Firms move to cut benefits

BUSINESS| Q&A

Health benefits are a top factor in whether Americans take or stay in a job, yet in a span of a few weeks, a handful of large employers reportedly are planning cutbacks or changes that can make that choice even tougher in 2027.

Walt Disney, Bloomberg, Starbucks and Deloitte are among those taking actions next year to rein in healthcare spending, from restricting spousal coverage to eliminating plan options or cutting drug benefits to deal with soaring costs.

Health plans project the highest medical cost trend in almost two decades, with commercial healthcare costs expected to rise 9% in 2027, according to consulting firm PwC. Insurer Aon predicted even higher costs, with U.S. employer healthcare costs increasing 9.5% next year, pushing average costs above $19,000 per employee.

These benefit cuts could be devastating for workers if they have to shoulder more of their own health costs, analysts said. Americans already say they have limited budgets for health insurance outside an employer-sponsored plan, according to finance researcher ValuePenguin. Overall, 42% of the 2,001 adults surveyed in July said they could comfortably afford less than $100 a month, while 23% said they could afford between $100 and $249.

"Health insurance is much more than a minor perk for most working Americans," Maggie Gunara, senior staff writer at ValuePenguin, said in a report. "Among those who are employed or job hunting, 87% say the health plan attached to a job matters at least somewhat when they're deciding whether to take a job or stick around."

What benefits are companies changing?

Some of the companies making cuts include:

• „ Walt Disney Co. will stop covering working spouses under its healthcare plan in 2027 if those spouses have access to coverage through their own employers. The change applies to the company's more than 200,000 U.S. employees.

•„ Starbucks doubled the price tag for health insurance for some workers and lowered the share of employer contribution to the cost. It's also ending coverage for GLP-1 weight loss drugs, beginning in October.

• „ Bloomberg LP plans to make its employees start paying monthly premium contributions for the first time in the company's history.

• „ Deloitte will halve paid parental leave to eight weeks for workers in its "Center" talent segment, which covers internal IT, finance and administrative functions, effective Jan. 1. It's also ending for those workers its $50,000 adoption and surrogacy reimbursement program, which also covered IVF-related costs, as well as pension accruals after Dec. 31.

What do changes mean for workers?

With these steps, companies are shifting more of the healthcare burden on to employees.

Consulting firm Marsh found in a survey that 59% of employers plan to make cost-cutting changes to health benefits in 2027, including plan design changes like higher deductibles that can increase members' out-of-pocket costs.

About two of three large employers with 500 or more employees also are expected to increase employees' share of premium costs next year, Marsh said. That means that in 2027, many employees will see their paycheck deductions for health coverage rise by more than the overall average cost increase of 8.2%.

"These moves may reduce employer spend, but reducing benefits isn't the same as reducing the cost of health care," said Tim Zellers, employee benefits consultant at independent risk management, employee benefits, and business insurance firm Gibson, on LinkedIn. "We're just changing who pays for it. Maybe the better question is: 'Why are we paying this much in the first place?'"

What could companies do instead?

Since merely shifting costs hasn't worked, companies need to find a new strategy and maybe that's "exiting the traditional insurance game," said Paul Pruitt, co-founder of SHARx, a procurement management solution for high-cost prescription drugs.

For example, if a company examines pharmacy usage among its employees, it may find that most of the costs are driven by a small number of people with higher-cost medications, he said. Pharmacy costs continue to outpace overall medical trends, PwC said.

"The higher-cost medications may be 10% of usage but consume 90% of dollars," Pruitt said. "So how do we control hyper users, the outliers?"

One way may be for companies to bypass insurers for those branded medications and adopt direct-to-patient options, similar to Amazon Pharmacy and Mark Cuban Cost Plus Drug Co., Pruitt said.

Companies can keep traditional insurance for mass drugs that are already low-cost but direct employees looking for expensive, harder-to-get drugs to platforms that carry the medication at a lower price.

Individual coverage health reimbursement arrangements, or ICHRAs, are another option companies are considering to replace group plans. One in three businesses currently offering health benefits reported likely ICHRA adoption in the next two years, according to an Employee Benefits Research Institute study.

In these arrangements, organizations provide employees with a fixed monthly tax-free reimbursement for individual health insurance premiums and other qualified medical expenses. Power rests with employees to choose and purchase an individual health plan with the network of doctors, coverage levels and monthly premiums that meet their personal and family needs.

Transitioning to an ICHRA may be difficult, though. Employees may have a bias toward a group plan, which is what they're familiar with, and there's uncertainty about whether healthcare would be cheaper for workers with an ICHRA, EBRI said.

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