Prep your business for rising health care costs

Offering health benefits to your employees can give you a serious competitive advantage in the fight for talent — especially in a tight labor market. Whether you provide health benefits today or are considering coverage for the first time, offering affordable, high-quality health insurance can serve your business and your employees.

But it doesn’t come cheap. Health insurance is a big expense — especially as costs continue to rise without an increase in value. In 2024, private health insurance costs are expected to increase by 7.6% or more. The lack of affordable options creates a challenge for small and midsize businesses that want to or might even be required to offer health care coverage.

Health care spending is on the rise

The problem of rising health care costs is nothing new. Just as a loaf of bread costs more now than in the ’90s, prices for many goods and services have increased. But the rise in health care costs is particularly extreme and a burden to employers and employees alike.

From 2009 to 2019, national health care spending remained steady at about 17% to 18% of GDP. But in 2020, spending rose to nearly 20% due to the onset of the COVID-19 pandemic. Though health care spending has dipped back to about 17% of GDP, per capita spending continues to rise.

In a country where nearly half the population relies on employer-sponsored health insurance, that means millions of small and midsize businesses are footing the bill.

With such a sharp uptick, it’s no wonder that 37% of small businesses rank the cost of providing health care coverage as their number one challenge. While larger companies may be able to absorb the price hikes, smaller employers often don’t have the same resources or health care funding options. Instead, employers like you may be facing tough choices about how to cover the rising prices.

For many, that means passing along higher costs to employees. In addition to paying higher premiums, employees at small businesses have an average deductible that’s $1,000 more than employees at large businesses. And a quarter of employees in small businesses are paying $12,000 or more each year just to enroll in family coverage. These costs can make health care unaffordable for some of your employees, even when it’s covered.

The right funding strategy could help you save

Although you can’t control costs, you can choose a funding strategy that may help you save money while maintaining quality coverage. Take a look at a few common funding options:

• Professional employer organization (PEO)
  A PEO works specifically with small businesses to outsource critical human resource functions, including benefits administration. By representing multiple employers, PEOs can offer better group rates and savings than individual businesses would likely get on their own. However, this model may leave you with less decision-making authority.
  
  
• Individual coverage health reimbursement arrangement (ICHRA)
  An ICHRA allows employers to reimburse their employees for qualifying medical expenses and allows employees to shop for the health care plan they want. Employers set the reimbursement amount, which keeps costs predictable. Meanwhile, employees can select from a broad range of plans that meet their needs. Though this model gives each employee the freedom to choose their coverage, some people may find it confusing to navigate.
  
  
• Self-funding
  Self-funded plans typically offer the most cost savings and customization of any health care option, but they may also incur high levels of risk and administrative burden. Employers who self-fund their benefits are responsible for all health care costs and take on the burden of designing and administering many aspects of their plan.
  
  
• Level funding
  With a level funded plan, employers pay a set monthly premium that keeps short-term cash flow predictable. If annual claims are lower than expected, employers may receive a surplus refund or credit. But if claims are higher, then you may see higher set premiums in future years. Level funded plans are often a steppingstone to self-funding.
  
  

A good benefits broker can help you make the decision that’s best for your business. Find out more about how to select a benefits broker (PDF).

Maximize the value of your employee benefits

With a funding strategy in place, you’re halfway to getting the most out of your benefits. After that, it’s all about clear and consistent communication to your employees.

Health care coverage is an investment in your employees that you want them to take advantage of. By creating opportunities to communicate the value of coverage, you can keep benefits top of mind for your teams. Regular updates beyond the enrollment period, whether through emails or informal reminders, can encourage everyone to make the most of their coverage.

Be sure to give employees resources to turn to if they have questions. Many benefits brokers offer services to help employees navigate their health care plans. These services can help your employees understand what’s covered, so they can lower out-of-pocket expenses and take full advantage of their benefits for better health outcomes.

Make an informed decision about benefits

Selecting a benefits package is a critical business decision — one with a significant effect on your employee experience and your budget. You don’t need to make that choice alone. Resources such as Preparing for Rising Health Care Costs (PDF) as well as other articles and insights from Morgan Health can help you stay up to date with the information you need to make the right decision for your business.

About Morgan Health

Morgan Health is on a mission to improve the quality, equity and affordability of employer-sponsored health care in the United States. It’s investing $250 million of JPMorgan Chase & Co. capital in promising health care companies, with a focus on companies that are driving improvement in outcomes and quality. Learn more at morganhealth.com.