Health Costs Worry CFOs: ‘Less Predictable’ Than Other Expenses

A new report from Mercer has found that CFOs feel they have a good understanding of healthcare costs, but most are concerned about the unpredictability of those costs at a time when new therapies and drugs are often very expensive.

Mercer officials said that there haven’t been a lot of surveys of CFOs about healthcare costs, but that those executives are expressing a desire to get a better handle on an area of spending which can rise unpredictably. The study found that 72 percent of CFOs believe healthcare costs are less predictable than other company expenses.

Sunit Patel, senior partner and chief health actuary at Mercer, said CFOs have been getting more involved in the healthcare arena. “Given the significant costs associated with healthcare, especially with the unpredictably, we’re seeing more and more CFOs get involved. As they do, they want to understand how their peers are thinking about the space.”

Health Benefit Expenses Have Gotten the Attention of CFOs

The CFO perspective on health study noted that growth in health benefit costs is exceeding general inflation and that the annual average health benefit cost per employee is approaching $16,000. “It’s not surprising that 67 percent of respondents with 500 or more employees indicated healthcare costs to be a significant or very significant concern,” the Mercer report said. “In addition, while inflation for other goods and services has subsided over the last year, the same is not true for healthcare, which may draw even more attention from finance and other stakeholders.”

Large claims are obviously a worry for companies—83 percent of survey respondents said high-cost claimants with claims of more than $100,000 but less than $1 million represent a very concerning/significantly concerning group. And very high-cost claimants—those with claims over $1 million—are just slightly less of a concern, with 67 percent of respondents saying this group is very or significantly concerning.

The explosion of GLP-1 drugs is also a concern. These higher-cost drugs are very or significantly concerning for 40 percent of respondents.

“While claims of over $1 million are still relatively rare, the pace of pharmaceutical innovation and advances in medical technology is accelerating,” the report said. “Two-fifths of respondents find GLP-1 drugs to be very or significantly concerning. Here, benefit expense can be limited by coverage decisions, and there may be offsetting benefits (lower morbidity for other diseases) from managing obesity.”

The study also found that 57 percent of participating CFOs have been told by their benefits department to expect greater claims volatility in 2024.

CFOs Have the Information They Need

The study found that most CFOs think their finance department receives the information needed to effectively monitor health costs. Of the companies with self-funded health plans, 70 percent of CFOs said they have enough information to monitor costs effectively. And overall, 82 percent said they have the right amount of input on benefits decisions.

However, plenty of uncertainty remains. The survey found that 36 percent of CFOs are not confident that long-term cost-management strategies which require investment are actually saving the company money. Another 19 percent said they don’t have enough information to say.

Part of the uncertainty is reflected in the fact that many self-funded plans end up reforecasting claims. While 25 percent of CFOs said their plans do not reforecast, another 25 percent said their company reforecast claims twice; 21 percent said they reforecast three times; and 19 percent said they reforecast four times or more. According to the study, 10 percent of companies reforecast claims once a year.

A Tolerable Level of Volatility

Suni noted that CFOs and HR departments have to work together to manage healthcare costs, but some variation in expenses is always going to be possible.

He added that it is key for the different stakeholders to get good information and have open channels of communication. “I think it’s important to have a conversation and not assume that the decisions the company made in the past will be the same decisions [for the future],” Suni said. “The situation may have changed, or there may be more pressures this year, or it may be a great year and the company is growing,” he said. “There are things both outside of healthcare and inside of healthcare that can impact those decisions.

“Many companies have those upfront conversations: ‘Let’s work together to figure out which strategy is needed to mitigate costs,’” he said. “It’s important to make sure all stakeholders understand those strategies. The message has to be simple, because the execution of it is where things get more complex.”

From: BenefitsPRO