How Companies Can Handle Rising Medical Insurance Costs

June 25, 2024

Josh Simerman

HR professional determining healthcare costs
Quick Summary
: Employers face rising medical insurance costs, impacting their bottom line and ability to attract talent. Strategies to manage these costs include promoting preventive care, exploring alternative insurance models, educating employees on their options, negotiating with insurance providers, and regularly reviewing and adjusting benefits.

As medical insurance costs are rising at an unprecedented rate, employers across the board find themselves grappling with a critical challenge: how to sustainably manage these escalating expenses without compromising on the quality of healthcare benefits offered to their employees.

The rising cost of health insurance is a complex issue that touches upon employee satisfaction, retention, and the overall competitiveness of a business in attracting top talent. Join us as we explore why the cost of medical insurance is rising and how businesses like yours can navigate plans to ensure you remain competitive.

The Drivers Behind Rising Medical Insurance Costs

It is no secret that the average medical insurance cost is on the rise.

Last fall, CNN reported that “The cost of job-based health care coverage for 2024 is expected to rise at its fastest pace in years as inflation pervades insurance policies.”

If the numbers from last year are an indication, this is likely to be true. The news outlet shares that employer costs increased an average of 4.5% compared to 2022, and employee premiums rose an average of 1.7%. Some experts predict that employer costs will go up 6.4% in 2024.

But why is the cost of medical insurance on the rise? According to The Center for American Progress, it is the increasing prices of healthcare products and services rather than an increase in healthcare utilization. In other words, costs are not rising because more employees are using health care services, but because the actual cost of treatment is increasing drastically.

The Impact of Rising Medical Insurance Costs

Rising medical insurance costs squeeze employers from both sides, impacting their bottom line and their ability to attract and retain talent. Major drawbacks include:

  • Increased Expenses: The most direct impact is higher premiums. This reduces profits and limits resources available for other business needs like wages, equipment, or expansion.
  • Reduced Competitiveness: High healthcare costs can make it more expensive to hire and retain talent compared to competitors with lower healthcare burdens. According to a recent CNBC survey, 51% of workers say fully paid health insurance premiums top the list of benefits they want from employers. Offering these perks can be expensive, and perhaps not practical with current costs, but can help attract and retain top talent.
  • Decreased Morale: Employees becoming increasingly more stressed about affording healthcare costs are less likely to be happy and productive at work. If they are unhappy with their company’s health insurance plans, they may be motivated to look elsewhere.
  • Limited Hiring: High healthcare costs can make employers more hesitant to hire new employees, especially full-time workers who typically receive health benefits. For growing companies, this restraint can put more pressure on current employees and also affect morale.
  • Job Cuts: In extreme cases, companies may resort to layoffs to manage rising healthcare costs.

Health insurance increases ahead sign

Strategies for Managing Rising Medical Insurance Costs

Though the rising cost of medical insurance is daunting, there are steps employers can take to help mitigate this expense while still prioritizing the well-being of their employees. Here are a handful of strategies to consider.

Promote Preventive Care

Preventive care is one of the best ways to reduce healthcare costs across the board. There are many things employers can do to encourage employees to practice preventative care, such as:

  • Invest in wellness programs: Offer programs that encourage healthy habits like screenings, vaccinations, and disease management. This can identify and address potential health issues early, preventing costly interventions later.
  • Provide incentives: Motivate employees to participate in preventive care by offering rewards like lower co-pays or gym memberships. Also, ensure employees can take time off for health screenings and physicals without being penalized.
  • On-site health screenings: Organize regular screenings (e.g., blood pressure, cholesterol) to identify potential health risks and encourage early treatment. Offering these on-site, if possible, can be convenient for employees.
  • Promote healthy lifestyle choices: Offer resources and educational programs on healthy eating, stress management, and exercise, empowering employees to take charge of their health.

Explore Alternative Insurance Models

Navigating the health insurance marketplace can feel intimidating. However, many employers are looking for alternative insurance methods considering the increasing costs of traditional plans.

High-Deductible Health Plans (HDHPs) with Health Savings Accounts (HSAs) are becoming popular. Consider offering HDHPs with lower premiums but higher deductibles. Employers and employees can contribute pre-tax dollars to HSAs to cover out-of-pocket costs. This can be cost-effective for healthy employees but may not be ideal for those with frequent health needs.

A Professional Employer Organization (PEO) is also an option that empowers you to offer your employees the best group health insurance plans available on the market.

There are other types of plans to consider as well. The insurance experts at World Insurance can help you determine which type of insurance is best to meet your desired health outcomes and budget.

Employee Education and Engagement

Educating employees about their options for health insurance can also help manage costs. Clearly explain different plan options and their associated costs. Help employees choose the plan that best fits their needs and budget.

You can also educate employees about how their decisions, such as going to the emergency room vs urgent care, can impact overall costs. By providing them with the knowledge and additional resources to make smart decisions, you can also help manage overall medical insurance costs.

Negotiate with Insurance Providers

Do not overlook the importance of shopping around. Regularly compare rates and coverage options from different insurance companies to find the best option for your company.

You have control when it comes to choosing a plan type. Negotiate contracts with providers that incentivize preventive care, potentially leading to lower overall costs in the long run.

Review and Adjust Benefits Regularly

Finally, remember to review your health insurance plan annually.

Assess its effectiveness and identify opportunities for cost savings or benefit improvements. Also, keep in mind the changing needs of your team. This can be done through employee surveys or monitoring healthcare utilization trends. Always be prepared to adjust benefits as your company grows or employee demographics change.

Learn more about your options for managing medical insurance costs at your organization with help from the experts at World Insurance.

About the Author

 Josh Simerman

Head of Carrier Relations and Placement, Employee Benefits

  • Josh has more than 20 years of experience in employee benefits consulting and organization management, with a focus on optimizing client benefit programs in niche markets and building placement and analytics tools and processes.
  • He focuses on strengthening World’s current insurance carrier and vendor relationships while developing and growing new partnerships and innovative solutions.