Health insurance cost increases driven by inflation, weight-loss drugs, expensive treatments

As Long Islanders enroll in health insurance plans for 2024, many employers are eating all or most of the rising costs in an effort to retain employees amid a tight labor market, business groups, consultants and brokers say.

Prices for employer-sponsored insurance plans are projected to increase an average of 5.4% to 8.5%, according to four nationwide surveys, each of which had a different forecast. In New York, prices for state-regulated small-group plans, which cover up to 100 employees, will increase an average of 7.4%, according to the Department of Financial Services. Increases were less than half of what insurers requested.

Nearly a third of New Yorkers have coverage through the Affordable Care Act, and those premiums are increasing 14% to 17%, according to an analysis by the San Francisco-based health policy nonprofit KFF. But most ACA policyholders will see no or little increase because of income-based federal subsidies, said Matthew Rae, associate director of KFF’s Health Care Marketplace Project.

Premiums — the amounts paid to insurers to keep policies active — of all types are rising because of a range of factors, including inflation, consolidations of hospitals and physician practices, the increasing popularity of expensive weight-loss drugs, and the introduction of gene and cell therapies and other high-cost treatments, experts say.

Many businesses absorbing costs

The Southampton Inn is among the Long Island businesses that will not pass on increased costs to employees.

“We as a company have been absorbing the increases for the last several years,” said Dede Gotthelf, managing partner of Southampton Inn, minutes before she talked with her insurance broker to pick a 2024 insurance plan. She settled on one with a 6.5% premium increase.

“Maybe we make a little less money, but employees have a bit less stress on them financially,” Gotthelf said. “We have wonderful employees and we want to keep them. We want to make them happy and we want to do the right thing.”

Jim Eckardt, owner of Peak Advisors, an insurance brokerage in Holtsville focusing on small-group plans, said some businesses are passing on a small part of a premium hike to employees and assuming the rest of the increase.

“If it’s in an industry that’s hard to get employees — it’s more competitive — they’re going to take on more of that increase or all of it,” he said.

Statewide, most companies are telling the Business Council of New York State that they are absorbing a majority of the premium increases, said Chelsea Lemon, the group’s director of government affairs.

Long Island had a 3.3% unemployment rate in October, below historical averages, according to preliminary state Department of Labor data.

For 2023, employers are on average paying for two-thirds of premium increases, according to a survey of more than 800 U.S. employers by Aon, a London-based professional services firm.

Aon is projecting an 8.5% average increase in premiums nationally in 2024, nearly double the 4.5% rate it found for 2023.

Even though inflation has fallen significantly in the last year, that doesn't always translate into lower premium costs in new contracts for insurance plans, because contracts typically span about three years, said Debbie Ashford, Aon’s North America chief actuary for health solutions. Many contracts now expiring were signed when inflation was lower than today, she said.

“The increases are getting phased in over three or four years,” she said, adding that 2025 increases likely also will be relatively high.

In addition to absorbing escalating insurance prices, many employers have added coverage in recent years, including dental and vision. More than 90% of firms offering health benefits now offer dental insurance, double the share that did so in 2010, according to a KFF survey of more than 2,100 employers.

Vision and dental are “not that expensive compared to health care” insurance, and employers see it as another way to attract and retain employees, Rae said.

The average family health insurance premium in 2023 cost $23,968, with workers contributing an average of $6,575, the KFF survey found. Individual plans average $8,435, with workers paying $1,401.

Premium increases were roughly in line with inflation from 2018 to 2023, and below workers’ wage hikes, a change from the previous 15 years, when insurance premium increases greatly outpaced inflation and wages, according to a KFF analysis.

Medicare rates also are rising: The Centers for Medicare & Medicaid Services announced Medicare Part B standard monthly premiums are increasing 5.9% in 2023.

Nearly 7 million New Yorkers — including many whose employers do not offer insurance coverage for them, or at all — have coverage through the Affordable Care Act. The 14% to 17% increase in premium prices before subsidies, also regulated by the Department of Financial Services, is much higher than the 3% to 6% average nationwide, KFF found. The amount of an increase depends on the type of plan.

New York ACA plans more expensive

The average unsubsidized premium in New York for a “bench mark” medium-cost ACA plan is $719 a month, compared with $468 nationwide, KFF calculated.

The Department of Financial Services said in a statement that the higher rates are in part because New York has higher medical costs and a higher cost of living than other states. The department said it reviews each insurer rate application separately, with premiums depending on factors such as how sick people are in different plans.

Costs vary greatly by region, with hospital, outpatient, prescription and other non-insurance-premium spending in the New York City metropolitan area — which includes Long Island — 32% above the national median, while spending in Buffalo is 17% below the national median, according to the Washington, D.C.-based Health Care Cost Institute, which analyzes health care data.

“You have some of the highest health care costs in the country in New York City” and Long Island, with hospitals, physicians and other providers charging more and costs increasing more rapidly than nationwide, said Eric Linzer, president and CEO of the New York Health Plan Association, which represents insurers.

Factors include consolidation, weight-loss drugs

Widespread consolidation of hospitals and physician practices is a factor, he said.

“When providers merge, acquire, come together, it results in higher costs but not necessarily better quality,” he said.

Larger health care systems have more leverage to demand higher reimbursement rates from health plans, Linzer said.

Across New York, other reasons for higher premium costs include more mandates in New York than in other states on which treatments or services must be covered and higher taxes for insurers, he said.

Nationwide, about one-eighth of the 8.5% projected increase in premiums is from the growing popularity of weight-loss drugs such as Wegovy and the large potential market for them, said Ashford, of the professional-services firm Aon.

“They’re expensive drugs and we’re seeing utilization really take off,” she said.

The growing number of claims for chronic conditions also is increasing premium prices, said Julie Stich, vice president of content for the Wisconsin-based International Foundation of Employee Benefit Plans. One reason is that many people skipped doctor visits and screenings early in the pandemic, leading to diseases being diagnosed in later stages, when they are more serious, she said.

“These chronic health conditions are proving to be costly, as employers are dealing with a continuous need for care,” she said.

The expansion of gene and cell therapies and other expensive, technologically advanced specialized treatments is another factor, Stich said.

“This will continue as new drugs and therapies are released,” she said.

By David Olson

david.olson@newsday.com@DavidOlson11

David Olson covers health care. He has worked at Newsday since 2015 and previously covered immigration, multicultural issues and religion at The Press-Enterprise in Southern California.