US employers expect total health benefit cost per employee to rise 5.4% on average in 2024, even after they make changes to their plans to slow cost growth, according to preliminary results from Mercer’s National Survey of Employer-Sponsored Health Plans 2023. Over 1,700 employers had responded to the survey when the results were drawn on August 14.
Health benefit cost growth of 5.4% – after more than a decade of annual cost increases typically averaging 3-4% – suggests that last year’s high inflation and labor shortages in the healthcare industry have pushed health care costs higher, contributing to higher health benefit costs.
What’s pushing cost up
In addition to the effects of recent economic turmoil, we’re seeing upward pressure on health benefit costs from ongoing developments in the healthcare market, such as the consolidation of health systems and the introduction of super-expensive gene and cellular therapies. And this year, we’re 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 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.
For the past five years, many large employers (500 or more employees) have avoided the cost-management tactic of shifting cost to employees, as evidenced by minimal growth in deductibles and other cost-sharing requirements. During the pandemic in particular, some employer plan sponsors chose to absorb cost increases rather than ask employees to pay more out of pocket for health care; this would also contribute to faster health plan cost growth.
Smaller employers – those with 50-499 employees, that typically have fully insured plans – reported a higher average initial renewal rate of 7.5%. But cost increases can vary significantly from one employer to the next, regardless of size. About one-fourth of respondents reported that, without making changes, medical plan cost would rise by 10% or more, while a similar percentage (29%) expected a cost increase of 4% or less – including 12% that expected flat costs or a decrease. Many factors can influence changes in cost year over year; certainly, the emergence of costly therapies to treat rare diseases increases claims volatility.
What may be tempering cost growth
Given the historic levels of inflation seen last year and ongoing healthcare labor shortages, it may seem surprising that average projected cost increases aren’t even higher. Again, many factors could be helping to temper cost growth – including strategies focused on improving patient outcomes. As employers have moved away from cost-shifting to employees, they have increasingly implemented longer-term cost-management strategies directed at the biggest drivers of cost – complex care and chronic medical conditions.
Many larger employers have strategies in place that steer members to higher-quality care. For example, they have added Centers of Excellence to their health plan networks. Historically used for complex surgeries like transplants or cardiac bypass, COEs are now used to provide quality care for a wider range of health care needs, such as cancer treatment and musculoskeletal issues. To ensure that plan members get to the best possible provider quickly, employers are offering health care navigation or advocacy services. A Mercer survey conducted earlier this year, Health and Benefit Strategies for 2024, found that 28% of large employers currently have a navigation service in place.
In addition, offerings of “point solutions,” which provide enhanced services (often with a virtual care component) to members with chronic conditions like diabetes, have become widespread (49% of large employers offer one or more point solutions).
Interventions like these, and others that are designed to achieve better outcomes for the patient, also tend to save money for the plan.
Employees are balancing benefit enhancements and cost management
Employers are still working to enhance benefit packages to meet changing needs and attract and retain workers. Behavioral health care remains a strong focus. Over three-fourths of large respondents (76%) say that improving access to behavioral health care will be a priority over the next few years. Examples of benefit enhancements include expanding EAP services and adding virtual behavioral health care options.
About two-thirds say that strategies to improve health care affordability will be important over the next few years. The survey found that employers will not increase employees’ share of the cost of coverage in 2024. Among large employers responding to the survey, 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. In our earlier survey, Mercer found that 15% of large employers will offer employees free coverage in at least one medical plan in 2024, up from 11% that did so in 2023.