Rising health care costs will weaken employers in a tough job market

All signs point to higher health spending in the employer market next year, which will result in more than normal premium increases.

Why is it important? Employers must choose between taking the hit or passing on the extra cost to their employees—a decision that’s especially difficult in a tight labor market.

driving news; Seven in 10 employers expect moderate to high health benefits costs to increase over the next three years, according to a recent Willis Towers Watson study.

• WTW’s Jeff Levin-Scherz said: “At the same time you’re trying to increase affordability, there’s this horrible reality that overall costs are going up more than you expect.
• More than half of the survey respondents said they plan to use cost-cutting programs or suppliers to address rising costs. Less than a quarter said they would shift costs to employees through higher premium contributions, and 14% said they would shift costs through out-of-pocket costs.
• But workers will not tolerate premium increases in the current labor climate. Hundreds of New Jersey public workers rallied last week to demand a delay in a vote on next year’s more than 20% premium increase. Bloomberg reported.

Between the lines; One reason health care costs haven’t risen in line with general inflation this year is because payers have price contracts — often multiyear — with suppliers, drug manufacturers and medical device makers.

• That means that underlying inflation in labor or production costs does not immediately translate into pay rates or, subsequently, premiums.
• Hospital groups have been telling anyone who will listen how much their costs have risen in the past two years. It’s only fair that those complaints loom large in negotiations with insurers.
• “Signs are everywhere that hospital price increases are coming, and that will drive up insurance premiums for employer-provided health benefits next year,” said Larry Levitt of the Kaiser Family Foundation. “The health care sector has been cushioned to some extent from the inflation that is hitting the rest of the economy, but probably not for long.”
• Due to the structure of the contracts, these price increases can be spread over several years.

The big picture: Employers have overreacted to more than a decade of rising health care costs Offering plans with high deductibles and out-of-pocket expenses.

• That means health insurance has become more expensive, even for Americans who get coverage through work.

• But as more uninsured Americans struggle to afford care, there are signs that employers have increased their ability to shift costs to workers.
• Now, employers are struggling to attract and retain workers, which means they are more resistant to lowering the cost of the health benefits they offer.

What we are looking at: Whether employer premium increases are politically weaponized into mid-term elections.

• There are signs that the GOP may try to link it to overall inflation, which the party sees as a winning attack on Democrats.
• “Prices are high for food, shelter and even health insurance, yet in the past month the Biden administration… has given huge subsidies to the wealthy on everything from electric vehicles to Obamacare,” Kevin Brady of Texas said recently.

Yes, but: Increasing workplace coverage may not have been as easy to tie to Democrats if Congress hadn’t extended the revised subsidies.

• “The ACA is a domestic policy success for Democrats over the past decade, so Republicans are pointing to big premium increases like the failure of Obamacare,” Levitt said. “Neither the Democrats nor the Republicans have moved in any serious way to improve affordability for people with employer health benefits.”