Behind the Rate Increase: Understanding Employer Healthcare Renewals

For many employers, open enrollment season comes with a familiar question: Why did our health insurance rates increase again?

Employers across the United States are facing higher healthcare costs, with Hawaiʻi organizations experiencing many of the same pressures driving increases nationwide. Understanding these broader trends can provide valuable context as employers evaluate their health benefits strategies.

We spoke with experts from UHA and Kaiser Permanente to better understand the factors that are contributing to the rise in healthcare rates.

Why are healthcare rates increasing?

There are three main layers that contribute to increasing healthcare costs for employers.

1. The healthcare market: Hospitals and physician prices, prescription drugs, medical technology, and healthcare labor costs have steadily increased.
2. Healthcare utilization: How people are using healthcare has changed. Chronic conditions that require specialty treatment or high-cost specialty medications have become more prevalent. At the same time, medical and pharmaceutical advancements have created new treatment options for a growing range of conditions. Biologics, specialty medications, injectable therapies and drugs such as GLP-1s can offer significant health benefits, but they can also come at a much higher cost than traditional treatments. As these therapies become more widely available and their approved uses expand, increased utilization adds additional pressure to healthcare spending. Additionally, the rise of telehealth has removed barriers and led to greater access and utilization of services, particularly in behavioral health.
3. Unique plan considerations: There are multiple factors within an employer’s group health plan that influence rates such as the demographics of the group, number of enrolled employees/dependents, and claims experience (i.e. how many claims were submitted, how frequently employees use health services, number of hospitalizations and emergency care, prescription drug spending, and total cost of medical claims). These individual factors are the reason why two employers with the same insurance carrier can receive significantly different renewal increases.

What makes Hawai’i a special case?

Hawai’i has historically benefited from some of the lowest health insurance premiums in the country but is now experiencing the same pressures that are affecting employers nationwide: increased utilization, chronic conditions, high-cost claims and expensive specialty drugs. To add to that, our population is aging rapidly and according to Kaiser Permanente, nearly one in four Hawai’i adults will be over age 70, by 2030.

And there are additional challenges to the Hawai’i healthcare market that affect rates and employer contributions.

• Hawai’i Prepaid Healthcare Act: Our unique state law requires most employers to provide health coverage to employees who work at least 20 hours per week for four consecutive weeks. Because of the restrictions on how much of the cost can be passed on to the employee, employers end up paying the majority of the premium.
• Geography: Hawai’i’s geography, high cost of living and distinct labor market make healthcare unusually expensive to deliver. Providing care in more rural areas, such as the neighbor islands, involves different cost dynamics than delivering care in more urban areas like O’ahu which can be an additional factor that’s considered when pricing employer-sponsored health coverage.
• Market Concentration: Hawai’i has a relatively small number of major health systems and insurers which can affect provider negotiations, networks and reimbursement rates.

What can employers do?

Employers face a difficult reality: rising healthcare costs are not a challenge that can be eliminated simply by shopping for a lower-cost alternative. When costs are rising across the market, every carrier is facing many of the same pressures.

According to Valerie Wang at Kaiser Permanente (Executive Director and General Manager, Commercial Business, Hawai’i Market), because employer-sponsored coverage has been the norm for decades under the Hawai’i Prepaid Health Care Act, the conversation is often less about whether to offer benefits and more about how to get the greatest value from those benefits.

“Hawai’i employers aren’t just buying insurance. They’re investing in the health and productivity of their workforce.”

– Valerie Wang, Kaiser Permanente

One common mistake to avoid when trying to reduce costs is failing to thoroughly consider how benefit changes will impact their workforce. A competing carrier may offer a more attractive renewal, but employers should look beyond the premium alone.

Changes in provider networks, care models, deductibles, employee contributions and covered benefits can affect the true value of a plan. And while switching plans or shifting a greater share of costs to employees may deliver short-term savings, these decisions can lead to long-term challenges, including lower employee morale, higher turnover, and greater difficulty attracting and retaining talent.

According to UHA and Kaiser Permanente, one of the most effective strategies to manage healthcare cost is educating employees of their available benefits beyond open enrollment. This includes encouraging employees to seek preventative care, use wellness programs, Employee Assistance Programs (EAPs), and available paid-time off.

How can ALTRES help?

When working with a Professional Employer Organization (PEO) like ALTRES, businesses gain access to a whole team of benefits professionals who work on your behalf to negotiate benefit rates, handle enrollments and employee questions, and keep you compliant.

While PEO’s can’t control industry trends and individual utilization that can impact rates, clients of ALTRES and their employees participate in our large-group health plans, this not only provides access to plans that might not be otherwise available to a small business, but also allows risk to be spread across a broader population instead of being concentrated within a single employer. This pooling remains an important advantage of our health plans and helps provide greater rate stability over time.

Have a question? Our dedicated team of benefits professionals is here to help. Contact us today!