Banking & Finance, Economic Development, and Health Care

Report: Benefits costs projected to rise 6.5%

Medications and hospital costs have contributed to price increases over years.

November 8, 2019
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U.S. employers soon could pay more for the medical benefits they provide their employees.

According to the 2020 Global Medical Trend Rates Report released by Aon plc, the U.S. employer-provided medical benefit costs are forecasted to rise 6.5% in 2020.

Robert Hughes is the president and founder of Advantage Benefits Group, an independent employer benefits firm located in Grand Rapids. His firm designs health, wellness, life, disability and retirement plans for its employers, which include the city of Grand Rapids, Bissell, Grand Valley State University and Gentex Corporation, among others.

He said employer benefit costs have been steadily rising over the years due to several factors, including medications and hospital costs.

“When you go to the hospital this year for knee surgery, that same treatment next year they project is going to cost 5% to 5.5% more at the hospital,” Hughes said. “If you look at pharmaceutical prescription drugs, more and more things are getting treated by drugs — very, very expensive drugs. It can be good because it is helping people avoid surgeries and things of that nature, which can be more expensive. (However,) pharmaceutical costs are going up between 9% and 11%. So, when you look at the overall medical trend and you take in pharmaceutical because health plans cover both drugs and hospitals, that is where you get the (projected) 6.5% increase.”

Specialty drugs are one area in which costs are expected to increase, especially for those used to treat multiple sclerosis, cancer and hepatitis C, among others. Along with those health challenges, the Aon report also attributes growing unhealthy personal habits such as bad nutrition and substance abuse as contributing factors to the potential increase of employer health benefit costs. 

“Many of the risk factors lead to chronic conditions with long-term medical costs that make them difficult to treat and result in long-term medical cost increases,” said Tim Nimmer, Aon’s global chief actuary for health solutions. “As a large portion of our waking hours is spent on the job, the workplace is a logical place to create a healthier culture and change behaviors.”

While Aon projects a 6.5% increase nationally, Hughes said costs can either increase or decrease depending on the demographics of the individual employer such as staff size and the number of claims the insurance company paid out in the previous year. 

Hughes said although costs continue to rise year over year, employers have to remain competitive.

“The last few years have been a tough labor market, so employers have to have a competitive health benefits package, along with the pay they are paying, but the challenging thing is that the cost keeps going up, so it is hard for employers,” he said. “When you look at the total health care cost, employers typically pay about 75% of the cost of health benefits and employees pay about 25%. When that is going up 5% per year, the employers are paying the majority of it. That is why employers work hard.

“It is easy if the cost goes up and we pass that onto the employees, like increase their deductibles or increase the contributions that come out of their paycheck, (but) that doesn’t do anything. What you work hard to try to do, the good companies get creative ways to reduce the unnecessary increase in cost so that cost doesn’t go up (and) you can pay employees more money in wages and other things (and) you are not wasting money.” 

Hughes said his firm is in the process of reviewing and deciding what its own health benefit costs will be for next year, so he is aware of employers’ pain.

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