Employer’s Guide to Understanding the Skyrocketing Cost of Healthcare
The cost of healthcare is rising dramatically; in fact, it is estimated that U.S. health expenditures will reach $6.8 trillion by 2030.
McKinsey and Company, a global management consulting firm, reported that employers could experience a 9-10% increase in health plan costs due to inflation through 2026, and in large workforce industries, such as retail, manufacturing, and food services, profits could decrease by 16-19% by 2025 due to the increasing costs of health plans.
What factors are causing the rising cost of care?
Aside from perennial factors like inflation and administration expenses, key drivers for the current surge in the cost of care include:
1. Delayed treatments due to COVID shutdowns
The rising cost of care can be attributed to delayed treatments due to the COVID shutdowns. With patients unable to get x-rays, blood tests, and other types of screenings, they did not prioritize preventative care and treatment for existing health conditions, which may have worsened. As restrictions have eased and patients have resumed regular medical appointments, diagnoses for cancers and other serious conditions have increased, as well as doctor visits for preventative care, elective surgeries, cancer treatments, and other therapies, leading to an overall increase in costs.
2. More expensive prescription drugs
Recently, developments in pharma companies have created more effective drugs to treat serious medical conditions, such as hepatitis C, HIV, and multiple sclerosis. However, these new pharmaceuticals are costing more than their predecessors, which is resulting in higher costs being passed on to patients and health plans.
3. Pharma companies raising the prices they charge private health plans
Kiplinger reports that pharma companies are increasing the prices they charge private health plans and employers to make up for the decreased prices and rebates they will likely have to give Medicare under the new Inflation Reduction Act.
4. The cost of specialty drugs can be exorbitant
The National Cancer Institute has reported that the average cost of medical care and specialty drugs, such as those used to treat cancer, for the first year following a diagnosis can exceed an exorbitant amount of $42,000.
Between the years 2016 and 2022, numerous drugs experienced a drastic increase in their list prices by $20,000 or more, or 500% or higher. [1]
5. Cellular gene therapies
Today, cellular therapies can use gene-targeting to treat certain diseases for life with a single dose. However, the hefty price tag of approximately $1.5 million per treatment can have a significant impact on employers’ health insurance budgets, not to mention a patient’s wallet.
The FDA has only approved a few gene therapies thus far, but they anticipate up to 20 new ones will be available starting in 2025. This will likely open up more options for those with diseases that are not responding to traditional therapies but will most likely exacerbate overall health insurance costs.
Two examples of new gene therapies are Zynteglo for a blood disorder, which has a one-time injection cost of $2.8 million, and Skysona for a rare neurological disease, which has a price tag of $3.0 million. [2]
6. Continuous drug advertising
Since 1997, when the FDA relaxed regulations on media advertising for brand-named drugs, commercials have become a regular presence on our airwaves. In fact, from 2016 to 2018, drug companies spent an astonishing $17.8 billion on TV advertising. This has had a tangible effect, leading to an increase in prescriptions for advertised drugs, even when lower-cost generics are available. This, in turn, drives up the cost of health care.
7. Aging of U.S. society
By 2030, the baby boomer generation will have aged 66-84 years old. The National Council on Aging (NCOA) estimates that a large portion of older adults are likely to suffer from chronic conditions, including diabetes, arthritis, and heart disease. This could potentially lead to an increase in the utilization of various medical services and treatments, such as hospitals, doctors, health clinics, physical therapy, and prescription drugs, by as much as 73 million people.
According to the National Council on Aging (NCOA), almost 95% of senior citizens have at least one chronic illness, and nearly 80% have two or more.
8. The cumulative effect of stress, obesity, and chronic conditions
According to national data, an astounding 85 percent of healthcare costs in the United States are associated with treating chronic health conditions such as asthma, heart disease, high blood pressure, and diabetes. As the health issues of the U.S. population continue to rise, this increases the risk of insuring the average American and, consequently, the cost of healthcare.
Approximately 40% of adults aged 20 and over in the United States are either overweight or obese, potentially leading to chronic illnesses and higher healthcare costs. [3]
9. Growing trend of avoiding care
The overall trend of people avoiding health care can be attributed to two factors. Firstly, people may not seek medical attention due to a lack of price transparency, resulting in 44 percent of individuals not knowing how much it will cost. Secondly, even if the prices are known, rising deductibles can mean that people cannot pay for the treatment out-of-pocket. This leads to them putting off getting the care they need, which can worsen their conditions and, ultimately, increase the cost of treatment when they eventually seek it.
Bottom line
If you’re looking for a way to tackle the increasing cost of providing healthcare benefits to your employees, our experienced Benefits Advisors can craft a strategy that will ensure you continue to offer quality and affordable coverage. Get in touch with us now to learn more about how we can help you manage healthcare costs.
[1] U.S. Department of Health and Human Services
[2] Axios “Multimillion-dollar gene therapies offer hope and huge cost concerns”
[3] PeopleKeep “Eight reasons for rising healthcare costs”
This material has been prepared for informational purposes only. BRP Group, Inc. and its affiliates, do not provide tax, legal or accounting advice. Please consult with your own tax, legal or accounting professionals before engaging in any transaction.