It seems health insurance premiums are headed north for winter and beyond as rising costs begin to dig into employee and employer alike. Indeed, according to some reports, costs for employer coverage may rise as much as 6.5% in 2024. Others speculate employer plan costs may surge 8.5% next year, the largest increase in more than 10 years according to The Wall Street Journal.
What does this mean?
Well, to put it bluntly, it implies a hefty new financial burden that someone will have to end up footing the bill for — employee, employer or some combination of the two. Such an increase could raise the average employer insurance costs substantially, a figure that “already average[s] more than $14,600 a year per employee.”
Interestingly, even individuals covered under the Affordable Care Act (ACA) will likely feel a 6% pinch in their premiums. Per WSJ, that’s actually comparable to the increase in the ACA premiums this year, however.
Health insurance premiums represent one of the single-largest expenses for many companies. Accordingly, the notion of even higher costs could come as a cold economic indicator amid growing concerns of an impending recession.
While the notion of rapidly rising healthcare costs may come as a surprise, to some experts, it has been a long-time coming. Health coverage costs have actually been rising quite slowly the past few years as a function of the pandemic’s negative effect on doctor and hospital visits. Unfortunately, inflation has forced up wages for many healthcare workers, bringing coverage costs along for the ride.
“Inflation we saw a year ago is finally making its way into the contracts,” said Tim Stawicki, Chief Healthcare Actuary at WTW, “It’s like a delayed reaction.”
Why Are Health Insurance Premiums Going Up?
It appears the increase in premiums is due to rising costs for hospitals’ as well as crucial and expensive drugs. Hospitals are dealing with rising demand for new diabetes and obesity drugs as well as greater labor costs.
With the fall open-enrollment coming up, many employees will likely be surprised to find a notable uptick in the rates charged for each individual care type. Despite this, employers are actually expected to bear the brunt of the price increases. This is in no small part due to the tight labor market that puts workers at a premium.
In some cases, an employer may even take on the entirety of the elevated healthcare costs. For small businesses in particular, many owners may opt to simply take on the additional costs rather than open up the possibility of their employees jumping ship in the face of rising costs.
Not just employer insurance plans, however. Even individual insurance costs are expected to rise, although surprisingly by less than they increased this year. According to WSJ, one study found insurers expect a “6% median increase” for individual Affordable Care Act plans next year “compared with the 7% they got in 2023.”
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
