Employer Healthcare Costs Are Increasing

Americans spend more on healthcare than any other nation. Patients, healthcare providers, and employers are all feeling the pain, but there’s no sign costs will slow down. In fact, we’re seeing the exact opposite.

Employer healthcare costs could increase up to 8.5% this year alone, according to experts from Aon, Willis Towers Watson, and Mercer. That’s a big jump, and there are several reasons for it, including:

• Increased demand for expensive weight loss drugs
• Longer lifespans and an aging population
• Expanded availability for gene therapies
• Higher prices for drugs and medical supplies
• Wasteful healthcare spending
• Fragmented care navigation
• Delayed care for serious conditions

With these healthcare trends in full swing, experts are looking for other ways to reduce employer healthcare costs without sacrificing care quality. In the past, that meant increasing health insurance premiums for employees.

But healthcare costs have crept too high, too fast for employees to shoulder any more financial responsibility—asking them to do so could cause them to avoid care completely. Moving forward, only a third of large employers plan to pass off more costs to their employees.

Instead, employers are looking for other ways to contain healthcare costs. One way employers are cutting costs is by targeting the six health conditions they spend the most money on.

The 6 conditions driving employer healthcare costs

Everyone has vastly different healthcare needs, but did you know that six categories drive the majority of employer healthcare costs? Cancer, musculoskeletal (MSK), cardiovascular, diabetes, high-risk maternity, and mental health.

If employers can find ways to reduce costs for these health conditions while also taking great care of their employees, they can efficiently reduce their overall healthcare spend.

But first, you may be wondering, “Why are these six health conditions driving employer healthcare costs?” We explore that a bit for each condition below.

1. Cancer

In the last half century, researchers and oncologists have turned cancer treatment on its head. Research has led to better treatment protocols, medication, and surgical interventions that have saved over 4 million lives in the last three decades. Despite this incredibly positive trend, cancer care costs are rising.

Cancer care is among the top three healthcare cost drivers for 86% of employers—topping the charts at number one for 43% of them. One reason for this is that nearly two million people received new cancer diagnoses last year—and the American Cancer Society predicts there will be even more than that in 2024. In addition, many of these are later-stage diagnoses, largely due to pandemic-induced preventive screening delays.

The result? Cancer treatment comprises about 15% of employers’ healthcare costs. And for each of the next three to five years, employers expect these costs to grow by 9%.

2. Musculoskeletal

Did you know half of Americans have a musculoskeletal condition? We’re talking about arthritis, back and neck pain, carpal tunnel syndrome, osteoporosis, and other conditions causing bone and muscle pain for over 126 million people.

Given that, it’s no surprise MSK is among the top three drivers of healthcare spending for 75% of employers. But the number of people suffering from a musculoskeletal condition isn’t the only reason MSK costs are increasing.

Costs have almost doubled in the last 10 years due to inappropriate and inefficient care. For example, between 20 to 40% of back surgeries fail to relieve the pain they were meant to address, and a third of knee replacements were deemed unnecessary.

That’s a lot of money to be spending when there are more conservative treatments (e.g., physical therapy) that would likely be more successful.

3. Cardiovascular

Cardiovascular disease has been the leading cause of death for Americans for 100 years and counting.

No wonder almost a third of employers identify this category as a top three driver for healthcare spending. And cardiovascular spending is expected to more than double, climbing over $1 trillion in the next 20 years.

But why are cardiovascular costs skyrocketing? There are a few reasons:

• Risk factors for heart disease are more prevalent, with rising rates of high blood pressure, diabetes, and obesity.
• Unfortunately, overtreatment is common. Approximately 20% of people who receive a stent don’t need it.
• People are living longer, and the risk of cardiovascular conditions like heart disease increases with age.

The American College of Cardiology expects heart failure incidence to increase by 33% and stroke by 34% by 2060—and with that, costs will rise, too.

4. Diabetes

Over one quarter of employers report that diabetes is a top three driver for healthcare costs. Fierce Healthcare reports that “costs for patients with diabetes are growing almost twice as fast compared to people who don’t have the condition…growing at close to 20% year over year and topped $20,000 per member per year in employer costs for 2020-21.”

These costs aren’t shouldered by employers alone.

People who have diabetes spend almost 2.5 times more on medical care and 4.5 times more at the pharmacy than their non-diabetic counterparts.

If that weren’t enough, the incidence of diabetes is also increasing. The number of people who have diabetes has more than tripled in the last 30 years because risk factors such as overweight and obesity are more prevalent. Sedentary lifestyles are also contributing to this issue, with just 60% of people getting enough exercise. By 2050, one third of Americans could have this expensive chronic illness.

5. High-risk maternity

Starting a family is a special time for many, but it’s increasingly expensive—for employers and employees. High-risk maternity is among the top three healthcare cost drivers for 23% of employers.

The $895 million Americans spend on cesarean sections is one of the reasons high-risk maternity costs so much, second only to lost productivity. Uncomplicated vaginal births cost significantly less than cesareans: $14,768 versus $26,280.

But, as it turns out, not all cesareans are necessary. Studies show cesarean rates in excess of 19% don’t improve health outcomes for moms or babies—yet 32% of births in the U.S. are cesareans.

Complications from pregnancy are also to blame. Costs for preterm births are sky-high, nearing $14 billion. Babies with other developmental and respiratory conditions also contribute to mounting maternity care costs, totaling $9.6 billion.

6. Mental health

Many people benefit from mental health services through employer-sponsored healthcare plans. It’s sixth on our list of the top conditions driving employer healthcare costs, with 17% of employers reporting it as a top three expenditure.

One quarter of Americans have a mental health condition such as anxiety, depression, or substance use disorder. The pandemic increased demand for mental healthcare services, as isolation from lockdowns and worries about getting sick caused significant distress for many.

The demand for mental health support has increased so much that spending in this category has increased more than double that of overall medical spending.

Managing employer healthcare costs

Reducing employer healthcare costs is tough, as there are so many factors at play. Targeting the conditions we spend the most on can help employers contain costs, benefiting both themselves and their employees. One of the best ways to do this is by leveraging a center of excellence program—like Carrum Health—that has a bundled payments model and connects members to high-quality care with the best providers in the nation. It’s a win-win for everyone involved.

The information contained on this page is for informational purposes only. No material is intended to be a substitute for professional medical advice, diagnosis, or treatment.