US employers will experience the largest increase in healthcare costs in 2024 in the past 10 years.

US employers will experience the largest increase in healthcare costs in 2024 in the past 10 years.

U.S. Employers Brace for Rising Health Insurance Costs in 2024

health insurance costs

According to healthcare consultants, U.S. employers are preparing for a significant increase in health insurance costs next year, marking the largest jump in a decade. However, amidst a tight labor market, workers may be spared from bearing the full burden of these rising costs.

Benefit consultants from Mercer, Aon, and Willis Towers Watson estimate that employer healthcare costs will rise between 5.4% and 8.5% in 2024. This increase can be attributed to medical inflation, the growing demand for expensive weight-loss drugs, and the wider availability of high-priced gene therapies.

A survey conducted by Mercer, a unit of Marsh McLennan, revealed that over two-thirds of employers do not plan to pass on the full cost increase to their employees. Instead, they aim to minimize additional financial stress on their workers who are already dealing with inflation. Employers understand that health benefits play a crucial role in retaining their workforce, especially during these challenging times.

employer healthcare costs chart

While U.S. consumer prices have accelerated by 3.7% in the past 12 months, down from the peak of 9.1% in June last year, medical cost increases typically lag behind general inflation. This is because contracts between insurers and hospitals stipulate the prices of procedures months or even a year in advance.

Benefit consultants specialize in designing insurance plans for medium and large employers, with approximately two-thirds of U.S. workers receiving benefits through such plans. Insurers like UnitedHealth, Centene, Cigna, and Elevance, which manage employer insurance plans, did not comment on this specific forecast.

Aon, projecting an 8.5% increase in employer healthcare costs for next year, expects 1 percentage point to be attributed solely to weight-loss drugs. Sales of Novo Nordisk’s Wegovy, an approved obesity treatment, as well as the “off-label” use of similar diabetes drugs like Novo’s Ozempic and Eli Lilly’s Mounjaro for weight loss, have seen a surge in demand over the last year.

weight-loss drugs chart

Additionally, the approval of roughly half a dozen gene therapies in the United States, many of which cost over $1 million, poses a significant cost increase for companies. Treating just one employee with gene therapy can have a substantial impact on a company’s healthcare expenses.

To mitigate the rising costs, employers are turning to artificial intelligence (AI) to reduce administrative staff expenses. Consultants unanimously agree that AI will play an increasingly important role in finding ways to curb rising healthcare costs. There will also be heightened scrutiny regarding coverage for expensive therapies.

Companies and insurers are actively exploring options for less expensive hospital networks for certain procedures. By incentivizing employees to seek treatment at specific networks, employers can reduce costs. Janet Faircloth, Senior Vice President of Aon’s Health Innovation Team, highlights this approach.

The anticipated rise in health insurance costs for U.S. employers in 2024 is significant. However, employers are cautious about burdening their employees with additional financial strain, given the prevailing inflationary environment. With a growing demand for weight-loss drugs and the availability of high-priced gene therapies, employers will explore AI and alternative healthcare networks to help mitigate rising healthcare costs.

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