Top Factors Influencing Employer Sponsored Health Plan Premiums in 2023

Factors influencing 2023 employer premiums

There are two key factors that will influence employer-sponsored health plan premiums in 2023, Jim Winkler, chief strategy officer at the Business Group on Health, told HealthPayerIntelligence by email: 

• Market inflation on prices of healthcare services
• Utilization rate of healthcare services

“Heading into 2023, employers face uncertainty in terms of the impact of market inflation on the prices of health care services and potential increases in utilization of those services,” Winkler said. 

“This all comes at a time when employers also have a heightened focus on attracting and retaining key talent while addressing the overall health and well-being needs of the workforce and their families.”

The growth in medical care prices has outstripped the inflation for other consumer goods. From April 2000 to April 2022, the cumulative percent change in the Consumer Price Index for All Urban Consumers (CPI-U) hit 109.2 percent for healthcare services. In contrast, the cumulative percent change was 68.8 percent for “all goods and services.”

In 2022, prices in the healthcare sector are growing at a slower pace than prices for other services and goods such as gasoline. Nevertheless, from April 2021 to April 2022, healthcare prices rose 3.2 percent. Hospital workers’ wages could drive spending upward, experts anticipate.

Utilization is always a key factor in setting premiums, primarily represented in the cost trends that payers provide. The cost trends consolidate utilization and price projections for the coming year. 

On the Affordable Care Act marketplace, payers who have published their 2023 filings are expecting a cost trend of four to eight percent. While this number is specific to the Affordable Care Act marketplace, it may also provide insight into utilization trends that employers are facing, experts noted.

Role of COVID-19 in premium-setting

Whether or not payers should account for the pandemic in their premium rates has been a question every year of the pandemic to date. 

As payers set 2021 rates, they were split as to whether or not they should account for coronavirus-related factors. At the time, uncertainty over the pandemic’s trajectory, marketplace churn, or the economic impacts inhibited some payers from including it in their premium calculations.

When it was time to set premiums for 2022, payers on the Affordable Care Act marketplace indicated that factors such as telehealth utilization, legislative changes, and the American Rescue Plan Act subsidies informed their rate-setting decisions, according to a Peterson-Kaiser Family Foundation (KFF) Health System Tracker brief. Almost half of the payers reported that the pandemic would not affect their rates.

For consumers, however, premiums were a key concern during the pandemic. More than one out of five consumers stated that premium costs were their main concern about their healthcare coverage during the first year of the pandemic.

As employers turn their attention to 2023 premiums, Winkler anticipated that the challenges of coronavirus spending would remain.

Three aspects of the coronavirus pandemic can be particularly influential during the premium-setting season.

First, employers and their stakeholder partners will keep their eyes on employers’ coronavirus-related healthcare spending.

“Employers and their industry partners are reviewing how much employers spend on pandemic-related care, including treatment for COVID, the impact of long COVID, and for vaccines and boosters for prevention and mitigation. Aspects of these costs are becoming more and more predictable as time progresses,” Winkler said.

CMS actuaries’ national healthcare spending projections for the next nine years did not anticipate a fast return to 2020 levels of healthcare spending. The national healthcare spending growth rate in the 2020s is expected to average around 5.1 percent annually.

However, as early as 2021, the healthcare spending trajectory withdrew from its staggering heights of 2020, dropping from 9.7 percent growth the year the coronavirus struck the US to 4.2 percent growth the following year in 2021.

Second, employers will continue to watch for utilization trends based on care that was deferred while the country was on lockdown.

Experts have projected that total healthcare spending in the next decade will drop even though healthcare prices are expected to increase. This indicates that utilization decreases may be one of the main drivers behind the drop in spending. They lowered their projections on hospital spending and raised physician and clinical services spending assumptions due to the coronavirus-incentivized shift to ambulatory care.

Third, employers will pay particularly close attention to trends in mental healthcare utilization.

The American Academy of Actuaries indicated that mental healthcare utilization would be a key factor in payers’ premium-setting decisions in the individual and small group health insurance marketplace as well. The coronavirus pandemic boosted mental healthcare utilization due to increased virtual care access.

In the future as employers strategize around premium-setting, Winkler projected that employers will have to consider healthcare services well into 2023 and mental healthcare utilization trends are likely to remain relevant for the foreseeable future.

Communicating with stakeholders, members about increases

As employers set their healthcare premiums for 2023, they will need to involve other stakeholders—namely, third-party administrators and health plan members.

“Employers will look to their third-party administrators to provide accurate current claim cost information, as well as credible forecasts for expected health care cost trend,” Winkler said.

“Third-party administrators will also need to work in concert with other solution vendors that an employer might deploy as part of their cost mitigation strategy.”

The premium hikes will have significant effects on members. Employers must be ready to engage with members as they navigate higher costs. Primarily, employers’ role is to support members as they seek to keep costs low in healthy ways.

“As employers prepare to communicate with their workforce, they will see that employees tend to be focused on what any cost increase means to them, both in terms of out-of-pocket costs and paycheck deductions. Employers will therefore need to assist employees on understanding how best to manage their own costs,” Winkler recommended.

Omnichannel communication with health plan members can be particularly useful for improving member engagement in employer-sponsored health plans. With omnichannel communication, payers and employers coordinate communication across multiple channels and platforms, improving the timeliness and convenience of member interactions.

The strategy can tie together member engagement in apps, telehealth, specific programs, and other tools or channels. When used effectively, this approach can allow for more direct communication with members.

Some employers have leveraged episode-based benefits to help employees manage their healthcare costs. These types of benefits offer multiple cost-sharing levers that employers can use to guide members toward low cost, high value care. 

Episode-based benefits allow employers to adjust cost-sharing within the episode of care—both generic cost-sharing that applies across all benefits and cost-sharing that is specific to the episode of care—and leverage rewards to incentivize good healthcare spending practices.