The United States is known for having the most expensive health care system in the developed world, and recent trends indicate that these costs are set to escalate even further. Approximately 154 million Americans rely on employer-sponsored health insurance, and many of these individuals may experience a significant increase in their paycheck deductions, projected to rise by an average of 6% to 7% next year. Additionally, out-of-pocket expenses are expected to climb as employers respond to the soaring costs of health care coverage.
According to a recent survey conducted by Mercer, a leading benefits consultancy, employers are projected to incur nearly 9% more per employee for the same level of health coverage. This marks the largest price increase in health care costs in the past 15 years. A staggering 59% of employers surveyed indicated they plan to transfer these increases to their employees, which may manifest as higher deductibles, copays, and other out-of-pocket expenses, including prescription costs.
This situation represents a "perfect storm" for employers, as noted by Larry Levitt, executive vice president for health policy at KFF, a health policy research nonprofit. The rapid escalation of health care costs is happening at a time when many consumers are still reeling from the effects of pandemic-era inflation and growing concerns about the overall state of the U.S. economy. Even though inflation rates have decreased over the past two years, new price increases are emerging as various tax policies come into effect.
The rising costs of health benefits further highlight a crucial, often overlooked, aspect of the U.S. health care system: for most Americans under the age of 65, their employers determine the amount they pay for health insurance and medical care. Employers find themselves constrained by the pricing power of pharmaceutical companies, pharmacy benefit managers, and hospitals, all of which contribute to the rising costs of medical services.
While health insurers, particularly those operated by large for-profit conglomerates, commonly face criticism for high health care costs, the reality is that employers ultimately decide how much working Americans will pay for their health care. With impending cost increases, many employers are preparing to pass these burdens onto their employees.
As Levitt points out, the implications of these rising costs may be subtle. Premium deductions are taken directly from paychecks, which can obscure the reality that take-home pay is effectively decreasing. Many employees may not immediately recognize the financial impact these changes will have on their overall compensation.
Interestingly, some factors contributing to the rise in health care prices may be viewed in a positive light. For instance, advancements in pharmaceuticals have led to the development of more effective cancer treatments and weight-loss drugs, which come with higher price tags. Additionally, following the COVID-19 pandemic, more individuals are seeking non-urgent medical care, which has increased demand and subsequently driven up prices.
Another significant issue is the diminishing competition in the health care market. Mergers and consolidations among hospitals, insurance companies, and medical providers have resulted in fewer options, allowing the remaining entities to raise their prices. As Sunit Patel, Mercer's chief actuary for health and benefits, notes, the health care market does not operate like a traditional free market, lacking the competitive forces that usually help keep prices in check.
This is not an isolated incident; employers have been grappling with steep health care costs for years. In the previous year, the average U.S. employer spent more than $19,000 per employee for family coverage, while the employee contributed around $6,000. The total average family premium of $25,572 has surged by 52% over the past decade.
Employers have often attempted to shield their employees from the brunt of these cost increases, especially in a tight labor market following the pandemic. However, rising expenses have reached a tipping point. Beth Umland, Mercer's director of health and benefits research, explains that as employers allocate more funds toward health care, they may reduce traditional salary increases. Workers, on the other hand, typically have limited bargaining power when it comes to health care pricing.
Ultimately, for many employees, navigating health care costs is a matter of accepting what their employers offer. As Levitt succinctly puts it, for workers, it often feels like a "take it or leave it" scenario, with little room for negotiation. This dynamic underscores the challenges facing the U.S. health care system and the financial pressures that lie ahead for American workers.
