All signs point to significantly higher healthcare costs in the employer market next year, which will lead to above-average premium increases.
Why it matters: Employers must decide whether to accept the damage or pass on the additional costs to their employees – a decision that is particularly difficult in a tight labor market.
Driving the news: According to a recent survey by Willis Towers Watson, seven out of ten employers expect healthcare costs to increase moderately to significantly over the next three years.
- “There’s this horrible reality that they’re trying to increase affordability while at the same time the actual overall cost is increasing more than expected,” said WTW’s Jeff Levin-Scherz.
- More than half of survey respondents said they counter rising costs by using programs or vendors that would reduce overall spend. Less than a quarter said they would shift costs to employees through higher premium contributions, and 14% said they would shift costs through out-of-pocket expenses.
- But workers may not be able to tolerate premium increases in the current work environment. Hundreds of New Jersey public workers rallied last week to demand that a vote on a more than 20% increase in premiums next year be postponed, Bloomberg reported.
Between the lines: One reason healthcare costs have not risen in tandem with overall inflation this year is that payers have price agreements, often multi-year ones, with vendors, drugmakers, and medical device manufacturers.
- This means that underlying labor or production cost inflation is not immediately passed into payment rates or later into premiums.
- Hospital groups have been telling anyone who will listen how much their costs have risen in recent years. It stands to reason that these complaints play a major role in negotiations with insurers.
- “There are signs everywhere that hospital prices are going to rise, and that will push up insurance premiums for employer-provided health care over the next year,” said Larry Levitt of the Kaiser Family Foundation. “The healthcare sector has been somewhat isolated from the inflation that has hit the rest of the economy, but probably not for much longer.”
- Due to the contract design, these rate increases can extend over several years.
The big picture: Employers have overwhelmingly responded to rising healthcare prices for more than a decade by offering plans with higher deductibles and out-of-pocket expenses.
- That means health insurance has become more expensive even for Americans who get their coverage through work.
- But there are signs that employers have exhausted their avenues to shift the cost onto workers as more insured Americans struggle to afford care.
- Now employers are struggling to attract and retain employees, which means they are likely even more reluctant to discount the value of the healthcare services they provide.
What we observe: Whether employer premium hikes will be politically armed in the run-up to the midterm elections.
- There are signs the GOP may be trying to link it to headline inflation, which the party sees as a successful attack on Democrats.
- “The prices of food, housing, and even health insurance are sky-high, yet in the last month the Biden administration … even gave the rich generous subsidies on things ranging from electric vehicles to Obamacare,” ranked House Ways and Means as Republicans said recently Kevin Brady from Texas.
Yes but: Increases in workplace coverage may not be as easy to tie to Democrats as the rising costs of the Affordable Care Act would have been had Congress not extended the increased subsidies.
- “The ACA is the hallmark domestic political performance of Democrats over the past decade, so Republicans would have flagged large premium hikes as a failure of Obamacare,” Levitt said. “Neither Democrats nor Republicans have made any serious commitment to improving affordability for people with employer-sponsored health care.”