Health insurance costs see the sharpest increase in over a decade for U.S. businesses

The average per-employee cost of employer-sponsored health insurance spiked 6.3% in 2021 as workers and their families renewed care after keeping away from it in 2020 due to the COVID-19 pandemic, according to Mercer’s 2021 National Survey of Employer-Sponsored Health Plans. This is the highest annual increase since 2010 as health benefit cost outpaced growth in inflation and employees’ earnings through September.

Businesses are projecting, on average, a fairly typical cost increase of 4.4% for next year. “Employers seem optimistic that this year’s sharp increase is simply a result of people getting back to care,” said Sunit Patel, chief actuary, Mercer. However, Patel cautions that a number of factors could result in ongoing cost growth acceleration, including higher utilization due to “catch-up” care, claims for long COVID, extremely high-cost genetic and cellular drug therapies, and possible inflation in health care prices. 

Cost growth was higher among smaller firms (those employing between 50 and 499 employees), at 9.6%; whereas, larger organizations reported an average cost growth of 5%. Smaller companies are more likely to offer fully insured health plans, suggesting that insurance carriers expected significantly higher costs in 2021 relative to 2020.

In addition, spending on prescription drugs climbed 7.4% in 2021 among large companies (those with 500 or more employees), driven by an increase in spending on specialty drugs of 11.1%.

A dramatic shift in employee cost-sharing 

When health benefit cost growth shoots up, employers typically increase cost management efforts in order to keep increases at sustainable levels. However, this time around, despite one of the sharpest increases in insurance costs in 10 years, companies are not shifting insurance costs to their employees in 2022. Instead, they are now focused on supporting their workers’ behavioral health, adding virtual health care solutions for greater convenience and personalization, as well as seeking new ways to engage employees whether they work from the office or home.

According to the report, “In today’s extremely tight labor market, generous health benefits can help tip the scales in attracting and retaining staff. That may help explain why, despite cost growth, employers are not shifting more cost responsibility to employees.” 

Among small companies, the median deductible for individual coverage in a preferred provider organization dropped from $1,000 to $900 in 2021. Among large firms, the median individual deductible in an HSA-eligible plan dropped from $2,000 to $1,850 in 2021. 

Additionally, large organizations did not increase employee premium contributions significantly in 2021. The average monthly paycheck deduction rose by $7 for employee-only coverage and by $12 for family coverage in PPO plans, which is the most common type of medical coverage offered by employers.

The survey also revealed that large companies that offer high deductible health plans often provide a lower-deductible alternative. “In the wake of the pandemic many employers committed to help end health disparities, and ensuring care is affordable for their full workforce is an important part of that,” said Tracy Watts, national leader for US health policy at Mercer.

Almost three-quarters of all large businesses regarded behavioral health care benefits as one of their top three most important benefits. These benefits are particularly popular among large enterprises. Health equity and social determinants of health will be crucial to health care coverage strategies in the future among large employers.

With health care costs becoming more unsustainable for companies, the survey recommended that employers focus on value-based care to reduce costs without creating a heavier financial burden for employees. One way to drive high-value spending is to use centers of excellence and accountable care organizations. 

“Value starts with quality providers that achieve good outcomes, but convenience must be part of the equation, along with affinity. People want to get their care through the channels they are most comfortable with, and that’s not always a doctor’s office. It might be a pharmacy, a retail establishment, or online,” said Watts. 

Companies are also using digital healthcare tools to boost high-value care. A quarter of all large businesses offer targeted digital health solutions for chronic disease management and nearly three out of ten large firms have a virtual care network to support access to care.

“In today’s environment of varied working situations, employers see this type of personalization as a way to ‘even out’ the benefits available across onsite, remote and hybrid workers,” noted Watts. 

About Mercer’s 2021 National Survey of Employer-Sponsored Health Plans

– Mercer’s annual health benefits survey provides trends in cost and plan design and looks at employers’ strategies for managing cost and supporting employees, as well as how they have responded to the pandemic. 

The full report on the Mercer survey will be published in March 2022.