SVP of Benefit Services at NFP explains the areas where costs are rising and the options plan sponsors now have to deal with these increases
The bad news is, Alecia Henderson doesn’t see any segments of modern benefits plans where costs are coming down in any meaningful way. Instead the SVP of Benefit Services at NFP sees a wide range of areas where costs are increasing. However, the good news is that she believes there are strategies and trends that plan sponsors now have before them that they can use to manage these rising costs. It just may require a few tradeoffs.
Henderson explained that many cost increases in benefits programs are related somewhat to trends exacerbated and accelerated by the COVID-19 pandemic and our post-pandemic reality. She highlighted the areas that she believes plan sponsors need to be aware of and noted that, whatever the root cause of these cost increases may be, plan sponsors need to find ways to manage the problems now before them.
“Before the pandemic where was talk of mental health supports being needed, drug challenges, chronic disease management, and other similar issues,” Henderson says. “I think those were exacerbated by the pandemic and there’s more awareness as employers adjust to a new work environment…But we’re here, and we’re going to have to deal with these issues and find ways to be creative.”
Henderson’s survey of rising cost areas begins with drug plans, which she says is often taking up more than 60 per cent of employers’ overall healthcare spending. Between 2022 and 2023 we saw a roughly five per cent increase in drug costs, driven by new drug therapies coming to market. Treatments for chronic conditions like asthma, migraines, and ADHD have all come with increased costs. Antidiabetics, and especially GLP-1 drugs, have been a huge cost driver for employers as well.
In addition to drug plans, Henderson sees costs rising from dental claims as more employees become comfortable with returning to the dentist post-pandemic. Neglected issues during those lockdown years have also contributed to higher costs. There has also been a rise in para-medical services like chiropractic care, physiotherapy, massage therapy, and mental health treatments. Finally, she sees disability costs rising in part due to the aging population but also as a result of the ongoing mental health crisis and its impact on disability claims.
Managing these rising costs and their myriad causes requires advice and analysis. Henderson says that employers need to look back and ask what’s driving their costs. They need to determine trends and identify patterns. Through that data they can see what their employees truly value, which can help them determine where costs can be saved to accommodate these rising expenses.
Just as important as understanding your own data drivers, according to Henderson, is understanding your organizational philosophy. That philosophy can help guide some decisions while also informing a communication strategy around these benefits.
Other strategies like cost sharing arrangements with employees are also worth consideration. That could be through premium contributions or cost sharing at the time of the claim. Traditional cost management strategies should also apply here, as should strategies like the management of drug formularies.
Flexible accounts, Henderson says, have also grown in popularity among both employers and employees. Because it’s so challenging for plans to fully encompass the unique needs of members, flexible spending accounts and other a la carte options can be very valuable for all parties. While it may come with some upfront costs, Henderson says that a focus on prevention and wellness can also be very helpful for employees and the management of much larger claims that could come later.
While many of these strategies can be helpful, Henderson stresses the need for constant evolution and greater creativity to ensure plan costs remain under control.
“I don’t see the balancing of plan design and cost getting much easier,” Henderson says. “Expectations are growing, needs are changing, and costs are escalating. The industry needs to be creative to help individuals get what they need to be active, healthy, and productive.”
