The report's findings showed that 68% of insurers expect increased medical claims linked to the pandemic. And even before the pandemic, costs were rising: the study found that for 2019, insurers reported cost increases of 9.7%, just under three times the rate of inflation. In 2020, insurers said they expected an increase in medical costs of 9.5%, roughly 3.5 times the inflation rate. For 2021, 90% of insurers expect the trend to stay the same or increase.

Hervé Balzano, president of health at Mercer and Mercer Marsh Benefits International Leader said these ongoing challenges will require employers to rethink their benefit offerings and how those benefits are delivered.

"COVID-19 has had profound effects on all parts of society and the economy, including health care. With an expected rebound in elective treatments deferred during lockdown, a rise in negative health issues related to remote working and sedentary lifestyle, including musculoskeletal and mental health issues, and ongoing concerns about the long-term physical and mental health implications of COVID-19, we expect medical costs to continue to increase."

Multiple factors suggest higher spending in the near term

The study acknowledges that there are still a lot of unknowns when it comes to predicting future benefit trends and needs. In the US, the study found that this uncertainty led to wide variations in predictions for coming years. But on the whole, predictions are conservative—meaning that higher costs are expected. For example, after recent trends showing about a 3% growth for health benefits costs, the employers surveyed for the study expected a 4.4% growth rate for 2021.

Delayed care, a rebound in elective procedures, new claims linked to remote working, ongoing COVID-19 issues, PPE costs—all this and more will play into costs in the next few years, the findings suggest.

"Ongoing cost pressures coupled with uncertainty are creating a challenging environment — with employers choosing not to target benefit cuts in an environment where health programs are more valued than ever, cost control must be managed in a new way," the study said.

Managing risks, finding true value in benefit design

The study outlined specific strategies for addressing the possible increase in health benefit costs.

The Mercer analysis calls for designing benefit offerings for value. For example, the study said a positive trend was the increased use of telemedicine and virtual consultations. Another approach Mercer recommended was the use of narrow networks and centers of excellence as a way of managing costs.

"We also urge employers to invest in low-cost health care services with proven long-term value that can prevent escalation to crisis care," the study said. "Ensuring that people have access to basic medication, screening, and other forms of preventive and primary care can reduce crisis care outcomes and costs."

Data-driven approaches in areas such as wellness is another way to manage costs, the study said. "A well-being strategy that addresses physical, mental, social and financial health, all critically important in a COVID-19 era, can also lead to a more engaged and productive workforce with a favorable impact to the employer's bottom line."

Wanted: a more holistic, and more agile, approach to benefits

The study noted that too many benefit systems have not fully adapted to the digital world that most workers have embraced. "The demand is here and now," the report said, and suggested that employers look at third-party vendors if their current systems are not meeting demand.

The study also emphasized growing awareness of the importance of mental health. There is an unmet need in these areas, the researchers say. "More HR teams are now seeking programs that help people care for dependents, deal with isolation and protect their mental health. However, our research showed that 32% of insurers do not provide plans covering mental health services," the study said. "Access to mental healthcare is critical for a healthy and productive workforce."

The study concluded by examining the role of employers in addressing health inequities. While recognizing that change in this area may be incremental for some, the study said employers can make a difference in creating a more fair and equitable system. "We continue to see more interest from employers in building programs that provide equal access, opportunities, and development for every employee within the organization," the study said. "If there is a broader health and insurance industry commitment, along with employer buy-in, to offering benefits that truly benefit, we expect that a more equitable global health care system will emerge."

Related: 

• Why benefits managers need to explore 'value'
• 3 ways millennials and Gen Z will put pressure on benefit costs
• Increased spending and COVID-19 impact 2020 benefits landscape