Why aren’t employees getting raises? Blame healthcare costs

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As healthcare costs continue to rise, employee take-home pay may fall victim as employers look to curb costs.

Workers’ take-home pay, particularly for lower-income earners, is diminishing as health costs go up, according to recent analysis from the Council for Affordable Health Coverage and Willis Towers Watson.

“While a number of economic forces have created barriers to the American Dream in recent years, one culprit generally overlooked is our singularly expensive healthcare system,” says healthcare consultant Sylvester Schieber, the co-author of the report. “Our analysis illustrates the escalation of healthcare premiums, which have absorbed most or all compensation growth in recent years for many workers — leaving little or nothing to add to their paychecks.”

The overarching theme from this research highlights the growing affordability challenges with employer-sponsored healthcare programs, adds Steven Nyce, director, Willis Towers Watson’s Research and Innovation Center, and the report’s co-author. “As shown in the report, half of the workforce at the bottom of the pay distribution has seen all of their overall compensation increases going to pay for rising health care costs over the last two decades.”

Beyond low overall wage growth, he says the impacts have not been consistent across the workforce, Nyce notes.

“Some groups have done much better than others,” he says. “Notably the upper two deciles of the pay distribution have done the best, while those in the middle decile groups have struggled the most.” He adds that the lowest deciles have had some support through the safety net provided by government programs like food stamps and subsidized medical care through ACA.

See also: Forget the savings, employees use HSAs as spending accounts

Healthcare is inextricably linked to the growing financial well-being concerns that are increasingly becoming a center-piece of employers benefit programs, he adds. “The growing financial challenges are leading many employees to become disgruntled with their state of life, which limits their ability to bring their best self to work and is a drag on employee productivity.”

Nyce notes a number of opportunities for employers in improving the delivery of care by working with health plans and other third-party vendors by implementing value-based benefit designs and pricing schemes into their programs and by enhancing the end-user experience to improve the efficiency of care.

But, he says, the biggest opportunities and challenges remain in addressing the underlying drivers of healthcare prices in medical services and drugs.

More than a quarter of large employers are looking to circumvent the delivery system to help improve access, conveniences and the overall experience by developing virtual and digital care point solutions alongside concierge services as the role of employers in the healthcare system continues to change, according to the National Business Group on Health’s annual survey.

The persistent challenges employers are facing with healthcare costs are complex. Complex problems require multifaceted solutions, Nyce says.

The broad set of actions leading employers are taking, he says, include adopting leading-edge plan designs that subsidize and encourage healthy behaviors, working with health plans and third-party organizations to implement value-based models into their programs, and integrating a broader view of wellbeing through activities that attract and engage employees around their health. They are also using the range of new technologies to support open enrollment, care access and well-being all of which helps to create a more personalized experience with the healthcare program.

To connect with employees, employers first need to understand their workforces’ wants and needs, he advises. From that, employers have the recipe to develop a strategy and design programs and communication approaches to meet employees where they are.

It’s key for employers to personalize their programs, communication and the like. “In fact, it’s become an expectation of employees, especially the younger generations,” he says. “Further, employees want to maintain control of the how and when they receive information and which tools they use and are resistant to personalized, push messages that remind them of their personal failures.”

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