Rising Cost of Employee Benefits

It’s no secret that health insurance costs more and employers are planning for that trend to continue.

Employers expect that their average cost per-employee for health benefits will rise by 4.3 percent in 2018, which is above the average increase of 3 percent of the past five years, according to Mercer’s National Survey of Employer-Sponsored Health Plans.

The survey also revealed that employers continue to struggle to control cost for pharmaceuticals, which will rise more than 7 percent next year as spending on new specialty medications skyrockets.

The projected underlying cost growth from 2017 to 2018 is 6.0 percent. That is the increase employers would expect if they made no changes to their medical plans; however, the survey found that 46 percent of employers will take steps to reduce cost growth in 2018. Offering lower-cost, high-deductible health plans has been an important strategy for holding down cost over the past decade, and the need to minimize exposure to the ACA’s excise tax on high-cost plans has accelerated this trend.

“Employers find the challenge of juggling cost-management objectives and affordability issues for employees gets harder every year,” said Tracy Watts, senior partner and Mercer’s leader for health reform. “Consumerism has a role in addressing rising costs, but there are many factors that drive costs, separate and distinct from relative generosity of the plan design.”

Employers must contend with cost increases that occur with medical advances – like the introduction of new medications used to treat complex conditions like cancer, multiple sclerosis, and hepatitis C. Respondents to Mercer’s survey reported that spending on these specialty drugs rose by about 15 percent at their last renewal, pushing up growth in the overall cost of prescription drugs to more than 7 percent.

Strategies that employers are adopting to manage medical costs without raising employee out-of-pocket spending include providing care coordination and support for high-cost claimants. Employers are also addressing quality by using incentives to direct employees to Centers of Excellence and other high-performance provider networks. And they are shifting away from traditional fee-for-service provider reimbursement toward new payment models.

The results listed are preliminary findings from Mercer’s National Survey of Employer-Sponsored Health Plans 2017.