Understanding the Rising Costs of Healthcare | Lewis & Ellis LLC

Healthcare costs in the U.S. are on the rise and, in general, have outpaced inflation for some time. As the cost of these critical services has grown faster than most Americans' wages, it's created an imbalance that puts citizens, employees, and employers in a tough position — as they still require healthcare services but may have a harder time accessing necessary hospital care, treatments and prescription medication.

Comparatively, health expenditures in the U.S. are significantly higher than in other developed countries, which outlines a clear need for cost management strategies.

Here, we're looking at some of the top contributing factors to the rising healthcare cost in the U.S. and how employers can manage it to provide competitive health benefits for their employees.

Contributing Factors to Rising Healthcare Costs in the US
While there's no question that the cost of critical health and wellness services is increasing — and that total health spending in America has grown tremendously alongside — it's important to ask what economic elements are most responsible for these rises.

An Aging Population
The U.S. population is aging rapidly — five times faster than the total population over the last 100 years, according to the most recent census. Those aged 65 and older generally require more medical care as they enter old age. Combine that fact with the speed of aging and it creates supply and accommodation challenges for critical items like prescription drugs and beds for proper hospital care.

High Administrative Cost
The U.S. healthcare system is complex and bureaucratic, which results in a lot of extra paperwork and administrative overhead that drives up costs.

Both healthcare providers and payers in the United States spend approximately $496 billion on billing and insurance-related (BIR) costs alone, which is a main component of these high administrative costs. Other components, as outlined by the Center for American Progress, include:

• Medical record-keeping.
• Hospital management.
• Initiatives that monitor and improve medical care quality.
• Programs to combat fraud and abuse.

Employee wellness benefits.

How Rising Healthcare Costs Impact Employers (and Employees)

Rising healthcare costs affect everyone, but it can be particularly concerning for employers who are responsible for providing attractive health insurance and health benefits offerings to their employees. The more expensive critical health services and products become, the more challenging it is to effectively balance cost and care.

Here are just a few of the ways rising costs impact employers (and, subsequently, employees):

• Higher healthcare premiums: Health insurance is a major expense for employers. As healthcare costs rise, so do insurance premiums, which strains company budgets and diverts funds from other potential, beneficial uses like employee raises or business expansion.
• Reduced competitiveness: In a tight job market, offering good health insurance is crucial for attracting and retaining top talent. However, rising costs can make it difficult for employers to compete, especially for smaller businesses. They may be forced to cut back on coverage options or shift more costs onto employees, which isn't ideal.
• Decreased employee productivity: When employees are struggling financially due to high healthcare costs, it can affect their work performance. They may experience stress, miss work for appointments, or be less focused due to health concerns.
• Increased absenteeism: Employees actively dealing with health issues or caring for sick family members may need to take more time off work, which disrupts workflows and can lead to increased costs associated with finding temporary replacements.
• Lower employee morale: If employees feel burdened by healthcare costs, it can negatively impact morale and job satisfaction, which may lead to higher turnover rates. As a result, employers incur additional costs for recruiting and training new employees.

As the primary provider of income and benefits, employers are in a position to help boost not only financial wellness among employees but mental well-being, too — both of which can do wonders for retention and overall employee satisfaction.

How Employers Can Manage This Rising Cost To Deliver Healthcare Affordability to Employees

Alternative Funding Models

Alternative funding models, such as self-insured plans, shift the financial risks of employee healthcare onto employers. However, while it is certainly a risk, employers stand to save money if claims are low. That said, a high claim may entail a larger upfront medical cost on a per-employee basis.

Promote Preventive Care and Wellness Programs

Preventive care and wellness programs, in particular, promote healthy living among employees and may help reduce the chance of individuals requiring more expensive care later on down the line.

Wellness initiatives that encourage healthy behaviors such as regular exercise, healthy eating, smoking cessation, and stress management are all great places to start. For preventive care, encourage employees to take advantage of services like vaccinations, screenings, and annual check-ups, which can help detect health issues early and reduce long-term costs.

Adopt Healthcare Technology

With technology at the forefront of many industries, there are valuable opportunities for both healthcare providers and employers to take advantage of increasingly capable tech to help manage rising costs. For employers, making these or options like them available through benefits packages can help reduce costs:

• Telemedicine: Virtual doctor visits allow for remote consultations, eliminating the need for travel and reducing costs associated with in-person appointments.
• Remote patient monitoring: Wearable devices and sensors can track vital signs and health data, allowing healthcare providers to monitor patients remotely.
• AI: AI can analyze medical records to identify patients at risk of developing chronic diseases, enabling early intervention and preventive measures.expand_more Additionally, AI-powered chatbots can answer basic healthcare questions and triage patients, reducing the burden on doctors and lowering administrative costs.

How Expert Actuaries Can Provide Support

Employers are not alone in navigating the complexities of healthcare spending growth, costs, and employee benefits. With the help of actuaries who can assess, plan, and advise on the best approaches to health insurance, employers can feel more confident in the benefits they're offering employees.

Cost Modeling and Predictions

Actuaries will analyze historical claims data and project future healthcare costs for different health plan designs, allowing employers to compare the financial impact of various benefit options before making resolute decisions.

Risk Assessment

Through thorough risk assessment strategies and techniques, actuaries will identify the financial risks associated with different healthcare plans, considering factors such as:

• Employee demographics
• Health history
• Industry trends.

This helps employers understand the potential financial impact of a specific health plan and choose one that fits their budget and risk tolerance.

Plan Design and Pricing

When it comes to designing and implementing plans, actuaries can help employers balance affordability for themselves with comprehensive coverage for employees. They'll advise on appropriate premiums and co-payments based on expected healthcare utilization.

Compliance and Regulations

Actuaries ensure employer-sponsored health plans comply with regulations like the Affordable Care Act (ACA), including requirements for minimum essential coverage and avoiding discriminatory practices. For organizations that offer Medicare Advantage (MA) plans, actuaries stand as reliable consulting partners that can help employers stay competitive and compliant. For example, at Lewis & Ellis LLC, we offer the following support for employers that offer Medicare Advantage:

• Strategic consultation.
• Bid preparation and submission.
• Compliance services.
• MA risk adjustment and star ratings.
• MA encounter data submission.

Wellness Program Evaluation

By analyzing historical and current data and benchmarking it against current industry standards, actuaries can assess the effectiveness of wellness programs offered by employers. This helps determine if these programs are actually leading to a healthier workforce and potentially lower healthcare costs overall. If there's room for improvement, actuaries can help employers achieve it.

Get Help With Employee Benefits

At Lewis & Ellis LLC, we help employers tackle the challenges of employee benefits and health plans — from risk management to regulatory compliance and everything in between— to help provide cost savings and better support employees' health needs.

Contact us and learn more about Employee Benefits services.