The average per-employee cost of employer-sponsored health insurance rose by 3.2% in 2022, according to Mercer’s 2022 National Survey of Employer-Sponsored Health Plans, released today (Fig 1). Last year saw a spike in cost growth (to 6.3%) as individuals caught up on healthcare needs delayed as a result of the pandemic. While this year’s increase may seem like a return to normal trend, it is 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 felt the full impact of inflation yet.
“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.
Total health benefit cost per employee reached $15,013 on average in 2022, with small organizations (50-499 employees) reporting slightly higher costs than large organizations (500 or more employees) (Fig. 2). 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. Mercer’s 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 (Fig. 3). Also high on the list were “adding programs/service 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 over 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 the very large organizations (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 (Fig. 4).
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 affordability issue cuts both ways. Employers will be challenged to absorb the higher costs coming down the pike, but they also know some people will forego important care when they feel they can’t afford it,” said Tracy Watts, National Leader for US Health Policy, Mercer. “Particularly with inflation putting added stress on household finances, budget concerns need to be balanced with the downstream implications of healthcare affordability. So the focus now is on strategies to rein in cost growth without shifting the cost to the employee.”
The survey found that about a third of all large employers (35%) – and more than half of very large employers (53%) – say that steering employees to high-performing provider networks and other sources of high-value care is an important strategy for them. More than a third of very large employers (36%) offer a telephonic navigation and advocacy service to help members find the right provider based on quality and cost, and 17% offer a digital navigation tool (Fig.5).
One of the biggest health benefit cost drivers is high-cost specialty drugs, such as those used to treat complex medical conditions like cancer and autoimmune disorders. Large employers reported that spending on specialty drugs rose by nearly 10% in 2022, and still higher increases are expected as more breakthrough gene and cellular therapies enter the market, with the FDA estimating that by 2025 it will be approving 10 to 20 gene and cell therapy products per year. Over a third of large employers (34%) say they will add or enhance stop-loss protection (a form of insurance for large claims for self-funded employers) in anticipation of an increase in very large claims, and about a fourth will work with their carriers and pharmacy benefits managers on cost and clinical management strategies.
Growth in virtual mental healthcare is part of a larger trend: Employers are adding many types of virtual healthcare solutions to their programs, and utilization rates for traditional telemedicine have jumped since the pandemic began. At the same time, the demand for mental healthcare is growing. More than ever before, employers view supporting the mental, emotional and behavioral health of employees as a business imperative – especially given that “burnout” is one of the top three reasons employees consider leaving their jobs.
A Mercer survey of more than 700 organizations conducted earlier this year that focused on strategies for 2023 asked about actions employers would take to provide greater support for behavioral health. Over half (52%) of large survey respondents say employees will have access to virtual behavioral healthcare in 2023.
“Even before the pandemic, there was a shortage of mental health providers and that has not changed. What has changed is the explosion of virtual mental healthcare as an alternative to in-person care,” added Watts. “Being able to receive care in the privacy of one’s home – and saving the time and cost of traveling to a physical office – is a game-changer for many people.”
People’s willingness to use virtual mental healthcare is demonstrated by an analysis of data in MercerFOCUS, which warehouses the claims of over 1 million health plan members. There was a substantial increase in the number of people accessing outpatient behavioral health services in 2021, from 73 members per 1,000 to 83. Notably, virtual mental health visits – essentially non-existent prior to the pandemic – were utilized by 39 members per 1,000, suggesting that the availability of this option resulted in more people getting mental health support.
“It is encouraging that so many employers have prioritized mental health in their health program strategies – not just at the benefit level but in an organization’s culture as well. In a Mercer survey conducted earlier this year, more than a third of large employers are training managers to recognize behavioral health issues and direct employees to existing resources,” says Watts. “Ideally, behavioral healthcare will become an integrated, essential part of healthcare, in which an anxiety disorder or burnout is easily identified and addressed – and without stigma.”
Mercer’s National Survey of Employer-Sponsored Health Plans included 2,028 public and private employers in 2022. Based on responses from employers in a national probability sample in combination with a non-probability sample, survey results have been weighted (using employer size and geographic stratification) to represent the approximately 170,000 employer health plan sponsors across the US with 50 or more employees. These organizations employ about 124 million full- and part-time employees.
The full report on the Mercer survey, including a separate appendix of tables of responses broken out by employer size, region, and industry, will be published in March 2023. For more information, visit www.mercer.com/health-benefit-trends.
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 86,000 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.