Employer health spending is still going up

• And yet, employers and workers keep shelling out more for their health care.
• "Business leaders could be the most potent market and political force to push back on the increasing price of health care, but waiting for employers to engage has kind of been like waiting for Godot," KFF's Larry Levitt said.

What they found: The Milliman index takes into account the employer's premium contribution, the employee's share and any out-of-pocket spending, which is why it's so much higher than estimates that just focus on premiums.

• It found that costs for an individual person were $8,460 on average, a nearly 8% increase over last year and the biggest jump Milliman has tracked in a decade, not counting COVID-era fluctuations.
• The highest spending increases were for pharmacy and outpatient care.

The big picture: A key reason things don't change is that most of that $37,824 a year is what workers won't earn in wages, which makes it more or less invisible.

• "Employers have tools to lower their health spending, but all those tools have tradeoffs," Levitt said. "Employers could kick hospitals with the highest prices out of their networks, but that would generate blowback from employees."
• "As big an issue as health care costs is for employers, it's still peripheral to all issues more central to their core businesses," he added.

The other side: "It is not for lack of trying," said Elizabeth Mitchell, CEO of the Purchaser Business Group on Health, which represents private and public entities that collectively spend $350 billion a year on health care services.

• She pointed to "consolidation on the health system side, health plan side, horizontal, vertical, everywhere."
• "The entire supply chain on the industry side, they win when costs go up," she added. "Self-insured employers have the exact opposite incentives, but they are up against an incredibly consolidated and sophisticated industry."

What we're watching: Milliman outlines three big factors that could impact health care spending going forward:

1. GLP-1s: The drugs are driving a significant portion of rising pharmacy costs, and probably will continue to.
2. PBM overhaul: State and federal legislation is "expected to change how pharmacy costs flow to plan sponsors in 2026 and beyond."
3. AI-enhanced billing: The more providers use AI tools in billing and coding, the more "billing optimization" potentially will contribute to cost growth.

The bottom line: Mitchell said her members are increasingly focusing on policy interventions, including breaking up consolidated companies and more price transparency.

• "At some point, there are systemic reforms required," she said.

A recent New England Journal of Medicine Perspective piece aptly titled "A Sleeping Giant of Health Care Affordability — Self-Insured Employers" dug into why employers are still largely on the sidelines when it comes to health care costs.

One barrier, they argue, is a collective action problem: Employers historically have little incentive to collaborate, especially if they're business competitors.

• Other hurdles are time and expertise: "Most employers have limited bandwidth to engage with third-party administrators, health systems, or policymakers regarding prices and payment models" and lack in-house resources to push back against health market forces, Song and Gondi argue.
• Employers may not have enough workers receiving care from any given health system to justify pushing for payment changes.
• And intermediaries, including those hired by employers, may be more focused on their margins than delivering lower-cost or higher-value care.

The bottom line: "Employers have much to gain from being a proactive rather than a sleeping giant of health care affordability," the authors argue.