Rising Health Care Expenses: The Burden Shifts to Employees
It's no secret that the United States boasts the most costly health care among developed nations. The price tag for medical services is set to climb even further, with a significant impact on those insured through their workplaces.
Approximately 154 million individuals receive their health insurance through their employers. Many of these workers are likely to experience a notable increase in their paycheck deductions next year, with an average jump of 6% to 7%. Alongside this, many can also expect a rise in their out-of-pocket expenses as employers scramble to cope with the escalating cost of health care.
Employers Feeling the Heat
Companies aren't immune to these rising costs. In fact, they're expected to pay nearly 9% more per employee for the same coverage level to continue offering health benefits to their workforce. Despite altering or slashing their health care benefits, companies are still grappling with the steepest price surge in 15 years. This is based on a recent survey conducted among over 1,700 organizations by a renowned benefits consultancy firm.
A significant 59% of these employers revealed plans to offset these higher costs by transferring them onto their employees. This could mean introducing "cost-cutting changes" like increased deductibles, copays or other out-of-pocket expenses, including the cost of prescription medications.
"Employers are currently facing a near perfect storm," warns Larry Levitt, an executive vice president for health policy at a prominent health policy research nonprofit. "The price of health care is skyrocketing at a rate we haven't seen in years. Usually, when an insurer imposes a big increase on an employer, the latter tries to shift some or all of that to its employees."
The Impact on Consumers
This surge in health benefit costs comes at a time when consumers are still reeling from the financial blow of record inflation during the pandemic and are generally apprehensive about the state of the U.S. economy. Even though inflation has slowed significantly over the past two years, prices are starting to creep up again, fueled by sweeping taxes on imports.
The rising costs highlight a stark reality about the flawed U.S. health care system: for most Americans under 65, it's their employers who ultimately decide what they pay for health insurance and medical care. But employers are not entirely to blame.
The True Culprits
Employers are at the mercy of entities with far more market power. Pharmaceutical companies, hospitals, and others have collectively pushed up the costs of accessing medical care in the United States. Health insurers, often part of massive for-profit conglomerates, usually bear the brunt of the blame for the high costs of U.S. health care.
However, when it comes to determining what most working Americans pay for their health care, the responsibility lies with employers. And they're preparing to charge a lot more.
"It's kind of hidden because it’s deducted from your paycheck and unless you're really vigilant, it might not be obvious," Levitt explains. "But your take-home pay is reducing."
Why are Prices Rising?
Some factors contributing to the increase in health care prices are actually positive. For instance, pharmaceutical companies have developed more potent cancer treatments and weight-loss drugs, which come with a higher price tag. Moreover, more people are seeking medical attention after the pandemic-induced reluctance to access non-urgent care, leading to a surge in demand and consequently, prices.
Other reasons are tied to a lack of competition. Consolidation among hospitals, doctors' offices, insurance companies, and other health care entities often allows the remaining businesses to hike up their service prices.
"Health care lacks the characteristics of a traditional free market. Competitive forces are absent," explains Sunit Patel, a chief actuary for health and benefits in the United States.
Employers have been grappling with this issue for a while now: the costs they incur to provide health care are steep and have been on the rise for years. An average U.S. employer spent over $19,000 per employee last year to provide family coverage, with the employee contributing $6,000. The total average family premium of $25,572 has increased by 52% over the past decade.
Employers view health care benefits as part of the total compensation they offer their workers. This means that if they spend more on health care, they're likely to spend less on traditional salary increases.
"Generally, for workers, it's a take-it-or-leave-it situation. They don't have much choice but to accept it," Levitt concludes.