SHRM: Managing Rising Health Benefits Costs for 2023
Planning is critical to developing strategies that can reduce costs
With health care benefits costs expected to return to pre-pandemic levels and to continue outpacing overall inflation, employers can take steps to curb their benefits expenses.
HR advisory firm Segal recently projected a 7.4 percent per-person cost increase for open-access preferred-provider plans in 2023, based on responses from almost 80 health insurance providers surveyed during the summer of 2022.
- Cost increases for most dental coverages are expected to reach 4 percent, driven by inflation across the U.S.
- The projected annual cost trend for outpatient prescription drugs is expected to be approaching double-digit levels, the highest rate observed since 2015, mostly driven by price increases and new-to-market specialty drugs.
While actual 2020 benefits cost increases were negative for medical and dental coverage for the first time since Segal has tracked cost trends, due to deferred and eliminated care from the pandemic lockdowns, 2021 trends experienced a spike in the opposite direction—up 14 percent per covered participant, the highest increase in a decade, Segal reported.
Even when accounting for the spike in 2021, the two-year increases were flat, according to Eileen Flick, senior vice president and director of health technical services at Segal. Actual 2022 cost increase findings from Segal were not yet available.
Other health benefits cost projections for 2023 are in the same ballpark. The nonprofit International Foundation of Employee Benefit Plans reported that in its recent survey of 300 corporate and public-sector employers, respondents projected a median increase of 7.5 percent for medical plan costs.
Coming in slightly lower in their cost predictions, a majority of 455 U.S. employers surveyed in August by consultancy WTW project their health care costs will jump 6 percent next year compared with an average 5 percent increase they are experiencing this year, and most respondents (71 percent) expect little relief in the coming years.
Trends Driving Health Benefits Costs
New prescription drugs, life-saving therapies and deferred care during the pandemic (leading to late-stage diagnoses) are driving up health care costs, according to Tim Stawicki, senior director and chief actuary at WTW.
"The law of supply and demand is also having an impact," said Kim Buckey, vice president of client services at Optavise, a benefits education, enrollment and health care transparency firm. "As more hospitals close, health care workers quit and physicians retire or leave clinical practice, fees for remaining providers increase."
The U.S. Bureau of Labor Statistics says about 3 percent of the health care workforce has quit each month this year. The trend is likely to continue, said Buckey, who cited Elsevier Health's Clinician of the Future study that found 47 percent of U.S. health care workers plan to leave their current role in the next two to three years.
Conversely, Flick highlighted emerging cost deflators helping to hold down costs, such as the increased use of outpatient care including telehealth and urgent care providers as an alternative to emergency rooms. As an alternative to traditional fee-for-service reimbursement of health care providers, value-based reimbursement is becoming more prevalent, tying payments for care to the quality of care provided and rewarding providers for efficiency and effectiveness.
"We're also seeing early data that indicates that the federal No Surprises Act is having its intended effect of lowering out-of-network charges," she said.
Employer Strategies for Controlling Costs
WTW's Stawicki urges HR teams to prepare for the inevitable conversations with their finance teams to reduce health plan spending. "Building connections between HR and finance is a key first step to help educate finance and broader leadership of the headwinds facing employer health care benefit costs in the coming years," he said.
Planning is critical to developing strategies that can reduce costs. This may include virtual primary care networks, revisiting cost-sharing equations, incentivizing employees to seek lower cost care options, alternative payment methods and more.
"Another thing to think about is negotiating and competitive bidding. Many companies haven't done this in four to five years," Flick said. "In some regions, carriers are making big efforts with steep discounts and aggressive management fees."