Employers Bracing for Increase in Health Benefits Costs for 2018

Employers expect health care benefits costs to rise by 4.3% in 2018, marking the highest increase since 2011 when costs rose by 6.1%, according to a study by Mercer.

The global consultant says the spike is being fueled by the rising costs of pharmaceuticals, which will increase more than 7% next year as spending on new specialty medications skyrockets. Respondents to Mercer’s survey reported that spending on specialty drugs rose by about 15% at their last renewal.

In response, many employers say they plan to raise deductibles and switch carriers. But they are also exploring alternatives that can keep costs down without pushing a large burden onto employees.

For example, employers are looking toward network strategies such as Accountable Care Organizations and Centers of Excellence. In addition, several employers are trying to keep employees healthy and as far away from the hospital as possible through wellness programs that incentivize employees to make healthier life choices. Other studies have also indicated rising use of Health Savings Accounts, which allow employees to save for current and future medical costs through tax-preferred investing.

Mercer notes employers are also “moving away from traditional fee-for-service provider reimbursement toward new payment models that reflect the value of the services provided rather than just the quantity.”

“There are ‘real world’ examples of how these strategies can work,” Tracy Watts, senior partner and Mercer’s leader for health reform. “For example, Mercer Health Advantage, an enhanced care coordination and support service for employees with very serious health issues, greatly improves the patient experience while saving an average of $3.30 for every dollar spent.”

The global consultant notes that cost-reducing strategies will be crucial in light of the impending “Cadillac Tax.” Because Congress was unable to adopt a new health care bill, the Affordable Care Act stands and the excise tax is slated to go in effect in 2020 unless the ACA can be repealed and replaced.

Watts says “The excise tax creates pressure to generate immediate cost savings though cost-shifting or other short-term fixes. But employers are also making good progress with longer-term strategies that address the root causes of high cost and cost growth.”

She adds, “Employers find the challenge of juggling cost-management objectives and affordability issues for employees gets harder every year. Consumerism has a role in addressing rising costs, but there are many factors that drive costs, separate and distinct from relative generosity of the plan design.”

These findings are taken from preliminary responses to the National Survey of Employer-Sponsored Health Plans 2017 by Mercer. More information can be found at Mercer U.S.