Employers Enhance Benefits, Wellbeing Programs Amid Rising Health Care Costs

As employers navigate the rapidly evolving landscape of employee benefits in 2024, they face a delicate balancing act between providing high-quality offerings to attract and retain talent while managing the rising costs associated with medical innovations, according to a recent benchmarking report from Gallagher.

The report, which surveyed 3,552 organizations in Q1 2024, found that nearly a third (32%) of employers enhanced their medical benefits in 2024, underscoring the importance of staying competitive in a tight labor market.

However, with more than two-thirds (68%) identifying the high cost of medical services as their greatest challenge, and 92% experiencing health plan premium increases at the most recent renewal, finding a sustainable approach to benefits management has become a top priority, Gallagher stated. The median premium increase ranged from 5% to 5.9%, the report noted.

Trends in Medical Benefits and Cost Management

To accommodate the diverse needs and preferences of a diverse and multigenerational workforce, 80% of employers now offer more than one medical plan. Preferred provider organization (PPO) or point of service (POS) plans remain the most popular, offered by 84% of organizations and garnering the highest enrollment at 57%, the report found.

Coverage is also expanding to meet the needs of modern families. In 2024, 43% of employers offered benefits to domestic partners, a slight uptick from the previous year. Part-time employees saw a similar increase in coverage, now at 25%. However, benefits for retirees dipped slightly to 13%.

Specialty treatments are another area of focus, with employers aiming to balance cutting-edge care with cost considerations, Gallagher reported. The most common specialty coverages include hearing aids (58%), applied behavior analysis for autism (55%), other autism treatments (46%), and bariatric surgery (44%). Fertility is also a key concern, with 48% of organizations now offering coverage for infertility services or fertility treatments.

As social norms evolve, so too do employer benefits. Coverage for gender affirming treatments ticked upward in 2024, with 27% covering gender reassignment surgery (up 2 points) and 25% providing other transgender-inclusive benefits (up 3 points), the report noted.

Amidst these expanding benefits, employers are pursuing strategies to ensure high-quality, cost-effective care, according to Gallagher. Value-based tactics are on the rise, increasing 3 points to 28% overall, with large employers leading the charge. The most common approaches include reducing employee costs for prescription drugs that treat chronic conditions (17%) and for using designated centers of excellence for specific procedures (14%), the report found.

Managing Pharmacy Benefits

Amid rising pharmacy benefit costs, carving out prescription drug coverage to a separate pharmacy benefit manager (PBM) is a fundamental choice available to self-funded employers, Gallagher noted.

Despite common ownership among some of the largest PBMs and health plans, a sizeable number of employers are electing PBM carve-outs, including 14% of lower midsize, 28% of upper midsize, and nearly half (48%) of large employers. However, only 19% of employers conduct pharmacy contract reviews and negotiations, with large employers leading in this tactic at 46%.

While spread pricing — in which the price employers pay for medications is different from the amount paid to pharmaceutical manufacturers — remains the most common model in PBM contracts, contracts with pass-through pricing are increasingly prevalent. Under pass-through arrangements, self-insured employers pay the same price that the PBM pays the manufacturer for medications, with the PBM’s margin derived from administrative fees and other means.

The high cost of specialty drugs is a top health care cost management challenge for 44% of employers, second only to the high cost of medical services at 68%.

Weight loss medications (WLMs) and cell and gene therapies, in particular, present significant cost and coverage challenges. Half of organizations (50%) cover WLMs, typically with utilization management. Employers’ concerns revolve around the high cost of these drugs and the potentially high demand among patients who may take them for many years, according to the report.

Cell and gene therapies offer transformative cures for once untreatable chronic conditions, but their exceptionally high costs—sometimes millions of dollars per patient—pose a significant challenge for employers. As an increasing pipeline of these therapies comes to market, some treating more prevalent conditions, employers will face pivotal decisions about coverage. In 2024, only 17% of employers provide coverage for gene therapies, with a consistent rate of 16% among small and midsize employers and 22% among large employers.

Pharmacy benefit cost-sharing mechanisms and levels continue to be applied at a fairly steady rate in 2024. Copays remain the most common plan design element at 90%, while coinsurance increased slightly to 42%. Separate health plan deductibles for pharmacy coverage fell slightly to 11%.

Holistic Approach to Wellbeing

Similar to 2023, many employers report having a wellbeing strategy (53%), but the emphasis is split. A preference for traditional physical health priorities such as flu shots and biometrics (27%) is slightly ahead of a whole-health approach that aligns physical, emotional, career, and financial wellbeing (26%), the report finds.

Tendencies to prioritize holistic wellbeing increase with size of employer, influenced by organizational capacity and the imperative of population health management, Gallagher noted.

Promoting a health-focused culture by encouraging social connectivity at work is key. Among the most common benefits offered are company-sponsored gatherings such as picnics or holiday parties (79%), lactation or nursing mothers’ rooms or accommodations (76%), and volunteer opportunities (58%).

Seventy percent (70%) of employers provide virtual or telephonic mental health counseling in response to the need for more immediate support, especially in remote and hybrid work settings, the report showed. Nearly half (48%) of employers have diversity, equity and inclusion (DEI) initiatives as part of wellbeing efforts to meet diverse workforce needs, maintain equal access to resources, and help employees feel included and supported wherever they’re located, according to the report.

Concerns about the impact of stress and burnout are shared by 7 in 10 organizations (70%), but only about 2 in 5 (42%) think their managers are well-equipped to refer employees to mental health resources, Gallagher found. Training for HR as well as managers has become more important and is now available from 22% of organizations, up 5 points since 2022.

More than 2 in 5 employers (42%) increased their emphasis on physical wellbeing in 2024.

Physical wellbeing programs include flu vaccinations (86%), promotion of preventive care and age-appropriate screenings (57%), health risk assessments (48%), onsite or virtual access to health professionals (31%), and onsite or near-site clinics (16%). Activity-centered benefits available to employees favor tobacco cessation tools (59%), gym subsidies (53%), and weight management programs (52%).

View the complete benchmark report, including breakouts by region and employer size, on Gallagher’s website. &