“I’m not sure why they call it a health plan, because they don’t pay for health and it sure doesn’t seem like they have a plan.”  

This was a memorable quote from an employee focus group we conducted when co-founding RedBrick Health, a digital platform designed to help people form healthier habits and make smarter health care decisions. 

That was 2006. Sadly, the sentiment remains alive and well in 2024, with employees still frustrated with health care benefits and employers finding it difficult to offer health benefits that attract and retain top talent. 

Employer-sponsored health benefits are a cornerstone of the American health care system, but this system faces significant challenges, impacting employers, employees, and the stability of the health care landscape itself. Understanding these challenges is crucial to forging new pathways toward sustainable and equitable health care access.

Rising costs

The most obvious challenge facing employers is ever-increasing cost. Premiums have been steadily rising, outpacing wages and inflation and putting a strain on both employers and employees. In 2024, my employer, WTW, expects most businesses will experience health care premium increases of 6% to 7.5%. The industry seems to agree that this health care trend will be at its highest levels in nearly a decade.

Costs are increasing due to improved technologies, hospital labor shortages (especially nurses), an aging population, and cost-shifting from the public sector to the private sector. However, more employers are also facing large increases because of an increased number of high-dollar claimants. Whether it is cancer, diabetes, obesity (driven by the explosion of demand for GLP-1 medications such as Ozempic), fertility, mental health, or rare genetic conditions, employers have seen an increase in costs to their health care plans.

Changing needs and shifting demographics

Employers are facing pressures from their boards of directors to align their pay and benefits with corporate objectives to be affordable and equitable for employees. Employers are facing pressures from employees, too. The workforce is changing, with demographics diversifying and employee needs evolving. Younger generations often prioritize flexibility and affordability. Meanwhile, the aging population requires specialized care and chronic disease management, adding further complexity to health care plans.

While some employers offer a diverse range of plans, many workers often face limited choices, with high out-of-pocket costs. Many employers opt for high-deductible health plans (HDHPs) to manage their own costs, shifting a greater financial burden onto employees. This trade-off can lead to deferred care, underutilization of preventive services, and ultimately, poorer health outcomes.

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Innovation leads the way

Despite these challenges, there are glimmers of hope and opportunities for innovation. Several potential solutions have emerged, such as:

• “Rewards for value” plans: These plans have clearer breakdowns of costs and out-of-pocket expenses, empowering employees to make informed choices that reward them for selecting efficient (cost-effective) and high-quality providers and treatments.
• Value-based care models: Options exist for centers of excellence (COEs) and high-performance primary care models utilizing new forms of contracting, shifting from fee-for-service to value-based care models that pay for prevention, quality care, and stipulate outcome-based measures to incentivize better health and cost reduction.
• Employee well-being programs: Investing in preventive care and healthy lifestyle initiatives can lower health care costs and improve workforce productivity.
• Embracing technology: Integrating telemedicine, data analytics, and artificial intelligence can improve access, affordability, and care coordination.
• Risk mitigation tools like captives or stop-loss policies to protect the plan from high-cost claimants.

Looking ahead

Employers must function as stewards of employee health, fostering well-being, and aligning health care coverage with evolving needs. This requires collaboration, adaptability, and a commitment to innovation. By embracing new models, leveraging technology, and prioritizing value, employer-sponsored health benefits can evolve into a system that serves both employers and employees, contributing to a more equitable and accessible health care landscape in the years to come.