Employers in the U.S. expect medical plan costs per employee to rise 5.6 percent on average in 2023. While significantly higher than the premium increase of 4.4 percent projected for 2022, the 2023 increase lags overall inflation, which is currently running at about 8.5 percent year over year.
The cost-increase forecast is based on the first 864 employers with 50 or more employees responding, through Aug. 4., to HR consultancy Mercer’s National Survey of Employer-Sponsored Health Plans. The survey launched June 22 and remains open, with a final report expected this fall.
“Because health plans typically have multiyear contracts with health care 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.
The effect of higher health care prices on plan costs “will be phased in over the next few years as contracts come up for renewal and providers negotiate higher reimbursement levels,” he said. “Employers have a small window to get out in front of sharper increases coming in 2024 from the cumulative effect of current inflationary pressures.”
Patel cautioned that while most large, self-insured employers have a good sense of their 2023 premium costs at this time, many smaller, fully insured employers have not yet received renewal rates from their health plans. “Those may well come in higher as insurance carriers hedge their bets in today’s volatile health care market,” he added.
The projected increase of 5.6 percent reflects changes that employers plan to make to hold down cost. If they made no changes, respondents indicated that the cost for their largest medical plan would rise by an average of 7 percent.
Focus on Affordability
Despite rising costs, most employers are not planning to increase employees’ share of coverage costs in 2023, such as by raising deductibles or co-pays.
Among large employers (those with 500 or more employees) responding to the survey, employees will be required to pick up 22 percent of total health plan premium costs, on average, in 2023 through paycheck deductions, unchanged from 2022 and 2021.
In a survey conducted earlier this year, Mercer found that 11 percent of large employers will offer employees free coverage in at least one medical plan in 2023; another 11 percent are still considering it.
“Health care affordability is a real issue for many employees, especially with inflation stressing household budgets,” said Tracy Watts, Mercer’s national leader of U.S. health policy. “Employers want to do what they can to keep more money in employees’ paychecks and remove cost barriers when care is needed.
“In today’s environment of record-breaking inflation and widespread labor shortages, employers face a really tough balancing act,” Watts added. “They must manage rising health care 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.”
Cost-Containment Strategies
In June, insurance broker and consultancy NFP reported escalating health care costs were causing employers to rethink plan designs and offerings.
NFP’s 2022 US Benefits Trend Report, based on a February and March survey of 563 HR benefits decision-makers, showed that two-thirds of employers want innovative cost-containment solutions. When considering cost containment, roughly three-quarters of employers believe that each of the following are important factors:
- Increasing employee access to quality providers (83 percent).
- Making costs more transparent (79 percent).
- Reducing out-of-pocket expenses for drug costs (79 percent).
“Today, employers realize ‘total cost transparency’ and holding the provider accountable are also essential” for lowering benefits expenses, said Heidi Cottle, head of cost-containment strategies at NFP. Next-generation plan design, she said, adds incentives that encourage employees to choose in-network providers that offer high-quality, cost-competitive services.
More than 1 in 3 employers (36 percent) cited “cost containment” as a primary driver for offering health care delivery alternatives such as telemedicine, the survey showed. Half of the respondents had introduced virtual solutions in mental health (55 percent) and primary care (54 percent) in the previous 18 to 24 months. Roughly one-third had implemented virtual solutions for urgent care (37 percent) and emergency care (31 percent).
Related SHRM Articles:
IRS Sets 2023 Health Plan Premium Affordability Threshold at 9.12% of Pay, SHRM Online, August 2022
Inflation Reduction Act’s Health Care Provisions Could Affect Employers, SHRM Online, August 2022