Employers Project 5.6% Jump in Health Benefit Costs

The increase for 2023 may rise even higher as insurance carriers price record inflation into employers’ renewal rates, per a Mercer survey.

With inflation-eating wage gains, most workers would rather not see more money drained from their paychecks to cover healthcare insurance. At the same time, healthcare plans are the most expensive part of benefits packages.

By 2023, CFOs face another challenging year in balancing cost containment with employees’ needs. U.S. employers expect health benefit costs per employee to rise 5.6% on average in 2023, according to Mercer’s National Survey of Employer-Sponsored Health Plans, released on Thursday. That compares with a projected increase of 4.4% in 2022.

Health plan costs usually outpace U.S. inflation. The 5.6% forecast is well below the 8.5% 12-month rate of overall CPI inflation (ending July). But it is above the 3.7% increase in the CPI medical care cost index, which includes hospital services, physician services, and prescription drugs.

“Because health plans typically have multi-year contracts with healthcare providers, we haven’t felt the full effect of price inflation in health plan cost increases yet,” said Sunit Patel, Mercer’s chief actuary for health and benefits. “Rather it will be phased in over the next few years as contracts come up for renewal and providers negotiate higher reimbursement levels.”

The 2023 projected increase could go higher, too, as fully insured employers (as opposed to self-insured companies) have not yet received renewal rates from their brokers. “Those may well come in higher as insurance carriers hedge their bets in today’s volatile healthcare market,” said Patel.

Health insurers participating in the Affordable Care Act Marketplaces (72 insurers in 13 states and the District of Columbia), for example, plan to raise premiums by a median of 10%, according to rate filings data collected by the The Peterson-KFF Health System Tracker.

Mercer did not release a dollar value on the per-employee cost of employer-sponsored health insurance because the survey is still open. In 2021, the last year for which the data is available, the average cost reached $14,542 per employee. In past years’ studies, smaller employers (those with 50 to 499 employees) tended to pay higher than average.

The 864 employers responding to the Mercer survey so far indicated that next year’s 5.6% increase includes changes that employers plan to make to hold down costs. Without those changes, employers would be forecasting a 7% increase.

Companies to Avoid Passing On Healthcare Expenses to Workers

Still, the majority of employers said they would not shift more of the burden of healthcare expenses onto employees through higher deductibles or copays. But about one-third (36%) plan to, down from 40% in 2022. 

Neither will most employers increase workers’ share of the cost of coverage, according to the survey. Among large employers, employees will be required to pick up 22% of total health plan premium costs, on average, through paycheck deductions, unchanged from 2022 and 2021, Mercer said.

In an unbalanced labor market favoring job seekers, 84% of respondents to the Mercer survey indicated enhancing benefits to attract job candidates as well as to improve employee retention was important or very important, ranking it first among nine health benefits strategies.

Said Tracy Watts, Mercer’s national leader of U.S health policy: Employers “must manage rising healthcare costs while making smart decisions about how to attract and retain the workers they need. For now, we are seeing the majority of employers prioritizing attractive benefits.” 

A health benefits enhancement high on the list is mental health — nearly three-quarters (74%) of respondents said improving access to behavioral healthcare would be a priority in the next three to five years.

The cost of healthcare benefits has been on a see-saw over the last few years. Employer costs increased only 3.4% in 2020 during the COVID-19 pandemic as workers put off doctor visits and routine procedures. But then per-employee costs roared back in 2021, hitting a 10-year high of 6.3%. The 4.4% increase for this year could come in higher once the Mercer survey is complete.

Rising prescription drug prices, especially prices of specialty drugs, have outpaced health benefits costs in the last few years. 

But employers are not likely to get any help from the prescription drug provisions of the Senate-approved Inflation Reduction Act of 2022, which largely affect Medicare participants, according to Garrett Hohimer, director, policy and advocacy, at the Business Group on Healthquoted in HR Dive

Indeed, should the Medicare negotiations for drug prices provisioned in the bill result in reduced revenues for drug manufacturers, “those manufacturers could then seek to recuperate lost profits by charging group health insurance plans — such as those in which employers participate — more,” according to HR Dive. The provisions don’t take effect until 2026.

Leave a Reply

Your email address will not be published. Required fields are marked *