The average per-employee cost of employer-sponsored health insurance jumped 6.3% in 2021 as employees and their families resumed care after avoiding it in 2020 due to the pandemic. The finding was reported by Mercer’s 2021 National Survey of Employer-Sponsored Health Plans.
With the highest annual increase since 2010, health-benefit cost outpaced growth in inflation and workers’ earnings through September, the survey noted. Additionally, spending on prescription drugs rose 7.4% last year among large employers (those with 500 or more employees). This was driven by an increase in spending on specialty drugs of 11.1%.
Cost growth was sharper among smaller employers (50-499 employees) at 9.6%, while larger employers reported average cost growth of 5.0%. Smaller employers are more likely to offer fully insured health plans, suggesting that insurance carriers expected significantly higher cost in 2021 relative to 2020, the survey noted.
“We are seeing two types of cost drivers – consumption drivers and supply drivers,” said Mercer’s Center for Health Innovation Leader, Kate Brown, as she explained some of the reasons for this increase. “On the consumption side, deferred care is likely the largest driver of cost increases in 2021. Many folks avoided routine care in 2020, only to return to that care in 2021. The care that was deferred to 2021 likely led to more high acuity needs, which drive costs up. Another factor is care associated with COVID cases, including care needed for cases of long-COVID.”
On the supply side, she added, the healthcare system deals with inflationary pressures, labor shortages, and supply shortages, which, in turn, put pressure on pricing for healthcare, and some of that pressure translates into higher costs for plan sponsors.
Another factor for the price increase is drug therapies with very high price tags, including breakthrough gene and cellular therapies. These hold great promise for helping people with specific conditions to recover, or even be cured, but they come with very high prices that employers struggle to finance. she said.
Despite these price increases, concerns about health care affordability for lower-wage workers, along with the need to retain and attract employees in a competitive labor market, resulted in an unexpected reversal in some health plan cost-sharing trends, according to the survey. Most employers not only held off on raising deductibles and other cost-sharing provisions, some even made changes to reduce employees’ out-of-pocket spending for health services.
For example, among small employers (50-499 employees), the median deductible for individual coverage in a PPO dropped from $1,000 to $900 in 2021. Among large employers, the median individual deductible in an HSA-eligible plan dropped from $2,000 to $1,850 in 2021.
Large employers also did not increase employee premium contributions significantly in 2021. The average monthly paycheck deduction rose by just $7 for employee-only coverage (from $160 to $167) and by just $12 for family coverage (from $590 to $602) in PPO plans, the most common type of medical coverage offered, according to the survey.
Reducing Expected Cost Increases
Many employers are taking several steps to reduce expected cost increases. According to Brown, many are looking at implementing and encouraging virtual care as a more efficient care- delivery channel.
“While many of these models are new, they hold the potential to reduce costs in the short and long-term if structured appropriately,” she added.
Employers are also emphasizing the importance of utilizing primary care to detect and manage disease in hopes of heading off higher cost claims down the road, Brown added. A complimentary strategy to focusing on primary care is investing in population health-management solutions – many of which are delivered via virtual or digital channels.
“I think we’ll see employers take a close look at the investments they’ve made over the past 3-5 years, and evaluate the value driven by those,” she said. “For programs that aren’t delivering, employers may be more likely to terminate those services with low engagement levels, and low return on investment or value on investment.”
Mercer’s National Survey of Employer-Sponsored Health Plans included 1,745 public and private employers in 2021. The full report on the survey will be published in March 2022.
Ayo Mseka has more than 30 years of experience reporting on the financial-services industry. She formerly served as Editor-In-Chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]