According to a recent Mercer study, employers anticipate significant increases in health benefits expenditures in 2019 after seeing an increase of 3.2% in 2022.
Cost increases last year increased to 6.3% as consumers caught up on their pandemic-related healthcare needs that had been postponed. Even while the increase this year may appear to be returning to the norm, it is far less than the expected average inflation rate of 8% for 2022.
Cost increases for health benefits typically outpace inflation. The year 2022 is unusual, according to Sunit Patel, chief health actuary at Mercer, because employers who sponsor health plans have not yet seen the full effects of inflation.
“In the healthcare sector, higher wages, labor shortages and consolidation will almost certainly result in higher prices,” Patel said. “One reason cost growth lagged inflation this year is because healthcare providers typically have multi-year contracts with health plans. So although employers did not feel the full brunt of inflation immediately, it’s very likely that inflation-driven cost increases will phase in over the next few years as contracts are renewed.”
Employers did forecast an average increase of 5.4% for the following year, but Patel warns that businesses should be ready for ongoing, increased expense growth until 2024 and beyond.
WHAT IS THE RESULT
In 2022, the average cost of total health benefits per employee was $15,013, with small businesses (50–499 people) reporting slightly higher expenditures than large businesses. While large firms normally provide more generous benefits than small enterprises, the majority are able to self-fund their medical plans, saving on risk premiums from insurance companies, and they typically have more funding available for managing health programmes.
Although cost growth may be increasing, employers nevertheless confront a competitive labour market and are well aware that healthcare benefits play a significant role in hiring decisions. Employers were asked to rate their strategic priorities for their benefit plans over the following several years in the poll. Prior to the pandemic, employers frequently gave cost-management techniques top priority; this year “enhancing benefits to improve attraction and retention” topped the list, with 84% of large employers rating it important or very important.
Additionally high on the list were “increasing healthcare affordability” (68%) and “expanding programs/services to enhance access to behavioural healthcare” (73%)
Affordable healthcare is even more important in today’s inflationary economy, as many workers are worried about their ability to simply pay their monthly payments. In a recent Mercer poll of more than 4,000 US employees, 68% reported feeling unable to obtain the necessary healthcare, with the ability to pay for uninsured medical costs being the most often mentioned obstacle.
Given the emphasis on affordability, it is not unexpected that most leaders are resisting “healthcare cost shifting,” or assigning plan members more responsibility for the cost of healthcare services through higher deductibles or copays, despite projections of higher healthcare expenses. The median amount of these cost-sharing features did not significantly change in 2022.
A high-deductible account-based plan is no longer being offered by employers as the only choice, according to the poll. This is especially true for very large companies (those with 20,000 or more employees), which were among the first to adopt this so-called “full-replacement” strategy. At the largest workplace, only 9% of these firms now provide a high-deductible plan as the only option, down from 22% four years ago in 2018 and 13% in 2021.
Additionally, more of these very big firms employed salary-based premiums in 2022 (34%, up from 29% in 2021), resulting in lower paycheck deductions for health insurance for lower-wage workers compared to higher-wage workers.
THE GENERAL TEND
According to professional services company Aon, the average cost for U.S. businesses who cover their employees’ healthcare would rise 6.5% to more than $13,800 per employee in 2023, primarily as a result of economic inflation pressures.
The 3% rise in healthcare expenses that firms experienced between 2021 and 2022 is more than doubled by this prediction. However, it is much lower than the Consumer Price Index’s reported inflation rate of 9.1%.
The average healthcare expense per employee in 2022 is budgeted at $13,020. The report makes use of the company’s Health Value Initiative database, which collects data from around 5.6 million employees working for about 700 U.S. firms.
According to a July Mercer survey, employers of all sizes will focus on cost and access as they attempt to improve recruitment and retention by expanding their health insurance options in 2023.
Over two-thirds of the 700 respondents stated that they planned to improve their health and benefit packages in 2019. In total, surveys on preferred employee benefits are being conducted by 61% of participating U.S. firms.
The report also revealed a substantial expansion in the number of family-friendly benefits available, with paid parental leave and paid adoption leave both being offered or planned by 53% of businesses and 70% of firms, respectively, in 2023. Additionally, almost one in ten major firms (those with more than 5,000 employees) claim to offer on-site childcare services today or will do so by 2023, while 22% will make access to backup childcare services available.