Health benefit cost rose 3.2% in 2022, bigger increases ahead 

Given the economic upheavals of the past year, the average total health benefit cost increase for 2022 – 3.2%, according to Mercer’s 2022 National Survey of Employer-Sponsored Health Plans – seemed almost surprisingly “normal.” 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; prior to the pandemic, cost had risen at about 3% annually for over a decade. But what’s unusual about this year’s increase is that it is far below general inflation, which is averaging about 8% for 2022. Typically, health benefit cost growth runs higher than general inflation; 2022 may be 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. 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.

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). 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.

Keeping healthcare affordable

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. 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.  

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. 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.

How employers are managing cost without shifting the cost to employees

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.

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. Over a third of large employers (34%) say they will add or enhance stop-loss protection 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.

About the survey

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.