Health Insurance Costs to Surge in 2024

Health Insurance Costs to Surge in 2024

Health insurance premiums through employer-sponsored plans are projected to experience a significant increase in 2024, with costs expected to surge over 6%, according to recent data from consulting firms Mercer and Willis Towers Watson (WTW). This surge marks the most substantial price hike for employer health plans in approximately a decade.

Mercer’s survey, released on Thursday, reveals that health plan costs could potentially rise by a substantial 6.6% next year if employers maintain their existing plans without implementing cost-cutting measures. Even if cost-cutting strategies are employed, an average increase of 5.4% is still anticipated. Similarly, preliminary survey results from WTW indicate that health insurance costs are expected to climb between 6% and 6.4%.

Historically, annual price increases for health plans have typically ranged from 3% to 4% for more than ten years, making next year’s projected hikes notably steep.

As employees approach the open enrollment season to select their 2024 health plans, they might be in for a financial shock. While inflation has impacted various sectors, private health insurance has largely remained immune. In fact, recent data from the Labor Department indicates a period of deflation in health insurance costs, with prices declining. Over the year ending in July, overall health insurance expenses fell nearly 30%, despite rising costs in prescription drugs and other medical supplies.

The reason for this disparity lies in the timing of price adjustments. Health care providers and hospitals have faced elevated prices for some time, but these increases didn’t immediately translate to higher health insurance costs because financial contracts between insurers and providers are typically renegotiated every few years. However, private insurance prices are now beginning to catch up with the underlying cost pressures.

Considering the historical context of inflation rates often hovering between 7% and 9%, a 6.5% increase in health insurance premiums may not appear overly alarming. Nonetheless, health insurance plans are already substantial expenses, averaging around $14,600 per employee. The projected increase could potentially add nearly $1,000 to this annual total.

Fortunately, employees typically share the cost of health insurance with their employers. This division of expenses is typically reflected in regular paycheck deductions in the form of premiums. The extent to which you will be impacted by this cost increase will depend on how your employer plans to address the rising prices.

Employer size plays a pivotal role in determining the employee’s contribution to health plans. The nonprofit Kaiser Family Foundation (KFF) has noted that in 2022, employers generally covered 83% of the annual premiums for single employees, leaving the remaining 17% to be paid by the workers. However, for family coverage, the employer’s share was slightly lower at 72%. Smaller companies with fewer than 200 employees generally required their employees to cover a larger portion of the premium, such as 64% for family plans.

Additional factors, including industry, geographic region, and the specific type of health plan, can also influence the final amount that employees are responsible for when the anticipated price increase takes effect in the coming year.