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Despite their best efforts to slow cost growth, U.S. employers are bracing for an expected 5.4% increase in worker health care costs in 2024. This estimate suggests that last year's high inflation and labor shortages in the health care industry have pushed costs higher, which contributes to higher health benefit costs, according to Mercer's National Survey of Employer-Sponsored Health Plans 2023.
"In addition to the effects of recent inflationary pressures, health benefit costs are rising from the consolidation of health systems and the introduction of ultra-expensive gene and cellular therapies," said Sunit Patel, the company's chief actuary for health and benefits. "This year, we're also starting to see the impact of a sudden jump in utilization of costly GLP-1 drugs being used to treat diabetes and obesity."
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The projected increase reflects changes that employers plan to make to hold down costs. If they made no changes, respondents indicated that the cost for their largest medical plan would rise by an average of 6.6%. The relatively small difference between the size of the projected increases before and after plan changes indicates that most employers are not making cost-cutting changes to their plans, reflecting concerns about employee health care affordability.
The survey found that during the past five years, many large employers have avoided the cost-management tactic of shifting expenses to employees, as evidenced by minimal growth in deductibles and other cost-sharing requirements.
"Many employer plan sponsors have chosen to absorb cost increases in recent years rather than ask employees to pay more out of pocket for health care," Patel said. "This also contributes to faster health plan cost growth."
Smaller employers, which typically have fully insured plans, reported a higher average initial renewal rate of 7.5%. "It's not surprising that fully insured plans would have somewhat higher increases," he said. "Given the unpredictability of the health care market, insurance carriers are hedging their bets for next year."
Each year, the survey asks large employers to rate benefit strategies in terms of their importance over the next three to five years. Last year, "enhancing benefits to improve attraction and retention" came out on top. This year, it dropped to second place as labor market challenges have eased and employers are focusing on the rising cost of health care.
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Alan Goforth
Alan Goforth is a freelance writer in suburban Kansas City. In addition to freelancing for several publications, he has written a dozen books about sports and other topics.
