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Health Benefits Cost Expected to Rise 5.4%

Mercer’s 2023 National Survey of Employer-Sponsored Health Plans finds that even after taking into account changes U.S.-based employers have 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 between 3% and 4%. Over 1,700 employers responded to the survey when the preliminary results were analyzed in August.

What’s pushing cost up? “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,” said Sunit Patel, Chief Actuary for Health and Benefits, Mercer. “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. Smaller employers with 50-499 employees – that typically have fully insured plans – reported a higher average initial renewal rate of 7.5%.

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.

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