4 Ways Increased Health Insurance Premiums Will Impact Hospital CFOs

For hospital and health system CFOs, the rising tide of health insurance costs presents a formidable financial challenge.

Companies across all industries are grappling with the steepest increase in health insurance expenses in recent memory, pushing CFOs to explore innovative strategies to balance their budget while contending with soaring costs.

While CFOs from across all industries may need to re-strategize for 2024, there are four major ways this is affects hospital CFOs.

When asked in a survey by Mercer how healthcare expense rates as a source of concern compared to all operating expenses, unsurprisingly most CFOs placed it among either their top three (16%) or top five (52%) concerns.

What was more surprising is that a majority (64%) said that healthcare cost growth needs to be at CPI or even below to be sustainable for their organization.

What does this mean for healthcare CFOs?

Well, nothing great, especially as the newly published 2023 benchmark KFF Employer Health Benefits Survey paints an expensive picture for healthcare CFOs.

Amid already rising inflation, annual family premiums for employer-sponsored health insurance climbed 7% on average this year to reach $23,968, a sharp departure from virtually no growth in premiums last year, the KFF study says.

While hospital CFOs have historically monitored health insurance expenses as part of cost management efforts, the current accelerated rate of cost escalation demands heightened attention.

Here are four ways these increasing costs will impact hospital CFOs as they look toward 2024 planning:

There will be a financial impact on hospitals.

Hospital CFOs must contend with the financial burden of rising health insurance premiums, whether they were planning to or not.

As premiums increase by 7% on average, hospitals will likely experience increased costs related to employee health benefits. This added expenditure can strain hospital budgets, affecting their ability to invest in other critical areas of the business.

There will be a shift in employee contributions.

At a time when hospital staff are generally unhappy with their pay—and taking public action—the fact that workers will most likely be contributing more towards the cost of family premiums is noteworthy.

This increase can affect employee satisfaction, morale, and retention, as healthcare benefits are a significant factor in employment decisions. CFOs may need to adjust their budgeting to accommodate potential shifts in employee benefit preferences.

CFOs should prepare for budget planning challenges.

According to the KFF survey, nearly a quarter of employers anticipate increasing workers' contributions to health insurance in the next two years, CFOs face uncertainty in budget planning. Preparing for these changes, which may lead to cost-sharing with employees, will be crucial in maintaining the financial stability of hospitals and health systems.

Size matters.

The KFF survey highlights disparities in employee contributions based on the size of the employer. Hospital CFOs, particularly those in smaller healthcare organizations, should be aware that their employees might bear a more substantial financial burden for family coverage.

This information is essential for understanding the financial dynamics within the workforce and tailoring benefits and compensation packages accordingly.