Employer-based health insurance costs will grow 6.5% in 2020

Michael Brady  September 12, 2019

High-cost specialty drugs, increases in care costs and declining care utilization will spark a 6.5% hike in employer-sponsored health benefits costs in 2020, according to a new report Thursday.

Consulting firm Aon said non-communicable diseases are driving healthcare costs across the world. Musculoskeletal, cancer, cardiovascular, diabetes and high blood pressure were the most common health problems in the U.S.

The 6.5% increase is similar to Aon's projections for 2019. Ultimately, the firm expects that medical cost inflation will surpass general inflation by 3.8%.

"Employers, insurance carriers and the medical industry have done a commendable job of moderating cost increases in recent years, considering the headwinds of an aging population, high drug prices and rising chronic conditions," said Will Sneden, Aon's U.S. Health Solutions practice leader.

The growth in U.S. medical costs lags the rest of the world, which Aon expects to rise 8.0% next year. But the difference is mostly due to an expansion of benefits and slightly more price inflation worldwide.

Physical inactivity, obesity, poor nutrition, aging and excessive alcohol and substance abuse are driving risk factors for non-communicable diseases in the U.S.

"Many of the risk factors lead to chronic conditions with long term medical costs that make them difficult to treat and result in long-term medical cost increases," said Tim Nimmer, Aon's global chief actuary for health solutions. "As a large portion of our waking hours are spent on the job, the workplace is a logical place to create a healthier culture and change behaviors."

Nimmer said that he was surprised that excessive alcohol and drug use, including opioids, was only reported as a top risk factor in the U.S.

Cost growth in employer-sponsored plans fits the broader trend that U.S. healthcare costs have grown faster than general inflation and gross domestic product for years. People are paying more money for the same amount of care, which most experts agree is unsustainable.

Consolidation in the healthcare industry is likely a key driver of healthcare costs, but there's little sign of it slowing down.

Health systems continue to purchase medical groups and employ more physicians, giving them increasing negotiating power with health plans. Site-neutral payments, abolishing all-or-nothing contracting and getting rid of capped out-of-network emergency care payments could improve competition, but face steep opposition from trade groups.

Employers have tried to deal with high employer-sponsored insurance costs by creating narrow care networks and forcing employees to pay more of their insurance costs.

And payers have merged to help them counteract the power of growing providers because private employer-sponsored health plans are paying hospitals nearly 2.5 times as much as Medicare for the same care. But economists argue that plan mergers decrease competition in the insurance market, give employers fewer choices and raise insurance costs.

The result of all this consolidation is that healthcare prices are growing faster than incomes and the economy, contributing to calls for an overhaul of the U.S. healthcare system.

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