One of more challenging aspects of being a healthcare strategist in the U.S. is staying on top of the shifting preferences and motivations of the many different buyers of healthcare services in this country. It is relatively easier to focus on purchasers in the public sector, such as the federal government, due to their sheer size and visibility. But one of the most important—and complicated—aspects of the U.S. healthcare economy is the role that employers play as buyers of healthcare services. The fragmented nature of the employer market makes it especially tricky to track. Even the largest employers represent only a very small percentage of the total commercial market. For example, Walmart, the largest private employer in the country, is estimated to employ roughly 1.6 million Americans. That’s a drop in the bucket relative to the over 150 million people in the U.S. with employer-sponsored coverage.
Fortunately, despite its fragmentation, this is an area in which there is a wealth of information that also happens to be regularly updated. Between benefit consulting firms such as Mercer, Aon, Willis Towers Watson, and PricewaterhouseCoopers; employer coalitions such as the Business Group on Health; and think tanks such as the Kaiser Family Foundation, there is no shortage of annually-updated data sources to comb through. The challenge is in marrying these disparate data sources in order to move from information to insight. And that exercise is one that we do every year as part of our State of Healthcare research.
Union Healthcare Insight members will have access to a full report of our findings in the next month. In the meantime, read on for a preview of our insights on the employer space in 2023.
Insight #1: Employer healthcare costs have lagged both the broader economy and typical trends—but are expected to return to normal levels this year.
For the past decade, employer medical costs have typically increased at a rate of about 5% to 7% in any given year (it’s worth noting, by the way, that this growth rate is actually relatively low by historic standards—two decades ago, the typical annual growth rate was around 10%). While the precise numbers for 2022 vary by source, all of them agree: medical trend last year was below typical levels, by either historic or current standards, falling somewhere between 3%-5%. This is especially striking given that inflation in 2022 was at a 40-year high, reaching a peak of over 9% in June. But it was not especially surprising to us, for two reasons:
Employer contracts are typically renegotiated on a three-to-five-year basis, meaning that pricing updates will always lag any unexpected shifts in broader inflationary trends.
The exceptionally high rate of inflation outpaced wage growth for most workers, driving historic levels of care delays which likely put a dampener on utilization.
All sources also predicted that medical trend was likely to return to more typical levels in 2023, as contracts come up for renegotiation. But the trend is not expected to match the rate of inflation seen in 2022 (at least, not yet), as the downward pressures on utilization continue and, of course, because not all contracts will be up for renegotiation just yet.
Insight #2: With healthcare spending low and workers scarce, employers are prioritizing health benefit enhancements over cost control measures, particularly for lower-wage workers.
When you combine the lower-than-usual growth in employer healthcare spend with the fact that employers across most industries have struggled with historically high levels of turnover and job vacancies, it’s hardly surprising that employers would be hesitant to cut health benefits this year. And the data bears that out: most employers say that they are prioritizing benefit enhancements over efficiency efforts for 2023. This is even more true among larger employers.
What might be less obvious is who those enhancements are likely to benefit the most. Given the particular difficulties in attracting and retaining hourly and low-wage workers, those are the groups that employers are most likely to say they are targeting for benefit enhancements.
So how, exactly, are employers enhancing benefits? Many of the focus areas are intuitive. Virtual care and behavioral health (sometimes in combination) were frequently-cited priorities, including in the survey data highlighted above. But one particular theme caught our eye as something that hasn’t typically spiked on these lists in years past…
Insight #3: Women’s health has emerged as a major (newer) priority in benefits enhancement efforts.
Nearly every source we reviewed contained some mention of women’s health. In fact, most employers stated not only that they were prioritizing women’s health as an important benefit enhancement lever, but that they were taking specific actions meant to address inequities in women’s health:
The focus on women’s health broadly, and on inequities in women’s health specifically, is not limited to the employer space. It’s a larger theme that has emerged through our 2023 State of Healthcare research. As I discussed in a previous post, “femtech” is one of the few areas that defied the headwinds in healthcare investment in 2022. What both employers and investors are responding to is the chance to pair a clear business opportunity/imperative (e.g., the need to retain women amid declines in workforce participation and a lack of digital health tools designed for and by women) with a worthy problem area to tackle from an equity perspective (i.e. given the wide-ranging list of gender, geographic, and racial inequities within the women’s health space). And daunting as these challenges may be, they also likely feel more inflectable to individual organizations than issues such as structural racism and generational poverty.
What about the cost side of the equation?
While employers may be prioritizing benefit enhancements over cost control efforts for now, that’s not to say that there aren’t any interesting developments underway on efficiency. Our 2023 report on the employer landscape will go much deeper into those trends, and what they mean for other stakeholders in the healthcare ecosystem. If you’re interested in getting access to that report and our 2023 State of Healthcare, or learning more about our other research offerings, don’t hesitate to reach out to us at email@example.com.