As we enter the second quarter of 2024, top of mind concerns around health programs are affordability for both employees and employers, the potential impact of GLP-1s on cost trends, and the increased volatility in claims. For self-insured sponsors, claims volatility makes it difficult to predict cost within a year; for fully insured sponsors, year to year. Healthcare trends have been impacted by broader economic inflationary pressures with a lag, and the environment will remain challenging for some time to come.

While we expect medical cost trends to be similar to last year’s, we see growing cost pressure from prescription drugs, which account for approximately one-third of total health plan costs.

Given that health benefit cost growth is once again exceeding general inflation — after an anomalous period during the COVID-19 pandemic in which deferred and cancelled care resulted in lower trend rates — and that annual average health benefit cost per employee is approaching $16,000, it’s not surprising that 67% of respondents with 500 or more employees indicated healthcare costs to be a significant or very significant concern. In addition, while inflation for other goods and services has subsided over the last year, the same is not true for healthcare, which may draw even more attention from finance and other stakeholders. Fully insured and self-insured employers were equally concerned with healthcare cost.

About half of survey respondents believe that their organization’s healthcare cost needs to rise at no more than the rate of general inflation, or CPI, to be sustainable over the next three to five years. Although inflation has been elevated recently, the Federal Reserve is working toward the goal of keeping inflation to just 2%. With this as a baseline assumption for inflation going forward, achieving what many of the CFOs surveyed consider to be sustainable levels of increases will require significant action.

Overall, interest in cost management strategies is high, with the greatest interest in clinical management, followed by network strategies, and plan design changes. Clinical management typically involves few trade-offs for employees and thus is the least disruptive, offering benefits for both the employer and employees.

Interestingly, network strategies, which can cause member disruption (but don’t necessarily need to), also garnered a high level of interest. Strategies that maintain broad networks but use plan design or other mechanisms to steer members to higher-value providers are gaining traction, offering an option that preserves choice while encouraging the use of lower-cost, higher-quality providers. Somewhat fewer respondents favor plan design change that results in cost-shifting to employees. Depending on the current level of cost-sharing and on employee demographics, there may or may not be “room” to increase employees’ share of healthcare cost before it becomes an impediment to seeking necessary care.

While 70% of CFOs with self-funded plans believe they are receiving the necessary information to monitor health program costs effectively, 30% don’t believe they are receiving it or are unsure. In an inflationary environment and with health care costs expected to become more volatile, regular communication with stakeholders (including finance), becomes increasingly important. 

The decision of whether to use a margin, and what level to use, is very tailored to an organization’s tolerance for risk. More than two-fifths of the self-funded respondents use a margin (and the actual number may be higher given that 23% don’t know).

Margins have traditionally been used by smaller organizations, but the survey found that even among respondents with 5,000 or more employees, 45% use a margin. Given that claims volatility is increasing — and that finance departments value predictability in the context of staying as close to budgets as possible — highlighting outcomes under various margin assumptions can yield insights that aid in decision making.

The predictability of healthcare expense can be evaluated by looking year over year or throughout a single plan year. Whichever view they take, the majority of CFOs state that healthcare is less predictable than other expenses. The CFOs in organizations with fully insured programs are only slightly more sanguine about health care predictability than those in self-funded organizations; while their expenses may be fixed for a 12-month period, renewals can be quite volatile and result in unexpectedly large increases.
 

Not surprisingly, when asked what aspect of claims management needs improvement, self-funded respondents were most likely to say “predicting healthcare claims.” Predicting claims is inherently difficult given the uncertain nature of illnesses, both in terms of how and when they present, as well as the course they will take. There are efforts underway to leverage AI, machine learning and other advanced analytics to help with prediction. Many organizations have focused attention on improving claims management, largely through enhanced case management of existing highcost claimants. It was somewhat surprising to see that more than a fourth of respondents cited “monitoring healthcare claims;” this aspect of claim management should be relatively easy to address given the widespread availability of tools and analytics to support this function.