Employer health care costs projected to increase 9% next year

CHICAGO, Aug. 15, 2024 /PRNewswire   -- The average cost of employer-sponsored health care coverage in the U.S. is expected to increase 9%, surpassing $16,000 per employee in 2025, according to Aon.

This projected increase, which assumes employers do not implement employee cost sharing increases and other cost saving strategies, is higher than the 6.4 percent increase to health care budgets that employers experienced from 2023 to 2024 after cost savings strategies. On average, the budgeted health-plan cost for clients is $14,823 per employee in 2024. The analysis uses Aon's Health Value Initiative database, which captures information for more than 950 U.S. employers representing approximately 6.7 million employees.

Medical claims continue to trend at elevated levels, while prescription drug costs are climbing higher due to continued growth in specialty drugs and increased utilization of GLP-1 medications for diabetes and obesity.

"In the health care sector, both rising employment levels and wage increases fueled by economy-wide inflation during the past few years are pushing health care costs higher," said Debbie Ashford, the North America chief actuary for Health Solutions at Aon. "To keep pace with these pressures, the health care industry negotiates higher prices, which in turn emerge as higher medical trends.

"On the prescription drug side, specialty drugs remain the leading factor in spending, even though they represent a small fraction of overall utilization. The demand for GLP-1 medications has skyrocketed, and a surge in news drugs in the GLP-1 category is expected to drive up costs even further, adding 1 percent to the aggregate health care cost increase," Ashford added.

"We are at a pivotal time in helping employers think about balancing the costs of GLP-1 prescription drugs with the opportunity they provide to treat obesity and reduce the chronic conditions associated with this disease," said Farheen Dam, North American Health Solutions leader at Aon. "It's imperative that employers consider the clinical evidence and health benefits as well as the near-term cost impacts."

Increase to U.S. health plans costs from 2023 to 2024

In terms of 2024 health plans, employer costs increased 6.4 percent, while employee premiums from pay checks were slated to be a more modest 3.4 percent increase from 2023, according to Aon's analysis. Both are notably higher than averages from the prior five years, when employer budgets grew an average of 4.4 percent per year and employees averaged 1.2 percent per year.** On average, employers subsidize about 81 percent of the plan cost, while employees pay the remainder.

"Employers continue to bear the brunt of rising health care costs," Dam said. "Plan sponsors are wary of passing significant expenses onto plan participants, striving to keep benefits affordable."

Employees in 2024 are contributing about $4,858 for health care coverage, of which $2,867 is paid in the form of premiums from pay checks and $1,991 is paid through plan design features such as deductibles, co-pays and co-insurance, according to the firm's analysis.

Increase by industry to U.S. health care plan costs from 2023 to 2024

The rate of health care cost increases vary by industry, as does the proportion of cost shared by the employer plan sponsor and employee. The technology and communications industry has the highest average employer cost increase at 7.4 percent, while the public sector has the highest average employee cost increase at 6.7 percent. The health care industry has the lowest average change in employee contributions, with no material change from 2023.

Using predictive analytics to identify emerging risks and refine budgeting processes

High-cost claims continue to be an issue for employers and are being driven by emerging high-cost gene and cell therapies, complex procedures and a rise in chronic conditions. Aon recently launched its Health Risk Analyzer, which uses advanced machine learning to help employers predict high-cost claimants and gain a deeper understanding of which conditions will drive future health care spending so they can more proactively budget for these costs and implement targeted strategies to manage their highest-risk plan members.

"Self-insured plan sponsors face challenges in providing stable plan increases, funding and renewals in this volatile environment," Dam said. "Combining Aon's Health Risk Analyzer and the firm's health risk financing and reinsurance capabilities, plan sponsors are able to access new funding and risk transfer strategies, allowing flexibility in funding of plan costs and converting unexpected volatility into predictable and planned expenses."