Healthcare costs are rising, and this trend is causing challenges for employers, brokers, and insurers. A recent report from Stealth Partner Group highlights the need for a rethink in how benefits are structured and funded to cope with these increasing expenses.
The report, part of their State of the Market series, notes that changes in the healthcare system—like staff shortages, higher prescription drug use, and a greater reliance on costly therapies—are changing how risks are assessed and managed. As a result, employers are looking for more flexible plan designs and considering self-funded strategies. These approaches can give employers more control over their spending, but they also come with increased financial risks. For example, a single expensive claim, such as a long hospital stay for a newborn, can have a huge impact on health plans if there aren’t enough safeguards in place.
One strategy that employers are turning to is stop loss coverage, which helps manage these risks. Despite some market challenges, the demand for stop loss insurance is growing. This is driven by the need for data transparency, changing fiduciary standards, and rising costs of prescription drugs.
Medical inflation, which had slowed down from 2020 to 2023, is on the rise again. Recent figures show that healthcare spending jumped by 7.5% from 2022 to 2023. Healthcare now makes up about 17.6% of the total economic activity in the U.S., although usage of healthcare services is still below pre-pandemic levels.
Workforce shortages, especially among doctors and nurses, are making it harder for people to access care, particularly in rural areas. The way care is delivered is also changing, with more emphasis on outpatient services and home care, which might ease some of the pressure on hospitals over time.
Prescription drug costs are another major concern. The use of new medications, especially GLP-1 drugs, specialty therapies, and biologics, is driving up expenses. Although the pandemic slowed down drug development and FDA approvals, activity has picked up recently, and many new treatments are expected to challenge the system’s ability to adapt and fund them.
For employers, group health coverage remains a hefty expense. According to the Kaiser Family Foundation, the average annual cost for individual coverage is about $8,435, while family coverage can reach nearly $24,000. Private health insurance accounted for roughly 30% of the $4.9 trillion spent on healthcare in the U.S. in 2023.
Looking ahead, federal healthcare policy is uncertain, which could affect employer-sponsored insurance. In a recent address to Congress, the President pointed out rising rates of childhood cancer and autism as key issues, alongside broader goals to tackle inflation and reduce federal spending. One proposal under consideration is to change the tax exemption for employer-sponsored insurance, which currently costs the government over $300 billion each year. The Congressional Budget Office is suggesting a cap on this exclusion starting in 2026, which could influence employers’ decisions about offering health coverage.
Employers and brokers are also keeping an eye on regulatory changes related to the Employee Retirement Income Security Act (ERISA). These changes may impact fiduciary duties, fee transparency, and disclosure requirements, which are important as the benefits landscape continues to evolve.