Special Edition: Building a Total Rewards Plan for Every Employee

Special Edition: Building a Total Rewards Plan for Every Employee
December 19, 2024 12 mins

Special Edition: Building a Total Rewards Plan for Every Employee

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Aon experts explore the current state of healthcare affordability, its impact on recruiting and retention, and what companies can do.

Key Takeaways
  1. In this episode, Aon experts discuss key concerns regarding healthcare costs.
  2. Aon’s experts share the impact of healthcare affordability on employee recruiting and retention.
  3. Strategies for tackling the challenges of healthcare affordability.

Intro:
Hi everyone, and welcome to the award-winning “On Aon” podcast, where we dive into some of the most pressing topics that businesses and organizations around the world are facing. Today, we hear from Farheen Dam for a closer look at one of the four key client megatrends impacting organizations around the world: workforce. Now, please welcome this episode’s host, Byron Beebe.

Byron Beebe:
Hello, everyone. My name is Byron Beebe, and I'm the Global Chief Commercial Officer for Aon's Human Capital business. In today's episode of On Aon, we're going to take a closer look at a key concern among leaders, the workforce.

Earlier this year, Aon released the Business Decision Maker Survey where we talked to 800 C-suite and business executives in North America, UK, and Europe, about the risks and opportunities arising from four key megatrends we see impacting organizations around the world. These are trade, technology, weather, and workforce.

And when it comes to workforce, the challenges are many. But one that's especially concerning to leaders, employees, and customers is healthcare affordability.

So, with me today to discuss this is Farheen Dam, the head of health solutions for North America at Aon. Thanks for being here today, Farheen.

Farheen Dam:
Thank you for having me, Byron.

Byron Beebe:
So, in our discussion, we're going to walk through several questions: What is the current state of healthcare affordability? How does this impact recruiting and retention? And what can companies do about it? So, let's get started.

So first, Farheen, can you just paint a picture for us of today's healthcare costs, and what concerns employees and employers have around those costs?

Farheen Dam:
Sure, Byron. We just released our 2025 Global Medical Trend Report. In it you'll see that we're projecting an average health increase of 10 percent across the world, and 9 percent in the U.S. Focusing on the U.S., forecasted underlying health trend increases are accelerating year over year – from 7 percent in 2023 to 8.5 percent in 2024, and to 9 percent in 2025. And in this high-trend period we now find ourselves in places with a lot of stress on employers and employees alike.

So why is the trend accelerating? It's a really complicated answer, but generally driven by three main factors. One, we're still feeling the impact of inflation from after the pandemic. Inflation lags in the healthcare sector due to provider contracts being multi-year.
Two, we saw a medical utilization increase for the first time in a few years in 2023, and it's not subsiding. Third, really last but not least, pharmacy costs. Prescription drugs are actually trending at a higher rate than medical. We project it to be 12.5 percent in 2025, and that is primarily due to the change in drug mix. Patients are switching to more expensive emerging drugs.

The best example of this is GLP-1s, which were originally intended to treat diabetes and are now prescribed for weight loss and other diseases. The spending class on this one drug alone increased 87 percent in 2023, and it's continuing to grow significantly in 2024.
I'd say the biggest concern is affordability. Historically, when we use the term affordability, we think about that in terms of individuals. So how much does it cost for an employee to actually afford healthcare? But it also applies to the employer. Can we afford to provide high-quality healthcare to our employers?

Employers pay for the vast majority of healthcare costs, subsidizing 81 cents on every dollar. But 2024 marked an interesting pivot from the prior few years. Employers passed along a larger share to employees by way of paycheck costs and plan design.
To put this in perspective, the cost to provide healthcare to employee was close to $15,000 in 2024. Of that, the average employee pays around $2,900 through their payroll deduction and an additional $2,000 on average through out-of-pocket expenses, deductibles and co-pays.

So, employees are certainly feeling the impact of these higher increases, and we're seeing it play out in the real world. Employees find themselves having to choose between groceries or a doctor's visit, gas or blood pressure medication, and so on. It really comes down to if healthcare is affordable for each employee.

Employees are said to have high affordability when they spend less than 5 percent of their income on healthcare costs, and low affordability when that number is above 10 percent. Our research shows that about one in five employees have low healthcare affordability, so 20 percent of a client's population, leading some of them to forego necessary healthcare services that can result in higher costs when a health condition worsens.

It's not just those with low affordability who have financial barriers to care. 40 percent of employees say they have delayed care due to costs, which can impact their job and the job performance. About one in six employees say their work has suffered due to a health issue they couldn't afford to address.
Then if we look at affordability by race and ethnicity, non-white minorities are further disadvantaged. It's important to understand how traditionally marginalized and under-represented groups are impacted.

So you can see, Byron, these increasing costs have a snowball effect on individuals and in turn on organizations, and that's why affordability is the biggest concern. Improving affordability will help organizations and individuals thrive.

Byron Beebe:
Yeah, absolutely. Thanks, Farheen. In our most recent Aon Global Risk Management Survey, the ability to attract and retain talent popped up in the top 10 risk, really for the first time I think it was in the top five. So, how does healthcare affordability impact a company's ability to recruit and retain their employees?

Farheen Dam:
The total rewards an employer provides is all about trade-offs, as employers have limited budgets for their talent. A dollar spent on healthcare is a dollar that isn't spent on retirement, wages, or other benefits that could drive more meaning, value, or loyalty from employees. The reality is that total rewards budgets are being swallowed up by healthcare just to maintain the status quo, leading firms to aim lower.

