High drug costs, inflation impacting workplace health plans

Workplace health plans continue to see rate increases as employers deal with high prescription drug costs and lingering inflation.

Those were some of the takeaways from Alera Group’s 2024 Healthcare and Employee Benefits Benchmarking Report, released last week.

Employers are challenged with how to address the high cost of and growing demand for brand-name specialty medications, the report said. In addition, employers are faced with balancing the impact of health plan rate increases on stretched household budgets.

Some of the report’s key findings include:

• Medical plan rate increases: 79% of medical plans saw an average 9% rate increase, while dental rates remained stable. The median increase was 8%, and the most common increase was 5%.
• Pharmacy tiers: The number of pharmacy tiers increased, with an 8% increase in the number of employers adopting five pharmacy tiers to manage rising pharmacy costs.
• Employee benefit variety: Employers offer an average of five benefit types, with larger organizations (100 or more employees) offering more, including supplemental plans.
• Shift to self-funding: Increasing health insurance premiums have driven employers with more than 500 employees toward self-funding.

To offset these higher costs, on average, employees are asked to pay 24% of the cost for their workplace medical plan, the report said. Employees with copay plans average a higher contribution, with an average copay contribution of 26% as opposed 20% for a qualified high-deductible health plan. With respect to employee contributions, the percentage is higher for a family rate compared to employee-only.

As medical premiums continue to increase, self-insurance continues to be a popular funding strategy among larger employers. The type of self-funding that employers leverage also varies by size, with employers in the larger end of the market using an administrative-services-only arrangement. Sixty-four percent of the largest employers responding (1,000 employees or more) and 56% in the 500-999 employee size range are leveraging an ASO with self-funding.

The majority of survey participants (86%) offer a copay plan. The number of companies offering a QHDHP is slightly higher than the prior year, up from 47% in 2023 to 52% in 2024.

Health savings accounts and high-deductible plans go hand in hand, the report said. Of those employers offering a QHDHP, 79% also offer an HSA. Significantly fewer (16%) offer a health reimbursement arrangement. It is important to note that copay plans, which are offered by most participants as an option, are not eligible for an HSA account, and only 10% of these plans offer an HRA.

The percentage of employers contributing to an HSA plan varies by size of company. The most commonly offered annual HSA amounts are $500 for an individual and $1,000 for a family. Although offered less frequently, average employer contributions to HRAs, which are entirely employer-funded accounts, are higher than contributions to HSAs.

Based on the survey results, regardless of whether it’s an HDHP or copay, the network type preferred provider organization and point of service plans remain the most popular, according to the report. Nearly three-quarters of plans (73%) offer a PPO or POS plan, as opposed to 26% offering a health maintenance organization and exclusive provider organization.

With respect to deductibles, the majority of survey participants (60%) offer a midrange deductible of between $2,000 and $3,999. This is down slightly but mainly consistent with last year’s result of 62%. Based on survey responses, 30% offer at least one plan with a deductible of $500 or less. Close to half of survey participants (45%) offer a plan with an in-network, individual deductible of more than $4,000.

When comparing this year’s results to last year’s responses, there is a notable jump in the number of participants offering deductibles of $4,000 or more. The report said it is too early to determine if this will become a trend, it is something to keep an eye on in next year’s data.

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Susan Rupe is editor in chief, magazine, for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].