More than half of the working population in 2021, 155 million, relied on employer health coverage. While average premiums are up 4% from 2020, costs are up 47% when comparing 2021 to 2011. Deductibles have surged 68.4% over the last decade with the advent of high deductible plans.
On average, the employee share of premium costs amounted to 6.9% of median income in 2020. This was up from 5.8% in 2010, though the share has remained largely constant since 2017. The average deductible for a middle-income household amounted to 4.7% of its income. In 2010, that share was 3.3%. Since high-deductible plans were becoming the norm, in 2020, the average deductible for single-person policies was $1,945. In a 2020 Commonwealth Fund survey, more than one-third of adults in commercial insurance plans with a deductible of $1,000 or more said they had not pursued needed health care because of the cost. More than 40% of adults with a deductible of that size reported problems paying medical bills or having to pay off medical debt.
Interestingly enough, health care premiums for employer sponsored plans increased at the lowest pace during the pandemic at about 4% as many did not seek or actually postponed medical care during that time period.
But in the post pandemic world, health care premiums are rising fast. Willis Towers Watson and Mercer estimate based on their surveys that health care costs will rise to 6.5% in 2024. And AON reported that the average costs for U.S. employers that pay for their employees’ health care could increase 8.5% in 2024, or greater than $15,000 per employee from an estimated $13,906 per employee in 2023. The projected increase would nearly double the 4.5% increase in health care budgets that employers experienced from 2022 to 2023. Among the factors leading to the faster health-insurance cost growth are greater utilization by employees, hospitals’ higher labor costs, and heavy demand for new and expensive diabetes and obesity drugs as well as other medicines.
For families, it is even more expensive. Although, a family plan does provide significant discounts if the plan per family were bought separately. Family premiums average $22,463 in 2022, up about 1% from 2021, according to an AON 2022 Employer Health Benefits Survey of nearly 2,200 public and private firms. Average premiums for family coverage have increased 43% since 2012, compared with 25% for inflation and 38% for wages, the report said. It is expected to go over $24,000 in 2024.
Employees in 2023 are contributing about $4,675 a year for health care coverage, of which $2,682 is paid in the form of premiums deducted from paychecks. $1,993 is paid through plan design features such as deductibles, co-pays, and co-insurance, according to Aon’s analysis. However, depending on the survey, the employee share could be even higher.
The average percentage of premiums contributed by employees has remained stable in recent years: 17% for single coverage and 28% for family coverage per the Kaiser Family Foundation. However, with the increased demand on budgets, employers will have to think about cost-sharing, whether increasing it or not, providing weight-loss medicine under the plan, restricting spousal coverage, and/or increasing deductibles, among other things. These changes will have an impact on talent, who will be looking closely at healthcare, as that has long been a primary benefit for employees’ attraction and retention tool.
Switching to a self-funding plan may have its advantages, but the cost of stop-gap coverage may take those advantages away. For smaller organizations, cashflow may be an issue to any implementation.
It will be a difficult year for HR. With auto talks, and the high demand for workers, everyone is watching. Labor hoarding may get too costly. If employees forgo healthcare because of costs, it could be expensive for the organization in the future. It may be getting too late in the year, but HR needs to have these detailed conversations with management before they make a decision they could regret.
Source: The Wall Street Journal 9/7/23, People First Inc. 9/5/23, Bloomberg Law 10/27/22, CNBC 1/11/21, Commonwealth Fund 1/12/20