Insurance

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

  • 4 min Read
  • December 29, 2021

Author

Neha De

Neha De is a writer and editor with more than 13 years of experience. She has worked on a variety of genres and platforms, including books, magazine articles, blog posts and website copy. She is passionate about producing clear and concise content that is engaging and informative. In her spare time, Neha enjoys dancing, running and spending time with her family.

Table of Contents

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. 

Talk to our team today to learn how Escalon can help take your company to the next level.

  • Expertise you can trust

    Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.

  • Quality and consistency

    Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.

  • Scalability and Flexibility

    Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.

Contact Us Today!

Tap into the latest insights from experts in your industry

People Management & HR

Benefits Administration, What Small Business Need to Know

Benefits administration can be a game-changer for small businesses aiming to attract and retain top talent. While salaries remain an...

Read More
Accounting & Finance

AAP vs. Cash Accounting: Which Method Is Best for Your Growing Business? 

Choosing the right accounting method can significantly impact how you track financial performance, manage taxes, and plan growth. Two common...

Read More
Accounting & Finance

Beyond Bootstrapping: Advanced Cash Flow Management for Scaling Companies 

Bootstrapping—financing growth through internal cash flow—is a hallmark of many successful startups. But as businesses mature past their initial stage,...

Read More
Technology & Security

Building a Scalable Tech Stack: How to Choose the Right Tools for Growth 

In today’s business landscape, technology is more than a convenience—it’s a strategic asset that can supercharge growth. But as you...

Read More
Accounting & Finance

How to Reduce Month-End Close Time Without Sacrificing Accuracy 

The month-end close can feel like a perpetual scramble—collecting invoices, reconciling accounts, fixing last-minute errors. A drawn-out close not only...

Read More
uncategorized

How to Reduce Overhead Costs Without Impacting Productivity 

Overhead costs—from utilities and rent to administrative staffing—can quietly swell until they erode profit margins and slow your ability to...

Read More
Accounting & Finance

How to Structure Your Finance Team as Your Business Scales

Growth triggers a tidal wave of financial complexity, multi-entity operations, new product lines, overseas expansion, or investor relations. If your...

Read More
Accounting & Finance

M&A Readiness: How to Prepare Your Financials for a Successful Acquisition or Sale 

Mergers and acquisitions (M&A) can dramatically alter a company’s trajectory—unlocking new markets, technologies, or customer bases. Yet, many deals stumble...

Read More
Accounting & Finance

Optimizing Working Capital: Strategies to Maximize Liquidity Without Raising Funds 

Working capital: The difference between your current assets and your current liabilities. It’s a key barometer of financial health.  While...

Read More