Companies are scrambling to find health care plans good enough to entice employees while coverage costs are expected to rise another 6.5% in 2024, according to benefits consulting firms Mercer and Willis Towers Watson.
Health industry experts said they’re worried the current model is unsustainable.
“It’s been a steady, ongoing challenge for employers for the last 10 to 15 years,” said Marianne Fazen, executive director of the Dallas-Fort Worth Business Group on Health, which helps companies control health costs. “But now the costs are getting so egregiously high that employers are having a hard time managing the costs and continuing to offer their employees the health benefits that they give them.”
Rising costs have been part of an ongoing trend for Texans since at least the early 1990s, according to nonpartisan public policy nonprofit Texas 2036. But 2024′s potentially high prices could cause some employees to walk away from their plans and for companies to choose between charging employees more or reducing the quality of their plans.
“We’re seeing it become more difficult for employers to continue to absorb costs, and employers definitely are going to absorb the cost of financing,” said Eric Calciano, benefits adviser at employee benefits consulting firm New City Insurance. “There’s only so much that they can absorb until you have to pass those higher costs down.”
Who is this affecting?
Employers and employees are both feeling the pain of higher costs, experts said. Employees on a single-coverage plan are paying around $1,400 in premiums while the average employer pays over $7,000, according to a report from the Kaiser Family Foundation.
The growing problem of health care’s unaffordability in Texas has gotten so out of hand that at least half of Texans said they put off getting the care they needed since 2021, according to Houston-based Episcopal Health Foundation. Over 40% of Texans also skipped a recommended medical test or treatment and 35% did not get a prescription filled due to the costs, the foundation said.
Employees skipping preventative care is a problem that’s only going to catch up to people and companies in a couple of years as the employee’s health gradually deteriorates, Fazen said.
Blue-collar workers will feel the pain of skipping care the most, she said.
“They’re the ones who tend to have more serious conditions, more chronic conditions that play out in their lives. The incentive to treat it when it’s in the earlier stages is key, but it’s not often followed,” Fazen said. “Then they simply don’t have the money to go and buy the medications and they get worse.”
Adding benefits to employer-sponsored health plans only adds to the cost for employees, Fazen said.
“Companies want to push preventive measures such as cancer screenings for early detection and prevention, but those are not used very often,” she said. “Some employees may not even have transportation to go to an imaging center or may not be able to afford the time off.”
Companies have to begin approaching health care strategies differently, said Charles Miller, senior policy adviser for Texas 2036, a think tank studying some of the state’s biggest challenges.
“For a long time, the common wisdom in the policy world was that we need to make sure that our insurance coverage is better so that people aren’t skipping care,” he said. “But there’s a growing realization among policy experts that insurance coverage alone cannot solve this problem.”
Why are costs still going up?
Hospital consolidation has been the name of the game in health care for the last several decades. Research from Harvard Business School shows mergers can increase commercial sector prices by an average of 6%. Between 1998 and 2021, the U.S. saw 1,887 hospital mergers and a loss of 2,000 hospitals, according to the American Hospital Association.
“It started with small hospital systems merging with other smaller hospital systems,” said Vivian Ho, health economist at Rice University and Baylor College of Medicine. “There are fewer mergers and acquisitions today, but the values of the deals are so much larger, simply because there are no small players left.”
Last year, Texans saw Dallas-based Medical City Healthcare expand its network to 19 inpatient hospitals with its purchase of Wise Health System. Though acquisitions aren’t as frequent today, they can still affect thousands of Texans.
“I think acquisitions are one of the big issues that’s driving up costs. If [hospitals] buy local urgent care clinics and start providing those and smaller hospitals, then the charges at smaller clinics will go up, even in rural communities,” Fazen said. “If they’re buying a hospital on the outskirts of the D-FW area, they’re likely charging the same fees they would charge at the main hospital.”
But it’s not just consolidation that’s pushing prices up. Texas’ traditional fee-for-service Medicaid model, where health care providers are paid for each service, can become uncontrollable for employers and employees looking to keep prices low.
“It’s consolidation for sure, but it also is the fact that the health care system that the employers are paying for is fee-for-service,” Fazen said. “It’s a really cattywampus revenue model that is very difficult to control. The fees just keep going up per the more services that are provided.”
Advancing medical technology is driving prices up, hospitals are still having staff shortages and specialty drug manufacturing remains expensive, Calciano said.
“I think people are finding now that the estimations for how much prices are going to rise is the largest increase that we’ve seen in about a decade,” he said.
What can be done to prevent soaring costs?
Getting costs down requires a concerted effort from employers, employees and state and federal governments, experts said.
For employees, the most important thing they can do to keep their costs low is to be good health care recipients, Calciano said. But they also need to look into the differences between more expensive but often better quality PPO plans and the more affordable HMO plans, and should be willing to look into new options despite previous loyalties with health care providers, Fazen said.
“An employee might say ‘No, my family has always gone to this other hospital in this community. So I’m gonna go to this other one.’ Which may be even more expensive or may not deliver as good care,” she said. “Employee choice is always a factor in this as well, and they have to choose wisely.”
Beyond 2024, companies need to reinvent health care plans, Rice University’s Ho said.
“It’s the responsibility of employers to start thinking smarter about what type of health care they purchase. I’m generally disappointed with CEOs, executives of large firms and their HR offices in how they think about buying affordable, high-quality health insurance plans for their employees,” she said. “I think they throw their hands up and say, ‘Oh, it’s too complicated.’ And that leads to a completely inelastic demand for health insurance and health care.”
Companies could consider plans where pharmacy benefit managers are not commonly owned by an insurance carrier and target claims as early as possible, Calciano said. But that would mean employers need to encourage employees to get preventive care.
To do that, employers could design benefit plans around a shared savings program. It’s a model that relies on employees to go to the lowest-cost service provider. In return, the employer can reward the employee by giving them back some of the money they saved from the average price the company paid, Texas 2036′s Miller said.
“There’s true empowerment to employers to finally take advantage of this price transparency revolution and take advantage of the price variation that does exist to start steering their employees to go get that high-quality care,” Miller said. “But we need to … reduce some of the needlessly higher prices that are being paid.”
Though it can be expensive, more companies working with navigator services that help employees and employers pick plans could help both save thousands of dollars, Ho said.
“We need to get across to health care providers that we’re not going to have an inelastic demand. If you’re going to increase prices, we’re going to find alternative, lower-cost providers,” she said. “But employers have not been smart enough to go out, find and work with them. Your HR officers have no training in economics. You need people who are willing to sit down and think systematically about the economics of this.”
If companies are tight on money, it might be time to increase the amount that gets deducted from everyone’s paychecks, increase deductibles and copays or erode the quality of health plans outright. But there are ways for employers to frame this as a working solution for employees, Ho said.
“You need to pose it to your workers as tradeoffs and say, ‘Well, suppose we took this high-cost provider out of our network. We’re not going to pay for them. But your contribution to your insurance plans can drop X% because we’ve managed to find good providers that still provide higher quality care, but they’re much cheaper,’” she said.
This will be a crucial year for companies nearing a point where paying for coverage may no longer be a possibility, Fazen said.
“Employees simply can’t afford higher costs and nor can the employer,” Fazen said. “With so many large employers here using health care systems, I think health care providers are going to need to figure out a way to make it a little bit more reasonable for employers to stay the course. It’s possible employers will just say, ‘We can’t afford to pay for health care anymore. Go on the government system.’ That’s the kind of ultimate endpoint that could be reached.”
Some 3.3 million Texans are currently covered under the Affordable Care Act, according to Texas 2036. It’s an increase of 194% since 2020, when that number was 1.1 million.
