High inflation, labor shortages seen as root causesIn its 2023 National Survey of Employer Sponsored Health Plans, Mercer suggests that last year’s high inflation and labor shortages in the healthcare industry have pushed healthcare costs higher, contributing to higher health benefit costs.
NEW YORK —In September, Mercer, a global leader in redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being, and a business of Marsh McLennan (NYSE: MMC), released preliminary results of the 2023 National Survey of Employer-Sponsored Health Plans. According to the survey, even after taking into account changes US-based employers made to healthcare plans that are designed to slow cost growth, employers expect total health benefit cost per employee to rise 5.4% on average in 2024.
The estimate suggests that last year’s high inflation and labor shortages in the healthcare industry have pushed healthcare costs higher, contributing to higher health benefit costs. The projected increase comes after more than a decade of annual cost increases typically averaging 3 to 4%. Over 1,700 employers responded to the survey when the preliminary results were analyzed in August.
What’s Pushing Cost Up
According to Sunit Patel, Chief Actuary for Health and Benefits, Mercer, “In addition to the effects of recent inflationary pressures, health benefit costs are rising from the consolidation of health systems and the introduction of ultra-expensive gene and cellular therapies.”
Mr. Patel added, “This year, we’re also starting to see the impact of a sudden jump in utilization of costly GLP-1 drugs being used to treat diabetes and obesity.”
The projected increase of 5.4% reflects changes that employers plan to make to hold down the cost. If they made no changes, respondents indicated that the cost for their largest medical plan would rise by an average of 6.6%. The relatively small difference between the size of the projected increases before and after plan changes indicates that most employers are not making cost-cutting changes to their plans, reflecting concerns about employee healthcare affordability.
The survey found that during the past five years, many large employers (500 or more employees) have avoided the cost-management tactic of shifting costs to employees, as evidenced by minimal growth in deductibles and other cost-sharing requirements.
Mr. Patel continued, “Many employer plan sponsors have chosen to absorb cost increases in recent years rather than ask employees to pay more out of pocket for healthcare. This also contributes to faster health plan cost growth.”
Smaller employers with 50-499 employees – that typically have fully insured plans – reported a higher average initial renewal rate of 7.5%. According to Mr. Patel, “It’s not surprising that fully insured plans would have somewhat higher increases. Given the unpredictability of the healthcare market, insurance carriers are hedging their bets for next year.”
What May Be Tempering Cost Growth
“Considering the economic environment, projected health benefit cost increases could have been worse,” said Tracy Watts, National Leader of US Health Policy, Mercer. “One factor may be that as employers have moved away from cost-shifting to employees, they’ve been implementing cost-management strategies directed at the biggest drivers of cost – complex care and chronic medical conditions.”
Many large employers have added Centers of Excellence (COEs) to health plan networks that steer members to higher-quality providers for complex care, and according to a separate Mercer survey conducted earlier this year, 28% of large employers offer healthcare navigation or advocacy services to ensure plan members are pointed towards the best possible provider quickly. About half of large employers (49%) offer one or more ‘point solutions’ that provide enhanced services – often with a virtual care component – to members with chronic conditions like diabetes.
Additionally, 42% have improved access to mental healthcare within the past three years by adding supplemental behavioral healthcare provider networks for virtual or in-person care. Behavioral healthcare remains a strong focus for employers. Over three-fourths of large employers that responded to the National Survey (76%) say that improving access to behavioral healthcare will be a priority over the next few years.
These types of interventions – which lead to better outcomes for the patient – also tend to save money for the plan as a result.
Employers Are Balancing Enhancements And Cost
Each year, the survey asks large employers to rate benefit strategies in terms of their importance over the next three to five years. Last year, “enhancing benefits to improve attraction and retention” came out on top. This year, it dropped to second place as labor market challenges have eased and employers are focusing on the rising cost of healthcare.
Large employers are now most likely to rate “monitoring and managing high-cost claimants” as important or very important over the next few years. Based on Mercer’s experience, this generally translates to a shift in focus toward helping patients with complex conditions access the best possible care.
About two-thirds (68%) of large employers say that strategies to improve healthcare affordability for employees will be important over the next few years. The survey also found that overall employers will not increase employees’ share of the cost of coverage in 2024. Large employers expect employees will be required to pick up an average of 22% of total health plan premium costs through paycheck deductions in 2024, unchanged from 2023 and 2022.
About Mercer’s National Survey of Employer-Sponsored Health Plans 2023
The 2023 National Survey of Employer-Sponsored Health Plans was launched on June 12. The preliminary results discussed above are based on responses from over 1,700 employers that responded through August 14; over 1,900 employers ultimately participated. The final survey results will be released in the fall of 2023.
Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s approximately 25,000 employees are based in 43 countries and the firm operates in 130 countries. Mercer is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with more than 85,000 colleagues and annual revenue of over $20 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit mercer.com. Follow Mercer on LinkedIn and Twitter.