Rising Health Care Costs: Cause for Concern

by | 18 Oct, 2016

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Health care costs are on the rise, and that has staggering implications for employers since employee benefits costs are also increasing. While it’s probably of no surprise, CNN reports that the cost of healthcare is increasing at a faster rate than wages and inflation. Having an attractive benefits package is key for employers in employee recruitment and retention, so employers should seek to understand first why the cost of employee benefits is rising, and second, what can be done to minimize the impact and still ensure that employees are receiving satisfactory benefits packages.

There are several trends that are contributing to the rising cost of health insurance in the United States, including:

Increasing medical costs: medical costs are also rising at a rate greater than inflation. One driving force of these increases is the fact that medical providers are rewarded for doing more, rather than for being efficient. Costs grow quickly with each visit, test, and procedure done. In addition, because our medical system is not integrated, there are often repetitive tests and overtreatment.

Rise of chronic illness: chronic conditions, such as diabetes, asthma, heart disease, and obesity, are on the rise. In fact, over half of the U.S. population now suffers from a chronic condition. This results in an increased spending on medical care.

Lack of knowledge and transparency: healthcare costs can be very complicated, and there is no readily available way for consumers to easily understand them. This makes it much harder for both employers and consumers to make truly informed decisions about what the best treatment options are.

Prescription drug costs: as reported by the Wall Street Journal and according to a recent report by federal health officials, prescription-drug spending rose 12.6% in 2014, the latest year for which data are available, and it is expected to rise 7.3% a year through 2018. Big drug-price increases have triggered congressional investigations, criticism from both Republican and Democratic presidential candidates, and exploration of potential remedies.

Increased fear of malpractice lawsuits: because malpractice lawsuits can be extremely costly to providers, many providers are prescribing excessive treatment and/or tests to mitigate the risk of being faced with a malpractice lawsuit.

New technologies are expensive: new medical advances in drugs and technologies are certainly beneficial in improving treatments, but they come at a cost. In addition, patients and doctors are inclined to want the newest technologies and treatments.

Increased taxes and regulations: the ACA included a new set of taxes and fees for insurance companies. While these taxes go towards subsidizing those who cannot afford insurance, they drive up the price of premiums for others. Insurance companies pass these additional costs onto consumers.

The average premiums for medical coverage have increased significantly over the past decade. While these increased costs have taken a big bite out employees’ paychecks, many employers have chosen to take the brunt of the assault and absorb a large percentage of the increases.This issue is of concern to all employers, but especially to small business owners, who may be facing growing concern about how to keep up with these escalating costs.

With all these factors driving the increase in the cost of employee benefits, what can employers due to mitigate these costs and be able to provide attractive benefits plans for their employees?

Look out for a blog post next week with some answers.

Tom DiSilva
Tom DiSilva has been providing professional human resource services for over 30 years. As the CEO of Navigate PEO, he actively partners with organizations of all sizes in the Greater New England area and across the country to help their businesses grow. He has expertise in HR and Labor Management, offering guidance and support for key areas of business such as negotiations, operations management, employee coaching, and employee benefits design. He is an active member of The Society for Human Resource Management (SHRM), The National Association of Professional Employer Organizations (NAPEO), Professional Association of Co-Employers (PACE), and The American Payroll Association (APA). He is deeply committed to giving back to the community both personally and through Navigate Cares, which provides support for several nonprofit organizations such as the USO, The Boys & Girls Club, and the 3Point Foundation.

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Disclaimer: this article does not represent expert advice and is provided for informational purposes. Please get in touch if you would like expert HR advice.