Employers have helped rein in healthcare costs, but the fight isn’t over

U.S. employers, their benefits advisors, and healthcare products and services suppliers were largely able to hold down increases in healthcare costs between 2010 and 2024.

Back in 2010, actuaries at the Centers for Medicare & Medicaid Services predicted that employers would provide health coverage for just 168 million people in 2024, at an average cost of $9,556 per plan participant, according to a new research paper draft written by David Cutler and Lev Klarnet.

Instead, employer-sponsored plans ended up covering 179 million people, at an average cost of $8,002 per participant.

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The number of people covered was 5% higher than the CMS economists had predicted, and the per-participant cost was 16% lower than predicted.

Employer health plans ended up spending a total of $1.4 trillion, or 11% less than what the CMS actuaries predicted for 2024 in 2010.

Total U.S. healthcare spending amounted to $5.3 trillion, or 16% less than the CMS actuaries’ forecast.

“The slowdown in medical spending growth is not only large substantively, it is unprecedented historically,” Cutler and Klarnet write in the paper.

Cutler is an economist and dean of social science at Harvard, and Klarnet is a graduate student at Harvard.

The researchers presented the paper draft last week at a conference organized by the Brookings Institution.

Businesses ‘flattened’ benefits cost increase curve in 2010

Employers and benefits advisors may sometimes feel as if they have no ability to fight health benefits cost increases, but the Cutler-Klarnet paper shows that they did succeed at “flattening” the U.S. health benefits cost increase curve that showed up in actuaries’ and economists’ data in 2010.

Because costs grew more slowly than the CMS actuaries had expected, the United States spent $977 billion less on healthcare in 2024 than predicted, and employers spent $267 billion less.

The slowdown in cost increases saved employers an average of $1,555 per plan participant in 2024.

An obstacle: The slowdown in U.S. healthcare cost increases was obvious from 2010 to 2021.

In 2021, the cost of COVID-19 vaccines and treatments pushed healthcare spending over about $500 billion, Cutler and Klarnet report.

But spending then fell to close to what it was before the pandemic started.

Sources of savings: Cutler and Klarnet estimate that share of the overall U.S. healthcare spending slowdown produced was:

• 7% for the decrease in the percentage of people who smoke and other improvements in population health.
• 11% to 27% for insurers’, self-insured employer plans’ and other payers’ efforts to hold down costs.
• 21% for advances in technology, including advances in technology that reduced the need for inpatient hospital care.
• 24% for slower price growth for medical products and medical services.

The future: U.S. healthcare payers and providers need to continue to look for ways to reduce costs, the researchers write.

“While the healthcare cost curve has been bent, it likely has not been bent enough,” the researchers say. “Medical spending is still higher in the U.S. than elsewhere, and health outcomes do not appear to justify that additional expense.”

But, thanks to the work U.S. payers, providers and suppliers have already done, “technology is no longer as vital a driver of increased spending,” the researchers write. “In addition, payers are better at fostering demand and supply conditions that lead to lower spending growth.”

This article was originally published on BenefitsPRO, a sister site of HR Executive. For more content like this delivered to your inbox, sign up for BenefitsPRO newsletters here.

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