Without implementing any employee cost-sharing increases or other cost-saving strategies, employers should expect major health care cost increases in 2024, according to Aon.

Average costs for U.S. employers that pay for their employees’ health care will increase 8.5% to more than $15,000 per employee, the firm predicted.

Such an increase would nearly double the 4.5% rise in health care budgets that employers experienced from 2022 to 2023. On average, Aon estimated that the budgeted health care plan cost for employers this year is $13,906 per employee.

Aon uses its Health Value Initiative database, which captures information from more than 800 U.S. employers representing approximately 5.6 million employees and $77 billion in 2023 health care spending, to track this data.

These rising health care costs and budgets have the potential to eat into employer budgets for other benefits that employers offer, including financial wellness, student loan benefits, retirement contributions and more, panelists at the PLANSPONSOR National Conference discussed in June.

Rising Drug Costs

Debbie Ashford, Aon’s North American chief actuary for health solutions, said in a press release that even though inflation is subsiding, the cost of health care is still growing, as medical providers push insurers for larger cost increases to cover the higher costs of wages and supplies they endured during the past few years but were unable to pass on to payers.

“Other contributing factors adding pressure on health care cost trends are the proliferation of newly indicated weight-loss drugs, new technologies, [the] severity of catastrophic claims and increasing share of specialty drugs,” Ashford stated.

According to the Business Group on Health—a nonprofit organization that represents large employers’ perspective on optimizing workforce strategy through various health, benefits and well-being solutions—pharmacy costs continue to affect trends and affordability.

The organization’s 2024 Large Employer Health Care Strategy Survey, which gathered data from 152 large employers between June 1 and July 18, found that 91% of employers reported concerns about pharmacy costs. This comes as employers experienced an increase in the median percentage of health care dollars spent on pharmacy, to 24% in 2022 from 21% in 2021.

For 2024, employers said they planned to deploy various pharmacy management strategies, according to Business Group on Health.

In addition, half of employers said cancer was the No. 1 driver in health care costs, and 86% said it ranked among the top three. Last year, cancer overtook musculoskeletal conditions as the top driver of large companies’ health care costs for the first time, according to the survey.

Employers Hesitant to Shift Cost to Participants

Because of the tight labor market, Farheen Dam, Aon’s North American health solutions leader, stated that plan sponsors are hesitant to shift significant costs to plan participants and make benefits less affordable.

Aon’s analysis found that employees in 2023 are contributing about $4,675 for health care coverage, of which $2,682 is paid in the form of premiums from paychecks and $1,993 is paid through plan design features, such as deductibles, co-pays and co-insurance.

While the rate of health care cost increases varies by industry, the professional services industry showed the highest average employer cost increase at 7.5% from 2022 to 2023, while the manufacturing industry had the highest average employee cost increase at 2.9%.

The retail and wholesale industry had the lowest average change in employee contributions, dropping 0.5% from 2022 to 2023.

To help plan sponsors manage their health care spending, Aon developed a Health Risk Navigator, which is aimed at helping employers make better decisions to “optimize reinsurance coverage, improve budget planning and implement targeted care management programs by using machine learning and risk simulation to analyze historical claims and demographic data for each individual employee.”