Inflation and Covid 19 present unprecedented financial challenges for employers and employees in the 2024 employee benefit cycle.
As employers search for creative ways to protect their bottom line from historic inflation and staffing shortages, opportunities for saving on healthcare remain almost nil.
According to Milliman’s 2023 annual medical index, which is based on actual claims data, the average cost of healthcare for a family of four on a PPO plan is about $31,065. That’s up 5.6% from 2022, a year that only saw a minimal increase from the prior year (2021), although at that time many feared inflation was looming.
Historically, employee benefits have always been an employer’s most expensive cost of doing business, but, according to several studies, it’s about to get worse over the next several years. In fact, McKinsey research shows that inflation and the lingering effects of COVID 19 will have the biggest impact on employers and their employees during the 2024 to 2026 insurance-contract renewal cycle. Consultants predict that inflation costs passed down from healthcare payors will equate to premium increases of 10% or more for employers which will ultimately trickle down to employees’ wallets, and particularly the most vulnerable populations. That’s because employers will be unable to sustain such increases and many will turn to a HDHP model (High Deductible Health Plan) to shift costs to the employees who are, no doubt, already facing financial headwinds due to inflation.
While HDHPs can be a good fit for younger healthy individuals, many studies prove that people use less healthcare when their health plans require higher out-of-pocket costs. Putting off important doctor visits and prescriptions ultimately leads to more serious health problems and higher costs. That’s one of the reasons Castle Group Health is very careful when helping employers select the right health benefits for their company, and their employees.
Simply put HDHPs are not always the best option for everyone, but let’s review how an HDHP plan and a non-HDHP plan differ.
An HDHP can be any type of health insurance plan, including a preferred provider organization (PPO) or health maintenance organization (HMO) plan. The HDHP model will save you a significant amount of money on monthly premiums but comes with a very high deductible ($1,500 for individuals and $3,000 for families) in addition to higher maximum out- of-pocket costs ($7,500 for an individual and $15,000 for a family). The deductible must be met before the plan will pay for healthcare outside of routine visits and preventative care. Simply put you will have higher out-of-pocket costs when you need care if you have an HDHP. For these reasons, we don’t recommend a HDHP for any employee with a young family, or anyone planning to have a baby, or anyone who has any chronic conditions.
On the other hand, a non-HDHP has lower deductibles and lower maximum out-of-pocket costs. It may cost more in premiums than HDHPs do, but not everyone can afford to pay for unexpected medical bills. In fact, more and more Americans report they are financially struggling according to a recent survey by the Federal Reserve. While there are some tax benefits of tying a Health Savings Account (HSA) to an HDHP to help pay for medical costs, a big drawback is that you actually have to grow your savings account first in order to be able to cover out-of-pocket costs.
At Castle Group Health, our goal is to help employers offer plans with low or no deductibles at the lowest possible price for all parties – that means that a non-HDHP might end up being the least expensive coverage option when you consider all of the costs of a HDHP.
As the employee benefits open enrollment for 2024 gets underway, we recommend keeping an open mind. Strong negotiation and competitive bidding are still an effective strategy for keeping premiums low, while offering affordable benefits to your employees.
We also recommend the following tips to ensure a smooth benefit enrollment period and a great benefits package that helps you to attract, hire and keep good employees.
Milliman Medical Index 2023
McKinsey, The Threat to Employee Benefits, 2023
The Federal Reserve, Economic Well-Being of U.S. Households in 2022, Published May 2023