At a time of significant rate hikes and financial pressures, large employers, which account for more than $800 billion in health care expenditures, are driving the future of the health benefits market.
“Large employers -- those with more than 10,000 employees -- are often innovators when it comes to benefit offerings, shaping the trends that are later adopted by small and medium-size employers,” according to a new report from McKinsey & Co. “Every year, large employers submit about 300 requests for proposal to health insurance carriers, according to our research. They also account for $16 billion to $24 billion in potential revenue for health care partners, including health insurance plans, health care professionals and other health care companies.”
Today’s market forces are creating a paradigm shift in how employers deliver health benefits. Companies want to provide best-in-class benefits offerings for their employees to attract, care for and retain top talent. New research also highlights the connection between employee health and economic productivity, as well as the value at stake if employee health is poor.
Researchers identified three emerging trends among large employers as they respond to the current health care landscape:
- Employers are budgeting for only a fraction of expected cost increases. Large employers cited costs as their No. 1 concern when designing a benefits package, and costs accounted for two-thirds of an employer’s purchasing decision in 2024. Most respondents expect costs per employee to increase by 5% to 10% annually over the next three years, yet most typically budget for a 4% increase.
- Employers are interested in alternative insurance design solutions. Among jumbo employers (companies with more than 25,000 employees) that have considered value-based insurance design models, more than 85% indicated a strong interest in innovative models such as flexible copayment design and first-dollar deductible plans.
- Employers are open to alternative network arrangements in pursuit of cost control. They have become more willing to explore alternative network arrangements, including reference-based pricing, dynamic copayment plans, virtual-first plans and narrow networks. These options can result in savings of up to 30%, decreased balanced-billing rates and improved member experience compared with older models of reference-based pricing.
- Novel therapeutics are the biggest challenges when building a benefits package. Jumbo employers cited their top challenge as managing increased employee interest in and use of novel therapies, such as GLP-1 medications and cell therapies.
- Employers are prepared to scale back solutions that cannot demonstrate a hard ROI or high value to employees. Most large employers require a minimum ROI of 2-to-1 or 3-to-1 for each health management program offering.
“Our survey suggests that in the coming years, employers will seek to create best-in-class benefits programs by choosing health care partners that seek opportunities to improve offerings year-round; have a detailed understanding of customers and their business goals; and take an innovative approach to value-driven pricing models,” the report said. “It’s important for employers to know their options and for health care partners to stand out as the most viable partners.”
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