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There’s an old adage that health is wealth, but it can also be costly—particularly for employers that cover health insurance for their workers.
Companies expect healthcare to become even costlier next year, according to a recent survey of 121 employers covering 7.4 million US lives conducted by the Business Group on Health (BGOH).
The firms surveyed expect their costs to rise by a median of 9% next year, up from 8% this year, according to the report. Employers saw their actual costs surpass projected costs in 2023 and 2024 by less than one percentage point.
Weighing obesity treatment. GLP-1 medications were cited as one top culprit contributing to this projection, with 72% of employers reporting the drugs were driving healthcare costs to a “very great” or “great” extent at their organizations, according to the report.
These drugs have shown promising results for treating diabetes and obesity, but their high cost has prompted some employers to pull back or limit coverage. A majority (79%) of firms surveyed by BGOH said they were currently being affected by an increasing number of members in their health plans seeking obesity treatments.
Despite the cost concerns, a separate survey published in July by consulting firm Mercer found that the prevalence of GLP-1 coverage is rising, as 64% of employers with 20,000 or more employees included the drugs for obesity treatment on their health plans in 2024, up from 56% the year prior.
Mercer noted that employers may consider taking steps to manage GLP-1 costs, such as making eligibility requirements stricter by raising the BMI level workers need to show to receive a prescription.
Containing costs. While GLP-1s look to be top-of-mind for many HR leaders, BGOH’s survey indicates that employers will try broader cost-cutting strategies before limiting or reducing coverage of these drugs.
If they were asked to keep costs flat in the coming year, 84% of employers said they would either “implement immediately” or “strongly consider” looking at their request-for-proposal process to get better pricing from new or existing vendors. Similarly, 85% said they would “strongly consider” or immediately replace underperforming vendors.
When evaluating their programs, HR teams may look at factors such as health outcomes for employees utilizing the benefits, and whether they’re translating into cost reductions, said Ellen Kelsay, Business Group on Health’s president and CEO.
“In most cases, that is not happening. So employers are going to take a more discerning view of their vendor partnerships, and when they see that some are falling short,” she said. “They will then do RFPs [request-for-proposals] to look at alternative options in the market.” Dropping coverage is a last resort, she noted.
Employers “implemented those solutions in the first place, because there was a real clinical need, or a request and a desire for certain solutions within the workforce,” she said. “Unwinding those and taking those away is very unfavorable.”
Managing rising health costs isn’t a new challenge for employers, but it does seem particularly acute in the present economic environment. Earlier this year experts told HR Brew that total rewards leaders are taking a closer look at their benefits to ensure they’re delivering value. Benefits portfolios grew considerably during the first years of the pandemic, as businesses beefed up offerings in areas like mental health and family planning, said Dave Guilmette, CEO of benefits-focused tech firm Alight.
“Now we’re in a different world where there’s an increasing financial pressure that’s being felt, and these employers haven’t necessarily seen the return on those investments,” he said.