Aon: U.S. Employer Health Care Costs Projected to Increase 8.5 Percent Next Year

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Aug 22, 2023, 08:00 ET

CHICAGO, Aug. 22, 2023 /PRNewswire/ -- Average costs for U.S. employers that pay for their employees' health care will increase 8.5 percent* to more than $15,000 per employee in 2024, according to Aon plc (NYSE: AON), a leading global professional services firm.

The projection increase, which assumes employers do not implement employee cost sharing increases and other cost saving strategies, is nearly double the 4.5 percent increase to health care budgets that employers experienced from 2022 to 2023. On average, the budgeted health care plan cost for clients is $13,906 per employee in 2023. The analysis uses the firm's Health Value Initiative database, which captures information for more than 800 U.S. employers representing approximately 5.6 million employees.

Since the COVID-19 pandemic, employers are seeing medical claims experience return to typical levels of growth and should anticipate more inflationary cost pressures in the coming year.

"While economy-wide inflation spiked during the past two years, employer-sponsored health care costs did not see dramatic increases during the same time period due to the multi-year nature of typical medical provider contracts," said Debbie Ashford, the North America chief actuary for Health Solutions at Aon. "Even though inflation is subsiding, health care trend is growing as medical providers push insurers for larger cost increases to cover the higher costs of wages and supplies that they endured during the last couple years but were unable to pass on to payers."

"Other contributing factors adding pressure on health care cost trends are the proliferation of newly indicated weight loss drugs, new technologies, severity of catastrophic claims and increasing share of specialty drugs," Ashford added.

In terms of 2023 health plans, employer costs increased 4.5 percent, while employee premiums from pay checks were slated to be a more modest 1.7 percent increase from 2022, according to Aon's analysis. Plan costs represent the employer's and employee's combined premiums for medical and prescription drug costs but exclude employee out-of-pocket payments such as deductibles, co-pays and co-insurance. On average, employers subsidize about 81 percent of the plan cost, while employees pay the remainder.

Increase to U.S. Health Care Plan Costs from 2022 to 2023

Plan Cost**	2022	2023	Change from 2022 to 2023
Employer cost	$10,736	$11,224	+4.5 %
Employee premiums from pay checks	$2,638	$2,682	+1.7 %
Total plan cost	$13,374	$13,906	+4.0 %

"We see employers continuing to absorb most of the health care cost increases," said Farheen Dam, North American Health Solutions leader at Aon. "In a tight labor market, plan sponsors are hesitant to shift significant cost to plan participants and make benefits less affordable."

Employees in 2023 are contributing about $4,675 for health care coverage, of which $2,682 is paid in the form of premiums from pay checks and $1,993 is paid through plan design features such as deductibles, co-pays and co-insurance, according to the firm's analysis.

Employee Costs**	2022	2023	Change from 2022 to 2023
Employee premiums from pay checks	$2,638	$2,682	+1.7 %
Employee out-of-pocket costs	$1,886	$1,993	+5.7 %
Total employee costs	$4,524	$4,675	+3.3 %

The rate of health care cost increases vary by industry, as does the proportion of cost shared by the plan, employer plan sponsor and employee. The professional services industry has the highest average employer cost increase at 7.5%, while the manufacturing industry has the highest average employee cost increase at 2.9%. The retail and wholesale industry has the lowest average change in employee contributions: a half percent decrease from 2022 to 2023.

Increase by Industry to U.S. Health Care Plan Costs from 2022 to 2023

Industry	Employer Cost	Employee Pay Check Contributions	Total Plan Cost
Health care	3.2 %	1.2 %	2.8 %
Manufacturing	3.1 %	2.9 %	3.1 %
Professional services	7.5 %	0.0 %	5.7 %
Public sector	4.7 %	1.7 %	4.2 %
Retail and wholesale trade	3.5 %	-0.5 %	2.5 %
Technology and communications	5.0 %	2.6 %	4.5 %

Improving Outcomes and Costs by Predicting and Addressing Complex Conditions
"High-cost claimants are one of the largest drivers of health care expenses for employers, and this group of members is growing," Dam said. "This growth is caused by several factors, including new high-cost injectable drugs, increasing cancer rates and longer hospital stays resulting from multiple conditions, complications and complex procedures. On the other hand, reinsurance premiums are climbing, making it harder for employers to hedge the elevated claim risk."

To help employers manage their health care spend and build a more resilient workforce, Aon developed its Health Risk Navigator, which provides predictive insights to anticipate and protect against the elevated risk employers face. The tool helps plan sponsors make better decisions to optimize reinsurance coverage, improve budget planning and implement targeted care management programs by using machine learning and risk simulation to analyze historical claims and demographic data for each individual employee, accurately predicting high-cost claim risks.

Aon's Health Value Initiative
The historical information and projections shown above were developed using Aon's Health Value Initiative database, which captures healthcare costs and benefit designs for more than 800 U.S. employers representing 5.6 million employees and $77 billion in 2023 health care spend. The projections above are developed after taking plan design changes as well as demographic and geographic population adjustments into account. To learn more about Aon's Health Solutions, visit https://www.aon.com/home/solutions/health.

* The projection is applicable in a status quo environment when employers do not make changes or implement care management programs. Aon consultants expect many employers to implement cost-saving changes or programs to help mitigate this increase.
** Based on the weighted average cost of clients in Aon's analysis in both 2022 and 2023.

About Aon
Aon plc (NYSE: AON) exists to shape decisions for the better — to protect and enrich the lives of people around the world. Our colleagues provide our clients in over 120 countries and sovereignties with advice and solutions that give them the clarity and confidence to make better decisions to protect and grow their business.

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SOURCE Aon plc