Employer Health Benefit Costs May Jump This Year and Next

Employers that self-fund their health care benefits could see costs jump by as much as 7% this year as a result of testing and treatment costs related to COVID-19, according to an actuarial analysis by Willis Towers Watson.

This is on top of the 5% cost increases employers previously projected for this year in the Willis Towers Watson Best Practices in Health Care Employer Survey.

At a 30% infection level, the analysis found total costs could increase between 4% and 7%, depending on how sick patients with COVID-19 become. Total costs include claims for medical and prescription drugs only. The analysis also found that at a 10% infection level, costs could rise between 1% and 3%. In a more severe scenario—a 50% infection level—costs could rise between 5% to 7%.

There’s a human element to providing health care benefits to employees—it keeps employees healthy and productive, and it helps employers attract and retain employees—but this needs to be balanced by what employers can afford to pay to deliver the benefits, notes Trevis Parson, chief actuary at Willis Towers Watson in Philadelphia. You can’t divorce the two elements, he says.

The analysis only looked at scenarios for employers that self-fund their health benefits because rates are already set for this year for fully insured employers, Parson points out. However, insurance company actuaries will have to build 2021 rates with some projections from this. He says they will have to consider what the nature of the coronavirus will be at that point in time. “Heaven forbid we have second wave. And a vaccine is one year to 18 months away at best,” he says.

The Willis Towers Watson analysis notes that other health care costs, including those for dental and vision care, may actually decline this year as employees will likely eliminate some discretionary care. For medical care, for example, Parson says an employee may put off getting a colonoscopy this year but will do so next year. Actuaries will have to contemplate how much of the care that would have been sought this year will reemerge next year. They won’t be able to do so until more data emerges in the coming months, but it could affect what rates are negotiated for fully insured employers at that time.

On March 18, President Donald Trump signed into law the Families First Coronavirus Response Act. It requires group health plans to cover, free of charge, FDA-approved COVID-19 testing and items and services furnished during health care provider office visits, urgent care center visits and emergency room visits during which COVID-19 testing is ordered or performed or in which the individual is evaluated for COVID-19. Covering costs for testing can help stave off high-cost claims for health benefits in the long run if people get treated early, and providing assistance during these stressful times can increase a worker’s financial—and overall—wellness, experts say. So self-funded employers are encouraged to cover at least the same costs that group health plans are required to cover.

Parson says he imagines many employers will cover the costs because “it’s the human thing to do.” But he believes cost-sharing won’t be uniform. For example, self-funded employers may decide not to cover testing costs for those who test negative, but they may cover costs for those who get so sick as to require a long hospital stay and reach their maximum benefit. It may also depend on the size of the employer, he says.

Actions to mitigate increasing health benefit costs for this year or next will need to be as unique as the time in which we are living. The trend of cost-sharing between employers and employees has been waning with both self-insured and fully insured employers. Parson says this is due to the concern about affordability for employees as well as the concern about offering competitive benefits. Doing so now, in this challenging economic time, could be damaging to the human element.

Willis Towers Watson is working on a readiness document to help answer how employers can mitigate cost increases. Actions suggested to keep costs down include keeping employees at home and only having essential employees go to the office; when employees do go to the office, ensuring they practice social distancing; and if employees will be in close contact, making sure they have protective gear.

“It does appear based on emerging information that the efforts taken to mitigate the spread of the virus are having a positive effect,” Parson says. “To the extent ultimate levels are not reached, as mentioned in the analysis, it’s likely that we don’t overrun the system, there will be enough places for people to get the care they need, and healthy individuals will stay healthy. These things may cause future predictions of costs falling for the current plan year.”

He says Willis Towers Watson intends to issue updates as appropriate based on data.