insurance costs climb at the steepest rate in years, a trend that has finance chiefs looking for ways to remain competitive with job seekers while managing those higher expenses.
Health insurance costs, which are among the largest expenses for many U.S. companies, are projected to rise around 6.5% for 2024, according to consulting firm Mercer. The surge, which The Wall Street Journal reported on last month, may add significantly to costs for employer plans that Mercer said already average more than $14,000 a year per employee. Many companies are expected to take on most of the increases, benefits consultants said.
Finance chiefs typically keep an eye on health-insurance expenses as they manage companies’ costs. But with price tags rising at accelerated rates—some chief financial officers are seeing roughly 6% to double-digit cost increases—executives are particularly aware of the lifted expense amid financial pressure from high interest rates and inflation. And they are looking at ways to get a handle on the price hikes in the years ahead, including by potentially sharing costs with employees or adding cushions around healthcare budgets, while aiming to keep and attract employees in a competitive labor market.
“CFOs, who are used to predictability for other goods and services, are seeing much more volatility in [healthcare] expenses,” said Sunit Patel, chief actuary for U.S. health at Mercer. “That’s one of the biggest challenges that we see going forward.”
Already, he said, some companies, even larger ones, are adding margin to budgets for healthcare costs or are considering buying coverage for costs over a certain threshold, called stop-loss insurance. For CFOs, the rising price tags also mean potentially asking employees to contribute more, changing coverage or looking elsewhere in the balance sheet to make up for the higher costs.
At PetMed Express, Chief Financial Officer Christine Chambers has been seeing significant increases in coverage for workers year over year.
The finance chief this month has been communicating about renewing healthcare coverage for the online pet health wellness company’s workers, an annual process that typically starts toward the end of a given year with coverage selected the following Spring. Some pricing hikes are typical at renewal, Chambers said, but the figures from the recent renewal communications, which quote double-digit increases, are higher year-over-year than the CFO has come to expect.
“We’ve seen premiums and deductibles rise faster than workers’ wages,” she said, noting that the Delray Beach, Fla.-based company doesn’t disclose how much it spends annually on workers’ health-insurance. “It’s becoming more of a burden on organizations and employees.”
Chambers said she isn’t looking to cut the offered coverage to reduce PetMeds’ costs. But as price tags rise, more time and effort are being devoted to shopping around and negotiating during the renewal process, she said. “We’re starting this annual renewal process for our benefits provider earlier…because we want to remain competitive and we want to be able to provide the same, if not better, benefits than we have in the past, but at a cost that we can manage.”
Healthcare costs next year, without factoring in changes to plans such as increasing out-of-pocket charges for workers, are projected to rise an average of 6.6%, according to a Mercer survey of more than 1,700 employers. With those changes, costs are projected to be up 5.4%, according to Mercer, which is around the same as its estimate for this year but comes after years of mostly small increases.
Accelerated increases in health-insurance costs are driven by factors including higher labor costs in hospitals and elsewhere across the healthcare system, an uptick in elective care that dipped during the pandemic and demand for new and expensive drugs. Workers tend to enroll for health insurance starting in the fall, so are learning now or will soon find out what their coverage options are for 2024. Executives, meanwhile, are starting to think about coverage for 2025.
Many are likely seeing increased costs, according to benefits consultants.
Companies aim not to add pressure to employees’ budgets as healthcare costs rise, according to Mercer’s Patel, but he said this will in large part be a function of whether the labor market continues to cool and how high the price tags go relative to a company’s revenue and profitability.
Zimmer Biomet’s health-insurance costs have in the past few years gone from increases in the 3% to 5% range to an expected 7% to 10% in 2024, finance chief Suky Upadhyay said, adding the company continually looks to help mitigate these costs. This, according to the CFO, is because the price of medical services and medication have been on the rise and insurers expect increased healthcare usage.
Costs tend to rise each year, he said, but “in the last two to three [years], we’ve seen an acceleration in those benefits costs.”
Still, the medical-technology company isn’t cutting healthcare offerings in response to higher costs, according to Upadhyay. Instead, Warsaw, Ind.-based Zimmer Biomet has over the last couple of years ramped up health-related offerings to employees, he said. This includes preventive care programs to help them understand, for instance, how to manage chronic diseases or the benefits of a healthy diet and exercise while at the same time providing mental health support.
For ChargePoint, a provider of electric vehicle charging stations, employees may feel it if costs continue to increase, said Chief Financial Officer Rex Jackson. Rates that were between 3% and 5% in recent years rose for this year to around 6% or 7%, he said, adding, “this year’s renewal is the largest increase we’ve had in the last three years.”
If healthcare costs continue rising—“if it were to go up inexorably, you know six and 8% per year”—Campbell, Calif.-based ChargePoint may ask employees to contribute more to healthcare costs, according to Jackson. This, he said, would be the preference over adjusting the benefits offered. “Six percent is not that bad individually, but when you multiply it times, you know, X hundred people, it turns into a big number.”