Affordable employer health insurance is becoming an employer burden and an employee wish.  According to the Kaiser Foundation in their 2023 report, the average annual premium for employer-sponsored health insurance in 2023 was $8,435 for single coverage and $23,968 for family coverage. The average annual single premium and the average annual family premium each increased by 7% over the last year. Comparatively, there was an increase of 5.2% in workers’ wages and inflation was at 5.8%. The average single and family premiums increased faster this year than last year (7% vs. 2% and 7% vs. 1% respectively).

According to Aon Plc, the average cost of employer-sponsored health care coverage in the U.S. is expected to increase 9.0%, surpassing $16,000 on average per employee in 2025. Aon estimated that from 2023 to 2024, health care budgets increased 6.4% after cost savings strategies and for the current year on average the budgeted health-plan cost for clients is $14,823 per employee.

In part, the pandemic reduced the number of claims, and costs were better controlled. But since the pandemic the zipper has opened, and claims have steadily increased.  Further, prescription drug costs are climbing higher due to continued growth in specialty drugs and increased utilization of GLP-1 medications for diabetes and obesity according to both reports.

For those in HR who remember, prescription drug costs were also a significant driver in the high single and double digit increases in healthcare costs in the 2000s.  Again, healthcare costs, and particularly prescription drug costs, are rising much faster than inflation.

Although employees have in the past two years or so seen 4% to 5% actual wage increases, in 2025 it is expected to drop to about 3.5%. However, even though inflation is slowing to under 3% at this time, actual wages have not grown at the same pace as inflation over the past three plus years.  Employees may be making higher salaries, but they are poorer (and feeling the pain) than before the pandemic.  And for many common essentials, prices are not going down, even if pricing of inputs into the products are. 

Total compensation may be up, but wages are not meeting inflation levels.  Employees are hurting.

And so are employers.  Total compensation of employees is generally the largest recurring expense of any employer. With actual wages still be controlled (and the only thing really that employers can control), employers are using various tactics to “control” healthcare costs including higher cost shares and high deductible and out of pocket plans among other things.  With the high deductible plans, unless an employee is utilizing an HSA to full advantage, the costs associated with healthcare are high and take a big chunk out of the employee’s budget. 

As a result, many employees have to prioritize health and dental care.  The impact on the employer can be significant.  Employees coming to work sick and not seeing doctors could lead to contagions within the workforce.  Mental health issues have seen rising rates of causation for absenteeism.  According to a SHRM study, about 30% of the 1,000 workers surveyed reported feeling overwhelmed, and 29% said their jobs make them feel anxious at least once a week. 

The Bureau of Labor Statistics reported the national absence rate to be 3.1% in 2023 costing about $225.8 billion annually.  Not only does this number include lost productivity, but it also includes the costs of overtime necessary for to make up for the lost productivity.

Therefore, healthcare as a benefit must be relooked on and retooled by organizations.  Employer 100% paid healthcare is a thing of the past.  Wellness plans are not a solution if employees cannot afford the activities or costs overall associated.  Employers, and specifically HR, needs to be on the frontlines of innovation to drive changes that positively impact employees, while not breaking the employer’s bank.  If healthcare costs keep rising as they do, CFOs will likely counsel c-suite to try to do more with less.  In other words, unemployment will rise, and productivity will flatten without HR innovations.

Source:  EBN 8/13/24, Forbes 6/14/24, AON 8/15/24, Kaiser Family Foundation 10/18/23