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July 10, 2019

Understanding the Drivers of Rising Health Care Costs and How Employers Can Mitigate Them

It’s no secret that health care costs in the U.S. have risen sharply over the past two decades. When considering this challenge, it’s important to explore the causes of the cost increases. It’s also important to note that each organization will likely experience different cost drivers, but the following are among the most common across the country.

Skyrocketing Prescription Costs — Prescription drug costs continue to represent an increasingly large portion of health care expenditures. The Centers for Medicare & Medicaid Services (CMS) projects that from 2012 to 2022 annual expenditures on prescription drugs will grow by 75% to $455 billion, and outpatient prescription drugs will account for about 9% of total health care spending. This year’s top 5 prescription drug cost-management tactics can be found in our latest employee benefits benchmark report.

Increase in Chronic Conditions— Approximately 133 million Americans live with one or more chronic diseases. As a nation 86% of our health care dollars go to treatment of chronic diseases. These conditions not only deeply affect those who suffer from them but can also lead to increased medical expenditures and lost productivity for employers.

Increased Usage — Utilization of many health care services has risen over the last decade. A number of factors, such as improvements in medical technology, the influence of managed care, elevated consumer awareness and demand, and a boost in the number of practicing physicians, have caused health services (e.g., number of surgical procedures, number of prescription drugs dispensed), to rise significantly. Other services, such as breast cancer screenings, immunizations for children and diagnostic procedures like CT scans and MRIs, have also experienced sharp utilization increases.

Aging Population — According to the U.S. Census Bureau, the number of Americans aged 65 and older is expected to nearly double by 2025, and the elderly population (80 and older) will increase by 80%. As a result, there is a subsequent rise in the occurrence of chronic diseases such as asthma, heart disease and cancer, and the need for more resources to fight these diseases. This leads to the increased use of prescription drugs and other medical services and an overall increase in health care spending.

Low Health Literacy — More than 1 in 3 Americans have difficulty with common health tasks like reading a prescription drug label or making a wise health care decision, according the U.S. Department of Education’s National Assessment of Adult Literacy. Low health literacy often results in higher utilization of basic and expensive health services such as emergency care and inpatient visits, which adds up quickly. It is estimated that low health literacy costs the United States $106 billion to $238 billion annually and accounts for 7 to 17% of all personal health care expenditures.

How can employers address rising costs? 

Mitigating health care costs has been a top-of-mind concern for employers nationwide for several years.  Many want to continue to offer valuable health benefits to their current employees, and, wisely, many want those benefits to help them attract and retain quality employees. However, employers must also weigh the cost-effectiveness of those benefits at a time when hefty rate hikes are the norm.

After trying to absorb most of the costs because of hiring and retention issues, employers would be wise to attack the root causes of rising costs with sustained, systemic changes. Considering both short- and long-term strategies, including making plan design changes, focusing on employee wellbeing and education, and implementing additional benefits offerings, can benefit your employees and protect your bottom line.

Our latest employee benefits benchmark report is a great starting place. It provides hundreds of data points and insights to help you evaluate your benefits program.

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