Mercer survey finds health benefit costs up 5.2% in 2023 due to inflation and higher spending on prescription drugs
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Cost increases have averaged 3% annually since 2012 but employers expect higher increases to continue in 2024
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Pharmacy benefit cost rose more than 8%
United States, New York
Today, Mercer, a business of Marsh McLennan (NYSE: MMC), released the findings of its 2023 National Survey of Employer-Sponsored Health Plans, which found the average per-employee cost of employer-sponsored health insurance rose by 5.2% in 2023 to reach $15,797.
Cost increases were highest for employers with 50-499 employees, averaging 7.8%. They also reported a higher average per-employee cost for health insurance – $16,464 compared to $15,640 among larger employers with 500 or more employees.
In 2022, cost rose by 3.2%, well below general inflation, which averaged 8% that year. Because healthcare providers typically have multi-year contracts with health plans, employers did not feel the full brunt of inflation last year. “Rather, inflation-driven cost increases are phasing in as contracts are renewed,” says Sunit Patel, Chief Health Actuary, Mercer. The survey shows employers project another sharp increase of 5.2% for 2024.
“It may take another couple of years for price increases stemming from higher healthcare sector wages and medical supply costs to be felt across all health plans,” Mr. Patel says.
At the same time, inflation is only one factor behind this year’s higher cost increases. In 2023, spending on prescription drugs rose sharply. “While the effects of inflation may be relatively short-lived, new and ongoing developments in the pharmaceutical market seem likely to have a longer-term impact on health benefit cost.”
Prescription drug costs pose challenges
Prescription drugs have been the fastest-growing component of health benefit cost for years, but in 2023 pharmacy benefit cost jumped 8.4%, following an increase of 6.4% last year. A spike in the utilization of certain therapies for treatment of diabetes and obesity – glucagon-like peptide 1 (GLP-1) drugs – has had a notable impact on costs.
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 are 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. Resulting from major advances in medical science, these cutting-edge 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 per treatment – and 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 pharmacy benefit managers to implement clinical management programs (44%), and adding or enhancing stop-loss protection (10%).
Forgoing shifting costs to employees
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, or one with no deductible. This year, the majority of large employers – 60% – offered three or more medical plan choices to employees at their largest worksite.
“After the jump in cost this year and potentially higher increases ahead, employers are putting cost management front and center,” said Tracy Watts, National Leader for US Health Policy, Mercer. “We’re helping many clients with strategies that don’t shift additional cost to employees, like steering patients to higher-quality care and providing more intensive care management. Often, better health outcomes go hand in hand with better cost outcomes.”