72% of CFOs say healthcare costs the most unpredictable expense: Report

By Adam Zaki for CFO.com

As healthcare costs continue to rise, CFOs, many of whom are focused on cutting costs in 2024, are also looking to re-evaluate healthcare products and services they offer to employees. With some offerings such as mental health benefits going unused, and other services including complex care rising dramatically in cost, finance chiefs must balance cost and value when searching for appropriate healthcare services.

In new data from a report titled “The CFO Perspective on Health” by consulting firm Mercer, finance leaders surveyed suggest, among all of the complexities around dealing with rising costs and risk assessment, healthcare is the most unpredictable. Regardless of whether the company is self-funding its employee healthcare or using a fully insured model, 72% of all respondents said healthcare costs are less predictable than other expenses.

CFOs of larger companies (500 or more employees) are most concerned about rising costs. Over two-thirds (67%) of CFOs from companies of that size say healthcare costs are more concerning than others. As the average cost per employee nears $16,000, these costs can add up very quickly for larger companies, especially as they are pushed to offer higher compensation and better work-life balance flexibility.

Regardless of company size, the most concerning driver for rising healthcare costs is high-cost claimants (between $100k-$1M), which 83% of all respondents said were very concerning. Once rare but now increasingly common, very high-cost claimants (employees with over one million dollars in healthcare claims) are concerning for just over two-thirds (67%) of CFOs.

Ozempic-style drugs, which have begun to be heavily marketed to consumers, are also a rising concern. Sixty-nine percent of all respondents said they have some level of concern over the impact these drugs may have on healthcare costs.

To manage the rising costs, the majority of finance leaders (44%) say the rate of general inflation, or CPI, is the highest they can go in their cost increases and continue to be sustainable for the next three to five years. For the past 20 years, the average annual health benefit cost increases have typically run 1% to 2% above CPI, but even maintaining that level of cost growth will be difficult. Nineteen percent said 2% of CPI is the most amount of an increase they can handle. Investing in programs aimed to bring healthcare costs down over time doesn’t seem to be panning out, either.

Only 39% of respondents said they’re reasonably confident that options including well-being initiatives, clinical management programs, and specialized provider networks are helping out their bottom line. While 36% are not confident in these types of tools, the issues may lie in the data; nearly a fifth (19%) said they don’t have enough information to say if these programs are paying off.

However, presumably because of their growing list of responsibilities, most CFOs aren’t looking to take on more work for themselves and their teams to address these issues. Eighty-two percent said they believe they currently have the right amount of input on benefit decision-making.

CFOs have begun to forecast healthcare cost increases on a more frequent cadence. For those self-funding their healthcare costs, a quarter of CFOs (25%) forecast twice a year. Around a fifth are forecasting three and four times or more throughout the year (21% and 19%, respectively).

However, a significant portion of CFOs said they aren’t forecasting healthcare costs at all. A quarter (25%) said they don’t update forecasts whatsoever during the year.

Once forecasting is complete, most organizations split up these costs across the business as they come about. Forty-four percent said their business units are charged a pro-rata share of the original budget as well as surpluses and deficits. Over a quarter say (26%) they are charged a pro-rata share of the original budget, with surpluses and deficits absorbed by corporate.

Although self-funding plans require more work on behalf of the organization, those using fully-funded plans are split on their ROI. While over a quarter (28%) of those using fully insured plans said it’s saving them money, 17% said it costs them essentially the same amount. The rest say fully-funded offerings cost more, with a third (33%) saying those costs are upwards of 10% when compared to self-funded plans.