The rising cost of providing health insurance to employees has become a pressing issue for employers today. PWC’s Health Research Institute predicted a 7% increase in medical costs in 2024. Further, the Sequoia 2024 Benchmarking Report revealed that 33% of companies with 500 or more employees saw a 5% to 8% increase after plan changes. We also know that for many groups, the increase was in the double digits.
As these costs continue to climb, companies find themselves grappling with hard decisions on how to manage these expenses. Whether it’s passing costs to employees, reducing benefits, or seeking novel ways to manage expenses – employers must find solutions.
In our recent webinar, “Rising Benefits Costs? Cost Containment Strategies and How to Implement Them,” our panel of experts — Matson Conrad, manager of strategic partnerships at Rightway and Hemalee Patel, national senior medical director at One Medical— discussed the main contributors to rising medical renewal costs. They also shared strategies to address those high costs while continuing to support employees.
What’s Driving Up the Cost of Medical Renewals
Two notable factors contribute to this rising trend: the increasing price of launching prescription drugs and the growing prevalence of chronic diseases in the working population.
Rising prescription drug prices
In a study published by JAMA, researchers found that from 2008 to 2021, new drug launch prices saw an exponential annual increase of 20%, with 47% of new drugs in 2020-2021 initially set above an annual cost of $150,000. This cost increment underscores the need to understand micro-trends driving prescription costs. Employers have primarily reacted by transferring such costs onto stop-loss insurance instead of managing them directly due to their unprecedentedly high costs.
Increasing chronic diseases
In an analysis by RAND on the prevalence of chronic conditions, the number of individuals with chronic diseases is expected to reach 171 million by 2030, over half of the current US population. Chronic conditions today contribute a significant portion to healthcare costs. Primary care, medical prevention services, and benefits education are particularly effective in diverting healthcare costs related to chronic conditions.
Cost Containment Strategies
Emerging solutions to contend with these trends include an integrated approach to chronic disease management and robust care navigation and benefits education. These preemptive measures, supported by companies like One Medical and Rightway, focus on preventive care to tackle diseases early on, mitigating potential health issues and related costs in the long run.
Encourage primary care to address the rise in chronic conditions
Studies have highlighted that while a large proportion of chronic diseases are preventable, there is a decline in Americans attending their preventive services. This is often due to cost, poor understanding of recommended screenings, and limited access to these services. Here, employers play a crucial role in enhancing benefits education and ameliorating access barriers to preventive services by offering educational webinars, organizing onsite screenings and health fairs, and allowing flexible time for employees to complete their annual physical exams.
Leverage care navigation and benefits education to reduce costs
Care navigation — which can include directing members to high-value providers and facilities, benefits education, clinical guidance, and billing advocacy — has also emerged as an effective approach to eliminate unnecessary spending and guide members to high-quality providers. Through providing access to a dedicated care navigator, employers are providing transparency and understanding about health benefits and the importance of preventive care, including regular health screenings, lifestyle counseling, and chronic disease management programs.
As employers, it is vital to understand these trends and implement strategic measures to address high medical costs. With the integration of preventive care, benefits education, and healthcare navigation, it is possible to reduce expenses while supporting the overall health of employees and the organization.
For more cost containment tips, watch the full webinar.
Sequoia’s consultants are here to help you with your benefit strategies. If you are interested in learning more, reach out to us at wellbeing@sequoia.com
