The average per-employee cost of employer-sponsored health insurance saw the highest annual increase since 2010, as health benefit costs outpaced growth in inflation and workers’ earnings.
According to Mercer’s 2021 National Survey of Employer-Sponsored Health Plans, average costs for employer-sponsored health insurance jumped 6.3% in 2021, as employees and their families resumed care after avoiding it last year due to the pandemic. Consequently, the average cost per employee among all U.S. employer health plan sponsors with 50 or more employees now stands at $14,542.
While employers expect a more typical increase of 4.4% in 2022, questions remain as to whether employers are seeing a temporary correction to the cost trend—following last year’s increase of just 3.4%—or the start of a new period of higher cost growth. “Employers seem optimistic that this year’s sharp increase is simply a result of people getting back to care,” notes Sunit Patel, Mercer’s Chief Actuary. He cautions, however, that several factors could result in ongoing cost growth acceleration. “At the top of the list of concerns are higher utilization due to ‘catch-up’ care, claims for long COVID, extremely high-cost genetic and cellular drug therapies, and possible inflation in healthcare prices,” he says.
Cost growth was higher among smaller employers (50-499 employees), at 9.6%, while larger employers reported average cost growth of 5%. Mercer observes that smaller employers are more likely to offer fully insured health plans, suggesting that insurance carriers expected significantly higher cost in 2021 relative to 2020.
Nationally, 40% of all covered employees enrolled in a high-deductible consumer-directed plan in 2021, up from 38% in 2020. Mercer notes, however, that most large employers that offer a CDHP at their largest worksite (86%) also offer employees another medical plan choice with a lower deductible.
Additionally, spending on prescription drugs rose 7.4% in 2021 among large employers (those with 500 or more employees), driven by an increase in spending on specialty drugs of 11.1%.
Cost-Shifting Halted
When health benefit cost growth accelerates, employers typically ratchet up cost management efforts, such as cost shifting, but that seems to be off the table for many employers. In fact, Mercer notes that concerns about health care affordability for lower-wage workers, along with recruitment and retention efforts in a tight labor market, have resulted in an unexpected reversal in some health plan cost-sharing trends. Most employers not only held off on raising deductibles and other cost-sharing provisions, but some even made changes to reduce employees’ out-of-pocket spending for health services, according to the survey.
Additionally, large employers 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, Mercer notes.
Looking ahead to 2022, the majority of plan sponsors (60%) say they will not make plan changes of any type to reduce their expected cost increase. This is largely due to employers focusing their attention on enhancing benefits to support employees and stay competitive in a tight labor market, but the sharp cost increase suggests a need to prioritize how they will manage costs.
Benefit Priorities
In response to the pandemic’s impact on the workforce, many employers view supporting the mental, emotional and behavioral health of employees as a business imperative. According to the survey results, adding or expanding programs to increase access to behavioral health care is a top-three priority for all large employers (74% rated it important or very important).
The survey also found that nearly half of all large employers—and about two-thirds of those with 20,000 employees—say that addressing health equity and the social determinants of health will be an important priority over the next 3-5 years.
The results are based on a survey of 1,745 public and private employers conducted in 2021. The full report on the Mercer survey, including a separate appendix of tables of responses broken out by employer size, region and industry, will be published in March 2022.
