Rising Healthcare Costs Pressure Benefit Leaders: Strategies for Management

TL/DR –

US benefits leaders are challenged by rising costs, with rising benefit costs being the top influencing factor for US employers’ benefit strategies in 2023, according to a WTW report. The increased attention on the total cost of benefits results from factors such as innovation, provider consolidation, and the role of intermediaries in the US healthcare spending, currently at its fastest growth rate in two decades, as per the American Medical Association. Strategies for managing higher healthcare costs include overhauling carriers and pharmacy benefit managers, referring employees to specialized centers, and utilizing technological solutions to assess returns on benefits investments.

Benefits Leaders React as Healthcare Costs Surge

Rising healthcare costs are putting a strain on benefits leaders as they attempt to manage their organizations’ expenses. Years of increased healthcare spending, coupled with the possibility of a global recession, present numerous challenges for total rewards leaders.

According to WTW’s recent report, 90% of U.S. employers noted rising benefit costs as a key factor influencing their benefit strategies this year, up from 67% in 2023.

Due to factors such as innovation, provider consolidation, and the role of intermediaries like pharmacy-benefit managers, U.S. healthcare spending has been increasing at its fastest rate in two decades, according to the American Medical Association. Jeff Levin-Scherz, population health leader with WTW and an assistant professor at Harvard’s T.H. Chan School of Public Health, explains that this is causing employers to focus on total cost.

Tackling Higher Health Costs

Benefits leaders are taking a critical look at their healthcare budget given healthcare tends to be their largest area of investment. According to a KFF analysis, the cost of medical care has risen at a higher rate than overall consumer prices over the past 20 years, leading to a “crowding out” effect on other valuable benefits.

Benefits leaders are now devising strategies to keep offering valuable benefits without charging more. A significant rise was seen in employers planning to rebalance benefit spending, from 8% to 63%, according to the WTW survey. Such strategies might include critical evaluation of carriers and pharmacy benefit managers, and referring employees to specialist centers for complex surgeries.

Can Technology Help?

Managing total rewards budget is challenging as benefits portfolios have expanded significantly in recent years due to the rise in point solutions.

Companies like Alight offer technology solutions to ensure a good return on investment for benefits. Dave Guilmette, CEO of Alight, believes more than just delivering value for spend, increasing employee appreciation of benefits is crucial.

Companies like Workday are developing AI-powered tools offering real-time insight into benefits consumption. These tools could help total rewards leaders to better capture the return on their investment for benefits, says Cristina Goldt, Workday’s general manager of workforce management and payroll.

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