High Health Care Costs Make It Hard for Employers to Afford Health Coverage. Mandates Make It Harder.

One of greatest rewards I receive as a health insurance broker and consultant is when, by helping a small company navigate the very challenging waters of group coverage, we not only are helping employees stay physically healthy, but we also have helped the company itself survive and thrive.

It’s a monumentally tough task: In this environment of ever-rising healthcare costs, providing health coverage it can’t afford could bankrupt a small company. Providing inadequate or no coverage could cost the company its best employees, with equally negative results. Too often when I work with small employers — those with 50 or fewer employees — I hear and see panic in their voices and I can see it in their eyes. They don’t know what to do.

The picture isn’t getting any prettier: PwC projects that, for 2025, the cost to treat patients in a group plan, assuming the benefit remains unchanged, will grow by 8% over 2024 — the biggest such increase in 13 years. The factors behind the increase are many, including inflation and the high cost of prescription drugs.

Employers can’t escape those costs, whether they buy into a fully insured plan or create a self-funded plan. In either case, the premiums they pay have to be high enough to pay for the employees’ covered medical costs — in other words, they have to be actuarially sound. Higher healthcare costs mean higher insurance premiums, with a direct impact on employers’ budgets. And because most employees pay a portion of their health insurance premium, higher costs hit employees’ own wallets directly.

One alternative that’s working for some of the smallest employers is to create an Independent Coverage Health Reimbursement Arrangement (ICHRA). That’s under a federal program that allows employers, instead of offering a health insurance plan, to reimburse employees for their health insurance premiums and certain medical expenses. Employees choose plans that suit their needs; the reimbursements are tax-free for employees if they buy plans compliant with the Affordable Care Act, which means employers save on payroll tax.

While we do our best at McGohan Brabender to help employers find ways to manage their benefit costs, there is limited ability to actually control the underlying medical costs that are the root of the problem. That’s where good public policy has to come in: When elected officials or regulators are considering a change, particularly when there’s a call to mandate coverage of some procedure or drug, they need to give equal consideration to how that mandate would affect the employers and employees who have to pay for it.

A key example in the news right now is the push in some quarters to require health plans to cover wider use of GLP-1 drugs like Ozempic, not just for Type 2 diabetes but for weight loss. With an annual cost per person of more than $11,000, widening the use of these costly drugs could have a seismic impact on insurance rates, not to mention public spending on Medicare and Medicaid.

It’s an old story: A mandate that appears on the surface to benefit employees could actually harm them, by making health insurance unaffordable. Along with the direct costs of such mandates, there’s more added cost for health plans just to prove they’re complying with the mandate. One example: I’ve seen plans spend $10,000-$20,000 every year for an evaluation to demonstrate that they’re complying with the requirement for mental health parity.

I believe a better approach for lawmakers would be to get at some of the underlying drivers of high healthcare costs.

I know OAHP is in the trenches at the Statehouse, advocating for sensible reforms like site-neutral payment, which means not allowing health systems to charge higher, hospital-level prices for care given at outpatient centers the health systems have bought or built. OAHP also is raising questions about proposed mandates such as biomarker testing and how they could make health coverage less affordable.

We at McGohan Brabender appreciate this advocacy and we’ll keep working with Ohio’s health plans to ensure that employers and employees can continue to count on access to the affordable health coverage everyone needs.