So to put this in perspective, we recently updated our projection on how healthcare will impact total reward budgets. We see that between 2025 and 2030, total reward budgets will increase around 21 percent overall. That's benefits and wages combined. But wages are only likely to grow 18 percent in that period. Healthcare by 45 percent. 45 percent. That's 2 1/2 times faster than wage growth, and it puts tremendous pressure on an employer's overall total reward strategy.

Employers are finding themselves in a real uncomfortable position of being held captive to healthcare cost increases. Our most recent employer survey, the number of employers that said they're just looking to keep their benefit offering on pace with the market doubled in 2024. And those looking to lead the market decreased accordingly.

With a tight labor market still in place, employers remain focused on offering competitive total reward packages to their employees so they can attract them but they also can retain them longer. This is acutely true in industries undergoing workforce transformation. So, we, Aon, believe that in order to build the most robust and valuable total rewards package they can, employers have to address healthcare spending.

Byron Beebe:
Yeah, I totally agree. And more and more companies I talk to really are looking at this from a total rewards perspective. And it's not just healthcare, its compensation, its retirement benefits, all of those things, and you squeeze one and it impacts the other. So, it really is a challenge, and I think a lot of employers are doing the right thing by looking at it from a total rewards perspective, but it certainly is a challenge.

So back to healthcare affordability specifically, what can companies do around that topic to tackle that challenge?

Farheen Dam:
We have to look at the core barriers to better managing healthcare trend, and with it, affordability. I'll highlight a few areas of promise in tackling this challenge in the areas of cost and quality, pharmacy benefits, and access.

Before I double-click, just a really important point that I want to convey is that what we see is not about making trade-offs so much as actually a win-win for organizations and employees.

So let me start with cost and quality. There are really wide variations in quality and costs that exist across physicians, hospitals, and other healthcare providers. Yet most plan designs and network structures don't make that variation clear to plan members, resulting in unintentionally enabling choices that lead to higher costs and poor health outcomes.

So, we advise our clients to employ strategies that guide employees and their families to high-quality, cost-effective care through value-led options. For example, high-touch provider guidance can help employees and their family members find and use high-quality and cost-effective care.

We're seeing a sizable increase in employers offering variable co-pay health plans that vary the co-pay a member pays based on provider cost and quality, really incentivizing the use of higher-quality cost-effective care through plan design.

Another area that employers can focus on to help employees find more cost-effective options is prescription drugs. An affordable prescription cost can help with drug adherence, which in turn helps keep promoting long-term treatment... An affordable prescription can help with drug adherence, which in turn helps keep long-term treatment costs down while also keeping people healthy and able to work.

And you can't talk about prescription drugs without the mention of GLP-1s. These are life-changing drugs for many, and we advise employers who wish to cover GLP-1s for weight loss to make sure they're covered in connection with behavioral health management programs to help with adherence, but also lifestyle changes that can continue on even after individuals go off those drugs.

Employers should also implement a biosimilar strategy by ensuring lower-cost biosimilar drugs that are on their formulary. The difference between brand specialty drugs and biosimilars are significant, and a few scripts shifted can amount to millions of dollars of savings in some cases.
Lastly, anytime we talk about affordability, we also want to raise the issue of access. Our data shows that more than 1/4 of employees live in areas with high shortage of primary care physicians, and almost half live in areas with shortage of mental health conditions.

Further, half the counties across the U.S. have no practicing OB-GYNs. These are critical categories where everyone should have adequate access geographically, time to appointment, and to diversity of providers.

There are a few actions we're advising our clients to take to address accessibility. To improve primary care access, they can offer virtual primary care, onsite health provider screening, or even offer a virtual-first PCP-directed health plan. To improve mental health access, they can expand EAP visits and offer virtual therapy options and digital coaching. To improve OB-GYN access, they can offer emerging virtual care options, including home kits for Pap smears.

Home-based care supported by virtual providers has proved its need as well as staying power, and employers should really embrace it to fill in gaps to access.

In short, it's important for our employers to address affordability and access issues so that our employees are able to get appropriate care from high-quality, cost-effective providers.

In this high-trend environment, doing nothing simply isn't an option for employers, as those increasing costs are affecting all aspects of employees' wellbeing, and by their extension, their engagement and productivity.

The role of the employer and health benefits has never been more crucial. Benefit leaders must be the change agents to help organizations realize the full potential of their workforce. Providing better healthcare is possible. Embracing a focus on driving to quality, addressing affordability, and increasing access will help employees and their organizations thrive.

Byron Beebe:
Thanks so much, Farheen. It sounds really, really complicated, and that's why here at Aon we've made huge investments in analytics to help organizations really study this, study what's happening in various ZIP codes where they have employees, study the claims that are coming in through their employee workforce, and really help them develop strategies that are going to help their employees.

And the last thing I would say here is once employers do that, communicating that to employees, to show employees that they really care and they're really trying to address this problem, is really important thing to do.

So anyway, thank you for your time today, Farheen. This is certainly a big issue. I really appreciate everybody here for listening. And in the next months we're going to have more special episodes focused on megatrends of trade and technology. Until next time, thank you.

Outro:
Thanks for tuning in to the latest episode of “On Aon” with our episode host, Byron Beebe and today’s experts, Farheen Dam, for a discussion on the megatrend, workforce. If you enjoyed this episode, don’t forget to subscribe wherever you get your podcasts, and stay tuned for our next conversation featuring industry experts bringing you the latest on topics, including climate risk, workforce wellbeing, ESG trends, and much more. Be sure to check out our show notes and visit our website at Aon dot com to learn more about Aon.

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