U.S. employers brace for healthcare costs to rise next 3 years

Businesses continue to struggle with ever-rising healthcare costs with 7 in 10 employers expecting moderate to significant increases in what they pay for healthcare benefits over the next three years.

U.S. employers expect healthcare costs to rise by 6% next year, after the 5% increase they’ve seen in 2022, according to a Willis Towers Watson (WTW) survey. Over half (54%) of the approximately 455 respondents who employ 8.2 million people say that their healthcare costs will be over budget this year.

“With no end in sight to projected cost increases, the need to manage healthcare costs and address employee affordability has never been greater,” Courtney Stubblefield, WTW’s insights and solutions leader, said in a press release.

WTW’s findings from a survey conducted in August come on the heels of a survey in June by the Society for Human Resource Management showing that employees rank healthcare as the benefit most wanted (at 88%). The U.S. Chamber of Commerce released a report early this month saying that the labor force participation rate stands at 62.4% and that 2.75 million workers have left the labor force since February 2020.

The Chamber of Commerce report notes that thousands of people have entered the workforce within the last two months or so.

“That is good,” the Chamber says. “However, labor force participation does not match what it was before the pandemic. If the percentage of people participating in the labor force was the same as in February 2020, we would have 2.75 million more people in the workforce today—and this shortage is impacting all industries in every state. If every unemployed worker took an open job in their industry, there would still be millions of open jobs.”

WTW says that “on top of managing costs, 42% cite managing employee affordability as a top priority. To address a higher-cost environment, 52% will implement programs or switch to vendors that will reduce total costs; one in four (24%) will shift costs to employees through higher premium contributions.”

Tim Stawicki, WTW’s chief actuary for health and benefits, said that “without question, employers face difficult challenges in the next few years. And with limited budgets, the challenge of making decisions that consider healthcare affordability and engagement is exponentially greater.”

Stawicki urges employers to figure out how best to deal with costs so that they can avoid “having to take desperate measures in a rising healthcare cost environment.”

Some measures employers are considering for next year include:

  • Structuring payroll contributions to cut costs for certain groups, such as low-wage earners (28%)
  • Offering low-deductible plans to reduce cost sharing for employees (32%)
  • Combating fraud, waste and abuse (27%)
  • Increasing funding for their healthcare plans without taking that money from paychecks or other benefits (20%)
  • Implementing a defined contribution strategy with a fixed dollar amount that will differ according to what tier an employee is at (41%)
  • Using employee payroll contributions as a percent of total compensation or income as the basis for benefit design decisions (13%)
  • Hiking out-of-pocket costs for the use of less efficient services or sites of service such as non-preferred labs (23%)
  • Adding or improving enhanced voluntary benefits or use of vendors in cases of catastrophic events (35%)

And while WTW didn’t ask employers specifically about the COVID-19 pandemic, the effects could be seen when reading between the lines. Employers were asked, "What are your organization’s health and wellbeing priorities over the next three years?" Two responses topped the list in a tie at 67%: company costs and mental health and emotional well-being.