Employers are gearing up for health care costs to climb ever higher in 2023. Many will find themselves stuck with the bill.

Current forecasts from the asset management firm Mercer suggest health benefit costs will increase by 5.6 percent per employee in the next year, up from the 4.4 percent rise projected in 2022. Though high inflation contributes to health pricing, Mercer suspects that employers and consumers have yet to feel inflation's full brunt on health benefits due to multi-year contracts.

Despite higher costs, businesses seem hesitant to pass any of that burden onto their workforce, according to Andy Coccia, a senior manager in Deloitte's employer benefits practice. "With the demand for talent and the really fierce competition for hiring the best talent, employers are wary of making cuts to benefits, because benefits make up a large portion of the package that people are considering," Coccia says. 

Fifty percent of employers did not hike employee-cost sharing in 2022, a higher figure compared with the last three years, data from the insurance brokerage Gallagher shows. Insights from the Rolling Meadows, Illinois insurance and consulting firm highlight that employees who did pay more likely saw their premiums tick up, as opposed to their deductibles or out-of-pocket maximums (though the latter two rose for some, as well.)

High-cost specialty drugs are one of the most common expense issues, the data shows. Nearly a quarter of employers (22 percent) looped in containment measures, such as mandatory generics for their prescription drug plans.

Health care inflation isn't exactly a new trend--health spending hit $74.1 billion in 1970, while expenditures touched $1.4 trillion in 2000, according to an analysis from the Peterson Center on Healthcare and the Kaiser Family Foundation. The same trend is seen in plan costs. The average cost of an employer-sponsored health plan climbed 6.3 percent in 2021, nearly double that of the 3.4 percent uptick seen in 2020. That spike was also the largest annual cost increase since 2010.

Some of the cost drivers are tied to the pandemic, especially before people could get vaccinated and hospitals were overwhelmed by Covid-19 patients. Innovation, higher wages for health care workers, and disease burden are other contributors to rising health costs, says Tom Belmont Jr., a U.S. health and benefits practice leader at Gallagher. 

That leaves businesses with a choice: Absorb the increases or pass them onto workers. Many are choosing the former and thus, are getting creative to help offset cost increases, says Coccia. One route is using high performance networks within their health plans, or as Coccia puts it, "a network within a network that uses plan design to steer people toward higher quality or lower costs, doctors, and hospitals." Narrow networks offer less provider options compared with other health plans.

Another tactic is the promotion of telehealth services, which reduce costs such as travel for doctors and patients, and lowers the number of hospital readmissions. Telehealth has proven to be popular for its convenience, especially as more patients were reluctant to seek in-office care. Sixty-three percent of workers punted routine checkups and health screenings since the start of the pandemic, according to a report from Quest Diagnostics, a clinical laboratory based in Secaucus, New Jersey.

Using a professional employer organization (ADP Total Source, for example) is an option that more entrepreneurs are turning to for help in managing benefits, Gallagher's Belmont points out. By pooling their clients, PEOs have better negotiating power. Working with a PEO will generally run companies between $900 and $1,500 annually for each employee, according to NetPEO, a PEO and HR brokerage firm based in Duluth, Georgia.

One thing's for certain: Health care costs remain top of mind for companies big and small. "Whether you have 25 employees or 25,000, health insurance is typically the second largest line item expense that any company has," says Ross Klosterman, co-founder of the Columbus, Ohio-based Poppins Health.

Poppins bills itself as a modern health plan for small businesses, with the intent to increase access and affordability of care--all while lowering a business's health care bill. 

The saying "you get what you pay for" isn't quite true in health care; a pricier option doesn't necessarily guarantee better outcomes. Klosterman explains that an insurance company can negotiate a $3,000 surgery in one facility, and then negotiate the same surgery on the other side of town for $30,000. "That is prolific and that exists today," he says.

Such undulating costs in health care are why companies such as the Silicon Valley-based Transcarent are emerging to make health care information more accessible to employees. Transcarent helps users shop around and make well-informed decisions about their care--the company's services range from locating lower cost medications to finding specific treatments--all within its app.

Plus, Transcarent absorbs the financial risk. Employers don't pay upfront, but Transcarent later takes a cut of the health care cost savings derived after an employer uses the company's services.

Many employers, especially Amazon, have sought to make a meaningful dent in the crisis of American health care pricing. The hodgepodge pricing is why policy changes, such as the No Surprises Act--which protects insured people from getting hit with onerous medical bills after receiving care, unknowingly, from out of network providers--have surfaced.

Klosterman is of the belief that neither people nor companies should go bankrupt because of medical bills; Poppins shares costs with patients upfront. Similar to a consumer shopping for the best drug prices when using GoodRX, which tracks prescription drug prices, an employee electing for ankle surgery can shop around for the best option. Poppins's analysis breaks down estimates by procedure cost, a facility's billing practices, and physician quality. 

"We're able to tell you exactly what you're going to pay before you get something done," Klosterman says, adding that the company provides multiple estimates based on physician quality, facility, treatment price and other variables. 

Poppins, formerly known as UnifiHealth until it rebranded, says it can lower a business's health care costs in part to its transparency and ability to negotiate with providers. In one instance, Poppins saved a patient $100,000 on a surgery through negotiation and paying the doctor upfront. 

Poppins removes deductibles and coinsurance from its health care equation, so the only thing that's left to focus on are copays. Since insurance plans are tailored for a business, Poppins says pricing will vary based on an individual company's needs. The company did not provide specific pricing, but says that it offers pricing that's at least 10 percent lower than employers' current rates about 75 percent of the time.

"For the vast majority of folks, as long as they work with us and ask us to help where they go to get care, we should be able to keep their [out-of-pocket] costs at zero," Klosterman says.