Employers' coming health care crunch


All signs are pointing toward significantly higher health costs in the employer market next year, which will translate into larger-than-normal premium increases.

 Employers will have to choose between taking the hit or passing the added cost to their employees — a decision that's particularly difficult in a tight labor market.

 Seven in 10 employers expect moderate to significant increases in the cost of health benefits over the next three years, according to a recent Willis Towers Watson survey.

  • "There’s this terrible reality that they're trying to increase affordability at the same time the actual total cost is going up more than they expected," said WTW's Jeff Levin-Scherz.
  • More than half of survey respondents said they plan to address rising costs by using programs or vendors that would reduce total spending. Less than a quarter said they will shift costs onto employees through higher premium contributions, and 14% said they'll shift costs through out-of-pocket expenses.
  • But employees may not tolerate premium hikes in the current labor climate. Hundreds of New Jersey public employees rallied last week to demand that a vote on a more than 20% premium increase next year be delayed, Bloomberg reported.

Part of the reason why health costs haven't risen in tandem with general inflation this year is that payers have pricing contracts — often multi-year — with providers, drug manufacturers, and medical device makers.

  • That means that underlying inflation in labor or production costs isn't immediately shifted into payment rates or, subsequently, premiums.
  • Hospital groups have been telling anyone who will listen how much their costs have gone up in the past couple of years. It stands to reason that those complaints loom large in negotiations with insurers.
  • "There are signs everywhere that hospital price increases are coming, and that’s going to push insurance premiums for employer-provided health benefits higher next year," said Kaiser Family Foundation's Larry Levitt. "The health care sector has been somewhat insulated from the inflation that’s been hitting the rest of the economy, but probably not for much longer."
  • Given the structure of contracts, these rate increases may be spread out over several years.

 Employers have overwhelmingly responded to rising health prices for more than a decade by offering plans with higher deductibles and out-of-pocket spending.

  • That means that health insurance has gotten more expensive even for Americans who get their coverage through work.
  • But there have been signs that employers have maxed out their ability to shift costs to workers as more and more insured Americans struggle to afford care.
  • Now, employers are struggling to attract and retain workers, meaning they are likely even more averse to reducing the value of the health benefits they offer.

 Whether employer premium hikes will be politically weaponized heading into the midterm elections.

  • There are signs that the GOP may try to connect them with overall inflation, which the party sees as a winning attack against Democrats.
  • "Prices are sky high for food, shelter, and even health insurance, yet over the last month, the Biden administration ... even provided generous subsidies to the wealthy for things ranging from electric vehicles to Obamacare," House Ways and Means ranking Republican Kevin Brady of Texas said recently.

Workplace coverage hikes may not be as easy to tie to Democrats as rising Affordable Care Act costs would have, had Congress not extended enhanced subsidies.

  • "The ACA is the signature domestic policy achievement for Democrats from the last decade, so Republicans would have pointed to big premium increases as a failure of Obamacare," Levitt said. "Neither Democrats nor Republicans have moved in any serious way to improve affordability for people with employer health benefits."

Work-life policies like paid sick and medical leave, as well as reasonable hours and scheduling, are becoming a more high-stakes economic issue, as in-person workers exercise their increased leverage in a tight labor market — and cope with more than two years of working on the front lines of a pandemic.

A fight over paid sick leave and working conditions almost brought the country's economy to a standstill last week. Railway workers, who say they don't have easy access to paid sick time, were ready to strike if their employers wouldn't improve working conditions.

  • These issues make up the human side of the supply chain, which proved fragile in the crisis.
  • "These are human beings, you know, they're not machines," says Sharita Gruberg, a vice-president at the National Partnership for Women and Families.

The railroad companies, in an effort to keep costs down and profits up, instituted a restrictive policy requiring employees to be on call more often, and penalizing them with a point-based system for taking unscheduled time off, the New York Times reported.

  • Rail workers didn't get any paid sick time, they said.
  • During the supply chain crisis, when business picked up, the harsh policies "pushed workers to the limits of their physical and mental health," per the NYT.
  • The tentative agreement reached last week gives railroad workers unpaid time off for medical care and illness and sets a key precedent for the unions in bargaining for leave — something they hadn't done before.

Workers in many fields are more willing to strike, demanding better pay and — crucially — improved conditions, the Wall Street Journal reports, noting that it reflects how the pandemic has reshaped jobs and attitudes about work.

  • In Minnesota last week, 15,000 nurses walked off the job over stalled contract negotiations. Nurses say they're burned out after three years of working in a pandemic.
  • Mental-health workers are on strike in California and Hawaii, and nursing home workers in Pennsylvania just wrapped up a strike last week, too, earning better pay and better nurse-to-patient ratios, the WSJ reports.

 The U.S. doesn't require employers to provide paid time off for illness; in other well-off nations, it's commonplace.

Data: CEPR; Chart: Tory Lysik/Axios

While 94% of high-income workers in the U.S. have paid sick leave, only 53% of those in the lowest quartile of earners have access, according to 2021 data from the Bureau of Labor Statistics.

  • More than half of workers at the nation's largest retailers and fast-food chains said they don't have access to paid sick leave in a 2020 survey.
  • Efforts to pass paid leave at a national level failed during the pandemic, surprising advocates who believed COVID would push lawmakers to act.

15 states and some cities do have sick leave policies in place.

  • But even when employers have sick leave on paper, it doesn't always translate in practice.
  • Workplace policies can be structured in such a way as to make it nearly impossible for someone to just stay home from in-person work — onerous rules around doctor notes or finding someone to fill the shift can keep folks from calling out.

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