Larger employers are taking a broader view of their employee benefits. Rather than consider health benefits separate from other benefits, they now look at them together as an entire package in the total compensation they offer. That’s according to Amy McCulloch, a strategic consultant for benefits and people solutions at the Grand Rapids office of Lockton Companies LLC who works with mid- and large-market employers that generally have self-insured health benefits. Unable to pass along more costs for health coverage to employees through higher deductibles and copays during the labor shortage, employers are now looking at how they can bring in other benefits or new tactics for controlling costs, a trend that McCulloch expects to intensify in 2023.
As employers renew health benefits for 2023, what changes are they considering?
Employers have shifted where their focus is for this year, for next year, and I believe for 2024. It’s no longer manipulating plan design and contributions — or it’s to a lesser degree focused on manipulating plan design and contributions — and it’s shifting to a much broader strategy.
How so? What are employers looking to do differently?
To a large degree, they’ve exhausted plan design and changes in contributions. The pay isn’t high enough for them to take any more money in the form of a contribution, and the plan designs are already at their maximums. The deductibles are really as high as they can go, out of pockets are high, and those have been changed so much over the years there’s just nowhere to go with that. So, the focus is shifting into two buckets. One is: How do they attract, retain and recruit people? How do they build a total reward package that recruits, attracts and retains people? And they’re looking at more strategy-focused solutions.
Are they bringing in new benefits on top of their health plan?
Absolutely. You’re seeing a focus on family-forming benefits, really being appealing to young people looking to have a family. You’re seeing plan menus aligning with DEI initiatives. You’re seeing help toward daycare. Basic needs: daycare, flexibility, paid time off, parental leave. You’re seeing the focus on benefits that fall outside what’s considered a traditional menu.
How much does the labor shortage play into this trend?
It plays into it significantly. Employers are still timid to be making any substantial changes and they want to build menus to attract the right kind of people.
What unique things are employers doing with their benefits for next year?
One of the unique strategies we’re seeing that’s gaining some traction is ‘pharmacogenomics.’ That’s where you’re using people’s genetic makeup, their DNA, to identify their most effective prescription treatment plan because there’s so much waste in the pharmacy side where people are taking meds that aren’t effective because of what their DNA is. That’s a pretty interesting strategy that employers are adding.
On the social side of it, this unlimited PTO hybrid, their flexibility, and just that whole concept of how does the employer adapt to the labor market and what employees want.
For 2023, health insurers for the first time have fixed the costs of COVID-19 testing, treatments and vaccines into their rates. How has that affected costs?
Medical trend is predicted to be 7 percent to 8 percent in 2023, and 8 percent to 9 percent for pharmacy. Part of that is the expenses of COVID that they’ve been waiving co-shares on, and then there’s this notion that people who have deferred care, and then you have inflationary (pressures). The hospital systems and the providers, they’re dealing with the same types of inflation as all the other employers, whether that’s labor costs, health care costs, expenses on equipment. It’s certainly going to be part of the package.
What new trends do you see emerging in 2023?
There have been these topics that have sat out there on the horizon, whether you want to talk about reference-based pricing or bundled payments or direct contracting or carving out your pharmacy. Those strategies have all sat out there on the horizon and we’ve talked about them, and I think they’re going to gain traction because employers have exhausted what’s happening to their benefit plans and what they can manipulate. They’re going to need to find strategic solutions that impact costs, particularly as you head into a downturn in the economy and you combine that with medical trends and the pharmacy trend being higher.
We know it’s out there. We know it’s on the horizon. It might be part of an employer’s three- to five-year strategy, but they’ve kicked the can down the road. I think you’re going to start to see some of those tactics actually deployed or implemented. You’re going to see employers more seriously consider implementing some of those strategies that we’ve been talking about for the last decade.