Survey gives early look at employer response to rising health costs
After more than a decade in which cost growth averaged about 3% annually, the per-employee cost of employer-sponsored health insurance rose by 5.2% on average in 2023 to reach $15,797, according to our 2023 National Survey of Employer-Sponsored Health Plans, a nationally representative study which included more than 1,900 employers.
2023 seems likely to mark the beginning of a period of elevated cost increases. In 2022, health benefit cost rose by just 3.2%, well below general inflation, which had spiked to historical levels. Because healthcare providers typically have multi-year contracts with health plans, employers did not feel the full brunt of inflation immediately. Rather, inflation-driven cost increases are phasing in as contracts are renewed. The survey found employers projecting another increase above 5% for 2024, and it may take a few years for price increases stemming from higher healthcare sector wages and medical supply costs to be felt across all health plans.
Cost increases this year were highest for small organizations (those with 50-499 employees), averaging 7.8%. These employers also reported a higher average per-employee cost for health insurance, $16,464 compared to $15,640 among large employers (500 or more employees). Most large employers are able to self-fund their medical plans, avoiding insurance company risk charges, and typically also have more resources to devote to health program management than small employers.
With continued focus on affordability, most employers avoided cost shifting in 2023
Despite rising health plan costs, large employers largely avoided shifting additional costs to employees through higher deductibles, copays, or out-of-pocket maximums in 2023. For example, among large employers, the average in-network PPO deductible rose by just $2 this year.
Beyond forgoing cost-shifting, some employers are addressing healthcare affordability by providing a range of medical plan choices to accommodate different financial and medical situations, for example, a plan option with free employee-only coverage (15% of large employers), or one with no (or a low) deductible, such as a copay plan (39%). This year, the majority of large employers (60%) offered three or more medical plan choices to employees at their largest worksite.
Prescription drug costs pose challenges
Inflation is only one factor behind this year’s higher cost increases. While prescription drugs have been the fastest-growing component of health benefit cost for years, in 2023 pharmacy benefit cost per employee jumped 8.4%, on average. Sharp increases in utilization of certain drugs for the treatment of diabetes and obesity – glucagon-like peptide 1, or GLP-1, drugs -- has had a notable impact.
FDA-approved GLP-1 anti-obesity medications are a welcome development given the obesity epidemic that has had such devastating effects on health. However, the combination of the high price of these drugs – typically about $1,000 per month per patient (not counting manufacturers’ rebates, which vary) – plus the large number of patients who may benefit from them can result in a substantial net new cost to a health plan. Further, these are maintenance drugs that a patient would likely use over many years. While most plans cover GLP-1 drugs for diabetes treatment, employers are divided on whether to cover them for the treatment of obesity. Currently, about two-fifths of large employers (41%) cover GLP-1 medications for the treatment of obesity, often with authorization and/or reauthorization requirements. Another 19% say they are considering it.
A wave of new gene and cell therapies is also beginning to impact cost. Only a few have reached the market so far, but by 2025 the FDA estimates they will be approving 10 to 20 of these products per year. Made possible by astonishing breakthroughs in medical science, these products have the potential to drastically improve or even cure certain serious or terminal conditions, offering hope to many individuals.
Unlike most traditional drug regimens, gene and cell therapies are one-time, ultra-high-cost treatments – as much as $3M – and currently plan sponsors must absorb the entire cost at once, a paradigm shift that presents unique challenges. The majority of large employers are taking action to prepare for these infrequent but potentially significant costs by conducting risk assessments (21%), working with medical carriers and PBMs to implement clinical management programs (44%), and adding or enhancing stop-loss protection (10%).
While the effects of inflation on health plan cost growth may be relatively short-lived, these new and ongoing developments in the pharmaceutical market seem likely to have a longer-term impact on health benefit cost.
Cost management is now a front-burner issue
After the jump in cost this year and potentially higher increases ahead, employers are putting cost management front and center. When survey respondents were asked to rate the importance of a number of longer-term health program strategies, “managing high-cost claims” came out on top, rated important or very important by 84% of large employers.
Grounded in the assumption that better health outcomes go hand in hand with better cost outcomes, tactics for addressing high-cost claims typically center around steering patients to higher-quality care and providing more intensive care management, as opposed to shifting cost to employees. For example, this year, about two-thirds of large employers (67%) provide enhanced resources as part of a focused effort to support members with cancer. These include specialized case management (34%), Centers of Excellence or site of care navigation (24%), and Expert Medical Opinion programs (21%), among other initiatives.
About the survey
Mercer’s National Survey of Employer-Sponsored Health Plans included 1,917 public and private employers in 2023. 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 134,000 employer health plan sponsors across the US with 50 or more employees; these organizations employ about 123 million full- and part-time employees. The survey was fielded from mid-June through late August in 2023. Employers were asked to provide updated cost projections for 2023 for self-funded plans based on six months’ experience. 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 2024.