Mercer: Employers Expect Health Benefit Costs to Rise 5.4% in 2023

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Health benefit costs increased 3.2% in 2022, but employers are anticipating an even higher increase of 5.4% for 2023, a new survey shows.

The report was published Thursday by Mercer, a consulting firm. It included responses from 2,028 public and private employers. 

This year’s 3.2% increase is lower than last year’s cost growth of 6.3%, which was due to people catching up on services after putting it off during Covid-19. It is also much lower than general inflation, averaging at about 8% in 2022. This is rare, as typically health benefit cost growth is above general inflation, according to the report.

“In the healthcare sector, higher wages, labor shortages, and consolidation will almost certainly result in higher prices,” said Sunit Patel, chief health actuary at Mercer, in the report. “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.”

In 2022, total health benefit costs per employee were $15,013 on average, up from $14,542 in 2021. Small employers (those with 50 to 499 employees) experienced slightly higher costs than large employers (those with 500 or more employees). 

Despite growing health benefit costs, employers aren’t prioritizing any cost-cutting strategies as they face a labor shortage and know that benefits are a factor in selecting jobs. Instead, 84% said they are “enhancing benefits to improve attraction and retention.” Other high priorities include expanding behavioral healthcare services and improving healthcare affordability. Many employers are also moving away from only offering a high-deductible account-based plan.

“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,” said Tracy Watts, national leader for U.S. health policy at Mercer, in the report. “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.” 

In order to manage costs without putting the burden on employees, employers are turning to healthcare navigation. About 35% of all large employers are directing employees to high-performing provider networks, and 53% of very large employers are doing this. More than a third of very large employers provide telephonic navigation and 17% provide digital navigation to help employees find the best provider based on quality and cost.

Additionally, virtual mental healthcare is becoming a key priority for employers as the world battles a mental health crisis.

“Even before the pandemic, there was a shortage of mental health providers and that has not changed. What has changed is the explosion of virtual mental healthcare as an alternative to in-person care,” Watts said. “Being able to receive care in the privacy of one’s home – and saving the time and cost of traveling to a physical office – is a game-changer for many people.”

Photo: Ta Nu, Getty Images

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