Employer health care costs expected to rise 8.5% in 2024

A study from professional services firm Aon projects that the average costs U.S. employers pay for their employees’ health care will increase 8.5% to more than $15,000 per employee.

Health care costs expected to rise: ©Argus - stock.adobe.com

The increase, assuming employers do not implement employee cost-sharing increases or other cost saving measures, is nearly double the 4.5% increase from 2022 to 2023. In 2023, the average, budgeted health care plan cost was $13,906 per employee, according to Aon.

The report states that since the pandemic, employers are seeing medical claims return to typical levels of growth and will likely face more inflationary cost pressures in the coming year.

"While economy-wide inflation spiked during the past two years, employer-sponsored health care costs did not see dramatic increases during the same time period due to the multi-year nature of typical medical provider contracts," said Debbie Ashford, the North America chief actuary for Health Solutions at Aon, in a statement. "Even though inflation is subsiding, health care trend is growing as medical providers push insurers for larger cost increases to cover the higher costs of wages and supplies that they endured during the last couple years but were unable to pass on to payers."

Other contributing factors adding pressure on health care cost trends are the proliferation of newly indicated weight loss drugs, new technologies, severity of catastrophic claims and increasing share of specialty drugs, Ashford said.

Employee premiums from pay checks were slated to rise a more modest 1.7% from 2022, according to Aon's analysis. On average, employers subsidize about 81% of a health plan’s cost, while employees pay the remainder.

"We see employers continuing to absorb most of the health care cost increases," said Farheen Dam, North American Health Solutions leader at Aon, in a statement. "In a tight labor market, plan sponsors are hesitant to shift significant cost to plan participants and make benefits less affordable."

Employees in 2023 are contributing about $4,675 for health care coverage, of which $2,682 is paid in the form of premiums from pay checks and $1,993 is paid through plan design features such as deductibles, co-pays and co-insurance, according to the firm's analysis.

The rate of health care cost increases vary by industry, as does the proportion of cost shared by the plan, employer plan sponsor, and employee. The professional services industry has the highest average employer cost increase at 7.5%, while the manufacturing industry has the highest average employee cost increase at 2.9%. The retail and wholesale industry has the lowest average change in employee contributions: a half percent decrease from 2022 to 2023. Health care employers saw their costs rise 3.2%, employee share increased 1.2%, and total plan costs rose 2.8% from 2022 to 2023, according to the report.

"High-cost claimants are one of the largest drivers of health care expenses for employers, and this group of members is growing," Dam said. "This growth is caused by several factors, including new high-cost injectable drugs, increasing cancer rates and longer hospital stays resulting from multiple conditions, complications, and complex procedures. On the other hand, reinsurance premiums are climbing, making it harder for employers to hedge the elevated claim risk."