Rising Health Care Costs Should Set Off Alarm Bells for Plan Sponsors, Study Shows

As inflation drives up health care costs and creates financial stress for employees, plan sponsors have an opportunity to offer health benefits that lessen the burden on participants, according to a recent webinar hosted by Mercer. 

Employers are projecting a 5.4% average increase in health benefit costs per employee in 2023, according to data collected by Mercer’s “National Survey of Employer-Sponsored Health Plans,” which was conducted between June and August of 2022. 

Experts at Mercer also presented findings from their Health on Demand survey, conducted in October and November of 2022, during the webinar. 

“Unfortunately, we have to assume that wage increases and higher supply costs in the health care sector will result in higher prices and push up health plan costs for plan sponsors,” said Beth Umland, director of research for health and benefits at Mercer.  

Per-employee health benefit costs topped $15,000 in 2022, with smaller employers—those with fewer than 500 employees—spending more per capita than large employers, survey data shows.  

Prescription drug costs also remained a cost-driver for employers in 2022. These costs rose by 6.8% in 2022, and Umland said they are growing at nearly twice the rate of overall health benefit costs. The cost of specialty drugs—like those used to treat complex medical conditions such as cancer and autoimmune disorders, in particular—is among the significant factors affecting prices: Prices rose nearly 10% in cost last year, according to Mercer. 

Satisfaction Gap 

In its national survey, Mercer found that enhancing benefits to improve employee attraction and retention was employers’ top priority when thinking about strategies for the next three to five years. Managing high-cost health claimants was the second-highest priority for employers, followed by expanding behavioral health care access.  

Meanwhile, new data released by MetLife last week found that employees’ satisfaction with their overall benefits fell to 61% in 2023, down from 64% in 2022. The 2023 satisfaction level is the lowest point in the past decade.  

This directly contrasts employers’ view of their employees’ benefits satisfaction, as the gap between actual employee satisfaction and employer perception of satisfaction widened to a staggering 22 percentage points, up from three percentage points in 2018, according to MetLife’s benefits study, which was conducted in November 2022 and surveyed 2,840 benefits leaders and 2,884 full-time employees.  

More than half of the employers that Mercer surveyed (64%) said they are planning to make enhancements to their health and well-being offerings in 2024. Only 3% of employers said they will shift enough cost to employees to reduce projected health plan cost increases, whereas 46% said they are not going to increase cost-sharing at all.  

“That really leaves employers with a challenge of offering attractive benefits and affordable health coverage while also managing cost growth,” Umland said. 

Limiting Employee Expenses  

The survey also found that 15% of surveyed employers are offering free employee coverage in at least one medical plan, and 39% offer a medical plan with no/low deductible. While more employers have begun offering health savings accounts to participants, only 6% of those surveyed said they make larger HSA contributions to low earners. 

Umland explained that HSAs are a useful tool to reduce employees’ out-of-pocket health expenses. An HSA can help pay for deductibles, copayments, coinsurance and other qualified expenses.  

According to Transamerica’s Prescience 2026 Report, as high-deductible health plans become more prevalent, experts predict that nearly seven in 10 employers will help fill the gaps by offering HSAs by the year 2026, while four in 10 will offer gap insurance for uncovered health expenses.  

“With their triple-tax advantage, HSAs are a powerful way to help workers fund healthcare expenses in retirement,” the Transamerica report stated.  

Health Care Equity 

Tracy Watts, senior partner and national leader for U.S. Health Policy at Mercer, said “health equity is directly related to affordability.”  

Of surveyed employees whose household income falls below the median, 34% said they are not confident they can afford the health care they need. Women, on average, also said they were less confident than men.  

On the positive side, Mercer found that 78% of employers are currently taking action to improve health equity—providing equal access to health care for all employees—and a further 10% are planning to develop a strategy. 

Watts said for plan sponsors looking to improve health equity, it is important to collect demographic information on race, gender identity and more to understand what their population needs. Then, Watts said it is important to provide coverage that meets diverse needs, such as providing equitable family-building benefits and coverage for hearing aids.  

In addition, Watts said plan sponsors should work toward meeting Corporate Equality Index standards, which 20% of employers in the survey said they currently meet. The Corporate Equality Index is the national benchmarking tool on corporate polices, practices and benefits to LGBTQ+ employees. 

The Mercer study concluded that employers will continue to be challenged to absorb higher cost increases, but with inflation stressing their employees’ household finances, budget concerns must be balanced with health care affordability and the need to offer other attractive benefits. 

The National Survey of Employer-Sponsored Health Plans surveyed 2,028 employers of all sizes, industries and regions. Additionally, the Health on Demand study surveyed more than 17,000 workers in 16 countries, including more than 2,000 U.S. workers.