Employers Struggle to Manage Rising Health Care Costs

Only about half of U.S. employers effectively manage health care costs, with nearly all organizations experiencing health plan premium increases, according to Gallagher’s 2024 U.S. Physical & Emotional Wellbeing Report.

The report, which surveyed 3,552 organizations, found that employers ranked the high costs of medical services (68%) and specialty drugs (44%) as their top health care cost management challenges.

Within the specialty drug segment, employers are evaluating the cost-effectiveness of GLP-1s and other weight loss medications. As a result, 52% of employers are implementing utilization management, including prior authorization, and linking coverage of these expensive drugs to ongoing participation in a weight management program, according to the report.

“The significant cost associated with these medications cannot be ignored,” said William F. Ziebell, CEO of Gallagher’s Benefits & HR Consulting Division. “Employers that successfully navigate this challenge tend to take a mindful approach to their benefits design.”

In response to rising health care costs, many employers are adopting different tactics to help employees better utilize their benefit offerings. The majority of employers (80%) offer more than one medical plan, and consumer-directed health plans (CDHPs) with health savings accounts (HSAs) are the fastest growing plan type, now offered by 56% of employers, a 16 point increase from 2020, the report found.

Employers are also exploring value-based care tactics to lower costs. Nearly 1 in 5 (17%) reduce employee costs for prescription drugs that treat chronic conditions, while others (14%) reduce employee costs for using designated centers of excellence for specific medical procedures, according to Gallagher.

However, despite these efforts, only about 2 in 5 (42%) of employers believe their managers are well-equipped to refer employees to mental health support services. Recognizing this, 22% of organizations now offer training for HR and managers to navigate these situations, a 5-point increase since 2022.

The report found that technology is also playing a role in mental health support, with many employers adopting workplace collaboration software to increase social connection and promote a positive culture.

“By ensuring that employees are well-informed and equipped with the necessary information to utilize their available benefits, employers can improve employee engagement and bolster retention,” Ziebell concluded.

Access the report on Gallagher’s website. &