Health benefit cost growth will accelerate to 5.6% in 2023, Mercer survey finds 

· Employers avoid benefit cuts despite new cost pressures

August 11, 2022 

United States, New York

US employers expect health benefit cost per employee to rise 5.6% on average in 2023, according to early results from Mercer’s National Survey of Employer-Sponsored Health Plans 2022, which launched June 22 this year and remains open. 

While significantly higher than the increase of 4.4% projected for 2022, the 2023 increase lags overall inflation, which is currently running at about 9% (see Figure 1). According to Sunit Patel, Mercer’s Chief Actuary for Health and Benefits, “Because health plans typically have multi-year contracts with health care providers, we haven’t felt the full effect of price inflation in health plan cost increases yet. Rather it will be phased in over the next few years as contracts come up for renewal and providers negotiate higher reimbursement levels. Employers have a small window to get out in front of sharper increases coming in 2024 from the cumulative effect of current inflationary pressures.” 

Patel also cautions that while most large, self-insured employers have a good sense of their 2023 costs at this time, many smaller, fully insured employers have not yet received renewal rates from their health plans. “Those may well come in higher as insurance carriers hedge their bets in today’s volatile health care market,” he added.

The projected increase of 5.6% 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 7.0%.

The survey asked employers to rate nine benefit strategies in terms of their importance over the next 3-5 years. “Enhancing benefits to improve attraction and retention” came out on top, with 84% of large employers (those with 500 or more employees) rating it important or very important. It’s an even higher priority than “monitoring and managing high-cost claimants,” which was second this year but historically tops the list.

“In today’s environment of record-breaking inflation and widespread labor shortages, employers face a really tough balancing act,” says Tracy Watts, Mercer’s National Leader of US Health Policy. “They must manage rising health care costs while making smart decisions about how to attract and retain the workers they need. For now, we are seeing the majority of employers prioritizing attractive benefits.”

Behavioral health is one benefit area where many employers are looking to expand. Nearly three fourths of large respondents (74%) 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. 

Another area of concern is health care affordability. Despite rising costs, the majority of employers will not take cost-saving measures that shift healthcare expense to employees, such as raising deductibles or copays. Only 36% of survey respondents are making cost-cutting changes in 2023, down from 40% in 2022 and 47% in 2021.

Further, overall, employers will not increase employees’ share of the cost of coverage in 2023. Among large employers responding to the survey, employees will be required to pick up 22% of total health plan premium costs, on average, in 2023 through paycheck deductions, unchanged from 2022 and 2021. In a survey conducted earlier this year, Mercer found that 11% of large employers will offer employees free coverage in at least one medical plan in 2023, and another 11% are still considering it.

“Healthcare affordability is a real issue for many employees, especially with inflation stressing household budgets,” said Watts. “Employers want to do what they can to keep more money in employees’ paychecks and remove cost barriers when care is needed.”

Figure 1

Employers expect health benefit cost per employee to rise 5.6% in 2023
Change in total health benefit cost per employee compared to CPI, workers’ earnings

^{_{*Projected. The actual cost increase for 2022 will be available later this year.  †Preliminary data}}

^{_{Source: Mercer’s National Survey of Employer-Sponsored Health Plans (beginning in 2020 results are based on employers with 50 or more employees); Bureau of Labor Statistics, Consumer Price Index,}}

^{_{U.S. City Average of Annual Inflation (April to April) 1993-2022; Bureau of Labor Statistics, Seasonally Adjusted Weekly Earnings from the Current Employment Statistics Survey (April to April) 1993-2022}}

The 2022 National Survey of Employer-Sponsored Health Plans was launched on June 22 and remains open. The preliminary results discussed above are based on responses from the first 864 employers responding (through August 4). The final survey results will be released in fall 2022. Visit Mercer’s National Survey of Employer-Sponsored Health Plans website for more information about the survey.

Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s approximately 25,000 employees are based in 43 countries and the firm operates in 130 countries. Mercer is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 83,000 colleagues and annual revenue of approximately $20 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit mercer.com. Follow Mercer on LinkedIn and Twitter.

_{¹ Figures provided by Mercer Investments LLC.}

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