Employers anticipating big jump in cost of health benefits next year

U.S. employers expect health benefit costs per employee to rise 5.6% on average in 2023, according to early results from Mercer—but those may increase further if employers do not act to hold down costs.

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The consulting firm’s annual study of employer-sponsored health plans finds that the projected 2023 increase is far higher than the 4.4% increase that was estimated for 2022 and may be even higher next year if organizations don’t make changes like expanding access to virtual care through telemedicine or digital health resources, and taking advantage of high-performance networks, says Tracy Watts, senior partner, national leader for U.S. Health Policy.

Without making any changes, employers indicate that the cost for their largest medical plan would rise by an average of 7%, the Mercer data finds.

Rising inflation and other factors may also further jump the cost of healthcare in the coming months: Inflation has soared roughly 9% year-over-year, and the effect of it hasn’t been felt yet in healthcare cost increases.

Sunit Patel, Mercer’s chief actuary for health and benefits, says that while most large, self-insured employers have a good sense of their 2023 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 healthcare market,” he says.

Rising healthcare costs and affordability concerns for employees are undoubtedly an issue for employers. A survey of 636 U.S. employers earlier this year from consulting firm Willis Towers Watson found that nearly all U.S. employers (94%) say managing healthcare benefit costs will be their top priority over the next two years.

Although employers are “always budget focused,” Watts says, they are particularly concerned about balancing costs and keeping good and affordable options for employees.

“Two good places to start are by lowering the cost of care with improved clinical quality outcomes regarding prevention, chronic condition management, and service utilization rates (primary care, ER, inpatient hospital, diagnostics, pharmacy, behavioral health); and also through value-based integration and coordination, such as curated referral networks based on quality and cost data,” Watts says.

Another factor at play in the balancing act is the candidate-driven job market; scores of employees have left for jobs in recent months for other opportunities, although it’s unclear how things may change thanks to recent economic volatility.

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Given the hot job market, many employers say they won’t pass off the costs to employees. According to Mercer, the majority of employers will not take cost-saving measures that shift healthcare expenses to employees, such as raising deductibles or copays. Only 36% of survey respondents are making cost-cutting changes in 2023, down from 40% in 2022 and 47% in 2021.

Overall, employers will not increase employees’ share of the cost of coverage in 2023. Among large employers responding to the survey, employees will be required to pick up 22% 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% of large employers will offer employees free coverage in at least one medical plan in 2023, and another 11% are still considering it.

“These are very interesting times,” Watts says. “Employers are grappling with a very delicate balance between what you need to do for attraction and retention vs. business challenges and economic volatility.”

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Kathryn Mayer
Kathryn Mayer is HRE’s former benefits editor and chair of the Health & Benefits Leadership Conference. She has covered benefits for the better part of a decade, and her stories have won multiple awards, including a Jesse H. Neal Award and honors from the American Society of Business Publication Editors and the National Federation of Press Women. She holds bachelor’s and master’s degrees from the University of Denver.