With 2025 kicking off, people have reached out asking what this year has in store for the health insurance market. Tough question, with a lot of nuances.
As the M&A market (hopefully) substantially improves, deal teams want to know how to forecast trend into quality of earnings and purchase price negotiations. Operating partners want to understand how to mitigate trend and management teams want to know how to budget for 2025 and retain their workforce.
Here is a list of headwinds and driving factors to watch for, and how they are connected:
- Providers (i.e. hospitals) will continue to face inflationary pressures while having difficulty collecting deductibles and out-of-pocket responsibilities from their patients (also facing inflationary pressure), which compresses their margins.
- Provider/network negotiations will be difficult and result in increasing in-network prices. Mainly providers will make up for their lost margin by increasing the cost of inpatient (specialty) services charged to the insurance companies.
- Increase in provider service pricing means increases in claims.
- Insurers will make up for the increase in claims by increasing premium. First, the fully insured will be impacted, then it will trickle downstream to other alternative-funded products.
- Non-generic drug prices are not going down, which only adds to the claims and results in increases in premiums. Until the government steps in to set the price on various specialty and brand-name drugs, or generic alternatives are introduced, the price of certain drugs appears to be on a hockey stick trajectory.
- More specifically, it is expected that specialty medications (medications administered in a hospital setting – IV drugs) will continue to show double digit increases in cost for the foreseeable future.
With these headwinds, there are positives to consider as well:
- These headwinds have forced innovation and change into the marketplace.
- Companies who are historically risk averse (lower middle market) are beginning to migrate from traditional fully insured medical benefits to ICHRAs (Individual Coverage Health Reimbursement Arrangements), level-funded products, or self-insured approaches. This enables them to be a true fiduciary, drive costs down or fix their costs moving forward, and strategically choose effective solutions that attack the root cause of premium trend, their claims.
- Plug-and-play solutions like mail-order drug TPAs, copay assistance programs, Mark Cuban’s cost-plus drugs, and independent Pharmacy Benefit Managers (PBMs) are popping up and gaining market share because they drive down cost by driving down claims.
TLDR: Employers are taking back some choice and control, with the help of their advisor teams.
In short, employers are taking charge of health insurance costs by adjusting their risk appetites and adopting more flexible, cost-effective approaches. If you’re unfamiliar with any of these topics, tired of feeling cornered into raising your employees’ costs, or diminishing the value of the plan to offset cost increases, contact me. Our team can help you make sense of it all and choose the best path forward.
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To learn more about how to manage your health insurance, please reach out to an advisor today.