It looks as if 2018 is going to cost more for employers who provide benefits packages to their workers — and employers are expecting the cost increase to be even higher than it has been for the past five years.
A report from Insurance Journal says that early employer respondents to Mercer’s National Survey of Employer-Sponsored Health Plans, 2017 indicate that they expect their average cost per employee for health benefits will rise by 4.3 percent in 2018. For the past five years, the average increase ran 3 percent.
Employers also have a tough time trying to rein in pharmaceutical costs, which the report says will increase by more than 7 percent next year as spending on new specialty medications explodes.
Mercer isn’t the only one with research pointing to higher costs; an Aon study indicates that employees will be even worse off, with their share of costs rising much higher percentagewise than their employers’.
In fact, says Aon, 2018’s average health care cost increase for U.S. employees is projected to be 7.2 percent, up from 6.9 percent in 2017. The average costs for health care, including employee premiums and out-of-pocket costs, are projected to be $5,248, up from $4,895 in 2017, and employee premium costs are projected to average $2,678. This is 18 percent of the total health care cost, Aon says, which is consistent with cost sharing percentages over the past seven years.
The lack of a successful Affordable Care Act repeal effort thus far in Congress means that the excise tax on high-cost plans will go into effect in 2020. And since the tax threshold is rising at only about half the current rate of health benefit cost, Mercer believes that many employers will be affected.
Just because they expect higher-than-average increases doesn’t mean that employers aren’t doing their best to forestall them, though. Employer respondents to Mercer’s survey indicate that they expect health benefit cost per employee will rise by 4.3 percent on average in 2018 — but that’s after they make planned changes such as raising deductibles or switching carriers.
That 4.3 percent increase, by the way, would be the highest since 2011, when cost rose 6.1 percent. And it would be considerably higher—nearly 2011’s level—if employers weren’t taking steps to control it. The study finds that the projected underlying cost growth from 2017 to 2018 is 6.0 percent—the increase employers would expect if they made no changes to their medical plans.
So it’s not surprising that 46 percent of employers indicate that they’ll be taking steps to cut cost growth in 2018. One strategy over the past 10 years to do so has been offering lower-cost, high-deductible health plans; the need to reduce exposure to the ACA’s excise tax on high-cost plans has accelerated this trend.
Cost increases tied to medical advances, such as new medications to treat conditions like cancer, multiple sclerosis, and hepatitis C, rose by about 15 percent at their last renewal, pushing up growth in the overall cost of prescription drugs to more than 7 percent, the study finds. And with the ACA’s excise tax still slated to go into effect in 2020, employers could have a tough time keeping up with cost increases.
Mercer estimates that 31 percent of large employers (500 or more employees) would be liable to pay the excise tax in 2020, and with the tax threshold indexed to inflation and rising at about half the rate of health benefit cost, more employers would pass the threshold each year.