Health benefit costs expected to rise 5.4% in 2023

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Employers are expecting a large hike in health benefits costs next year after they rose 3.2% in 2022, according to a new Mercer poll.

Last year saw a spike in cost growth to 6.3% as people caught up on their delayed healthcare needs, which were put off as a result of the pandemic. While this year's increase may seem like a return to the normal trend, it's far below general inflation, which is averaging about 8% for 2022.

Typically, health benefit cost-growth runs higher than general inflation. According to Sunit Patel, chief health actuary at Mercer, 2022 is an anomaly because employer health plan sponsors haven't yet felt the full impact 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 project a higher average increase for next year – 5.4% – and Patel cautions they should be prepared for continued accelerated cost growth in 2024 and beyond.

WHAT'S THE IMPACT?

Total health benefit cost per employee reached $15,013 on average in 2022, with small organizations (those with 50-499 employees) reporting slightly higher costs than large organizations. While large employers generally offer richer benefits than small employers, most are able to self-fund their medical plans (saving on insurance company risk charges), and they typically have more resources to devote to health program management. 

Cost growth may be on the rise, but employers continue to face a tight labor market and are well aware that healthcare benefits weigh heavily in employment decisions. The survey asked employers to rate their strategic priorities for their benefits programs for the next few years. Prior to the pandemic, employers most often prioritized cost-management strategies. This year "enhancing benefits to improve attraction and retention" topped the list, with 84% of large employers rating it important or very important.

Also high on the list were "adding programs/services to expand access to behavioral healthcare" (73%) and "improving healthcare affordability" (68%).

In today's inflationary environment, with many employees concerned about their ability simply to cover their monthly bills, affordable healthcare is even more critical. In a recent Mercer survey of more than 4,000 US employees, 68% said they feel challenged in getting needed healthcare, and the most common challenge cited was being able to afford healthcare expenses that aren't covered by insurance.

Given the focus on affordability, it is not surprising that, despite expectations of higher healthcare costs, most leaders are avoiding "healthcare cost shifting," or giving plan members more responsibility for the cost of health services through higher deductibles or copays. There was little change in the median amount of these cost-sharing features in 2022.

The survey also found employers are continuing to back away from offering a high-deductible account-based plan as the only option, particularly among very large organizations (those with 20,000 or more employees) that had been the fastest to adopt this so-called "full-replacement" strategy. Just 9% of these employers now offer a high-deductible plan as the only option at the largest worksite, down from 13% in 2021, and 22% four years ago, in 2018.

In addition, more of these very large employers used salary-based premiums in 2022 (34%, up from 29% in 2021), by which lower-wage workers see smaller paycheck deductions for health coverage than those with higher salaries.

THE LARGER TREND

Average costs for U.S. employers that pay for their employees' healthcare will increase 6.5% to more than $13,800 per employee in 2023, largely due to economic inflation pressures, according to professional services firm Aon.

This projection is more than double the 3% increase to healthcare budgets that employers experienced from 2021 to 2022. But it's significantly below the 9.1% inflation figure reported through the Consumer Price Index.

On average, the budgeted healthcare costs for clients is $13,020 per employee in 2022. The analysis uses the firm's Health Value Initiative database, which captures information for nearly 700 U.S. employers representing about 5.6 million employees.

Employers of all sizes are looking to bolster their health benefit options in 2023 with an eye toward improving recruitment and retention, and will focus on affordability and access, according to a July Mercer survey.

More than two-thirds of the 700 respondents said they were looking to enhance their health and benefit offerings next year. In all, 61% of participating U.S. employers are conducting surveys on employee benefit preferences.

The survey also showed rapid growth in offerings on a wide range of family-friendly benefits, with 70% of surveyed employers currently offering or planning to offer paid parental leave in 2023, and 53% providing or planning to provide paid adoption leave. And nearly one in 10 large employers (those with more than 5,000 employees) say they provide on-site child care now or will by 2023, and 22% will provide access to back-up childcare services.
 

Twitter: @JELagasse
Email the writer: Jeff.Lagasse@himssmedia.com