January 3, 2023

High Health Costs Hurting Employers’ Ability to Hire and Keep Workers

A new survey of U.S. employers underscores the widening damage done by rising health care costs: Nearly 75% of those surveyed say health care expenses are squeezing out salary and wage increases and more than 80% believe health costs are negatively impacting their ability to stay competitive in today’s labor market.

The Pulse of the Purchaser survey, conducted online in August and September by the National Alliance of Healthcare Purchaser Coalitions, assessed employer views on health care and the workplace environment. Respondents included 152 employer-members of organizations affiliated with the National Alliance. The purchasers represented an array of sectors and ranged in size from more than 10,000 employees to less than 1,000.

‘A Street Fight’

Michael Thompson, National Alliance president and CEO, said the survey results bring into sharp relief the growing challenges employers face in recruiting and retaining talent amid a volatile labor market and the unrelenting financial burden of health care.

“The consensus among many of the responding employers is that attracting and retaining employees has become a street fight,” Thompson said. “Concerns about a recession and runaway inflation make it even more critical that employers are able to hire and keep top talent and getting unreasonable health care costs under control has a far-reaching impact on wages and ability to compete.”

The survey found that post-pandemic, finding and keeping employees has become an even higher priority for nearly 80% of employers, with 100% agreeing that health and wellbeing benefits are essential to effective hiring. Rising health care costs also remain a significant concern for employers, with the biggest cost drivers of employer-sponsored health benefits coverage for employees and their families being drug prices (93%), high-cost claims (87%) and hospital costs (79%).

Ninety-seven percent of respondents believe hospital prices are unreasonable and indefensible, and 93% say hospital consolidation has not improved the cost or quality of services. Additionally, employers familiar with transparency tools such as those from RAND, National Academy for State Health Policy and Sage Transparency are up to 10 times more likely to strongly disagree that hospital prices are reasonable and defensible.

Hospitals Continue to Seek More Money

The results of this survey come at the same time the hospital industry – a primary source of rising health care costs in the U.S. – is asking Congress to stop scheduled Medicare payment cuts and provide more federal relief due to challenging economic conditions. But a recent analysis of SEC filings by the Kaiser Family Foundation found that the nation’s three biggest for-profit hospital chains each had positive operating margins that exceeded pre-COVID levels for most of the pandemic, including as recently as the third quarter this year.

In short, the industry continues to cry hungry with two loaves of bread under its arms.

Strategies to Lower Costs

Almost half (47%) of employers, according to the Pulse of the Purchaser survey are using centers of care excellence; within the next three years, many others are looking at tiered networks (46%), sites of care (43%), contracting and performance guarantees tied to Medicare pricing and reference-based pricing (36%).

More than 90% of employers say they have implemented or are considering high-cost claims management, mental health and substance use access and quality, hospital quality transparency, hospital price transparency and whole person health.

Employers are open to a range of policy and regulatory remedies, including drug price regulation (82%), surprise billing regulation (79%), hospital price transparency (76%) and hospital rate regulation (72%).

States are also sending a strong signal that providers need to compete on value and will no longer be allowed to engage in anti-competitive practices to gain market power. In states as varied as California, Washington, Texas and Indiana, state lawmakers are working to eliminate anti-competitive contracting practices and increase transparency around pricing, quality and costs.

The Influence of the CAA

At the federal level, the landmark Consolidated Appropriations Act of 2021 (CAA) requires plan sponsors be given access to new and critically important health care pricing information. At the same time, it imposes fiduciary obligations for employers who self-insure under the Employee Retirement Income Security Act of 1974 (ERISA).

Under the law, self-insured employers will need to demonstrate that the health care services they buy for employees are cost-effective and high-quality. That means they must take steps now to ensure appropriate oversight procedures are in place that will enable them to document their efforts to comply with CAA’s provisions. It also means that employers will increasingly have access to new and critically important insights into the prices they’re paying for employee health care services – details they have been unable to previously obtain from vendors to whom they pay millions of dollars each year to negotiate on their behalf.

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