Employers across a variety of industries face profitability headwinds due to significantly elevated healthcare costs, and such pressures are most likely to affect the most vulnerable employees if left unmanaged, according to a report on healthcare trends by McKinsey & Co.
Such vulnerable employees, defined mainly as families below the 200 percent federal poverty line, could end up spending up to 75 percent of their discretionary income on medical expenses, the report said.
While employers may want to pass on their own increased costs of providing health benefits to their employees, such moves could exacerbate talent attraction and retention pressures, McKinsey warned. Employers may also choose cost-saving measures such as increased offerings of high-deductible plans and higher out-of-pocket expenses programs.
Instead of such short-term moves, however, employers can enact solutions in an environment of rising inflation and tighter labor affecting the health industry, all of which is placing further pressure on a strained system, according to the report.
McKinsey outlined the following potential solutions for employers, payers and providers to mitigate such pressures:
- Reimagine medical networks: Make network providers more focused and increase consumer-centric choices.
- Improve management of specialty drug expense.
- Increase the share of value-based care or risk sharing models.
- Adopt high ROI care management programs: Employers could work with their healthcare partners to make greater use of the vast amount of healthcare data at their disposal to understand their employees' healthcare needs and risks.
- Consider using value-based insurance plans: Such plans attempt to align patient and payer financial incentives around the utilization of care; employers can work directly with payers or third-party vendors to tailor such designs based on their employee population and provider networks.
More than 70 percent of employers have historically said health premiums rising above 4 percent annually is an unsustainable scenario, McKinsey said, with companies therefore feeling obliged to pass on at least some of those costs to their employees. If the current rising costs are passed entirely to employees, that figure would rise to at least 9 percent going forward, twice the rate employers have experienced in 2022.
‘The economic imperative for employers to address rising healthcare costs is clear,’ the report concludes. ‘Partnering with healthcare services’ vendors and challenging them to comprehensively redesign employer health benefits will be necessary to ensure that healthcare coverage is affordable—for both employers and employees.’