- The average per-employee cost of employer-sponsored health insurance jumped 6.3% in 2021, as employees and their families resumed care delayed last year due to the pandemic, according to a new survey of employers from Mercer.
- That's the highest annual increase since 2010. Health benefit costs outpaced growth in inflation and worker compensation through September, the employee healthcare and investment consultancy said.
- The findings raise questions of whether employers are experiencing a temporary correction to the cost trend following a minimal year-over-year increase of just 3.4% in 2020, or if they're staring down the barrel of a new period of higher cost growth.
Employers seem optimistic the sharp increase seen in 2021, causing average costs for employer-sponsored health insurance to reach a whopping $14,542 per employee, is a result of people resuming delayed care.
Employers are projecting on average a fairly typical cost increase of 4.4% in the year ahead, Mercer found.
However, a number of factors could result in ongoing cost acceleration, according to Mercer chief actuary Sunit Patel. Those include higher utilization as deferred care returns, claims for long-haul COVID-19 — lingering, occasionally severe disease that affects some one in four individuals infected with the virus —, extremely pricey genetic and cellular drug therapies and potential inflation in healthcare prices.
Mercer surveyed almost 1,750 public and private employers in 2021 for its report, and weighted the findings to be representative of the about 184,000 employer health plan sponsors across the U.S. with 50 or more employees.
Those companies are a major source of coverage, insuring about 118 million employees nationwide.
Mercer found cost growth in 2021 was more acute among smaller employers, with companies employing between 50 and 499 employees reporting 9.6% growth. That's likely because smaller employers are more likely to offer fully insured health plans, Mercer said.
Meanwhile, employers with 500 employees or more reported average cost growth of 5%. Large employers reported significant growth in spending on prescription drugs, which are an oft-fingered culprit for rising healthcare prices, with a jump of 7.4% in 2021, driven by an 11.1% increase in spending on expensive specialty drugs.
But unlike prior years, few of those costs actually trickled down to employees. Normally, when cost growth accelerates, employers ratchet up cost management efforts including cost shifting — where employers punt a larger share of health services costs to plan members. That didn't really happen in 2021, Mercer found.
Most employers held off on raising deductibles and other cost-sharing measures, while some even moved to reduce employees' out-of-pocket spending for healthcare.
Among small employers, the median deductible for individual coverage in a PPO dropped from $1,000 to $900 in 2021. Meanwhile, large employers' median individual deductible in an HSA-eligible plan dropped from $2,000 to $1,850.
Large employers also didn't meaningfully increase employee premium contributions, Mercer found, with the average monthly paycheck deduction rising by just $7 for employee-only coverage, and just $12 for family coverage in PPO plans.
Instead, employers said they were focusing more on improving healthcare affordability and access to mental healthcare for their workforce. Numerous pieces of research have shown that conditions like depression and anxiety have been exacerbated due to COVID-19, leading payers to increase their benefits in behavioral and mental health.
It's a key area of concern for employers as such conditions can have far-reaching ramifications for overall employee health and productivity. One study led by the World Health Organization estimated depression and anxiety disorders alone cost the global economy $1 trillion each year in lost productivity.
Based on the survey, adding or expanding programs to increase access to behavioral healthcare is a top-three priority for all large employers, and the No. 1 priority for employers with 20,000 or more employees.
Mercer chalked up the novel focus on affordability and non-traditional care offerings to employers scrambling to remain competitive in a tight labor market. The pandemic has caused many people to reprioritize how they live and work, causing record numbers of departures in the "Great Resignation." According to the Department of Labor, nearly 4.5 million Americans quit their jobs in September, almost 1 million more than in September 2019.
Health benefits are a key lever to attract and retain talent, Mercer said, citing offerings like quality initiatives, benefits personalization and virtual care as useful ways employers can optimize the value of their plans.
Looking ahead to 2022, the majority of plan sponsors say they won't make plan changes of any kind to reduce expected cost increases. Instead, they're focused on enhancing benefits to stay attractive in the labor market.
Virtual care in particular has seen a bump during the pandemic, as in-person services were limited if available at all.
Utilization rates had stagnated at 9% or lower among large employers prior to the pandemic. However, that jumped to 15% in 2020 and has stabilized at 12% in the first half of this year.
Even though future access to the service, currently being fleshed out in Washington, is uncertain, employers are remaining open to digital tools for their employee populations, Mercer found.
Targeted virtual products addressing specific health conditions like diabetes are now offered by a fourth of all large employers, and another 20% are considering adding them, the survey found. Additionally, 16% of large employers offer a virtual primary care physician network, while another 10% are considering it.
And 28% of all large employers offer a virtual behavioral healthcare network, with that figure jumping to 43% of employers with 20,000 or more employees.