Employer Sponsored Health Plan Costs Expected to Increase in 2023

As employer-sponsored health plan costs are expected to rise over the next three years, employers plan to implement new programs and policies to improve affordability, according to a survey from Willis Towers Watson (WTW).

The 2022 Best Practices in Healthcare Survey was conducted in August 2022 and included respondents from 455 US employers representing 8.2 million workers.

Seven in ten employers expect to see moderate to significant increases in healthcare costs over the next three years. Meanwhile, more than half of respondents expect costs to be over budget this year.

Employers projected that their healthcare costs would increase by 6 percent next year, compared to the 5 percent increase they experienced in 2022.

Employers’ top priorities are managing company costs and improving mental health and emotional wellbeing programs, the study found. Almost 67 percent of respondents noted these areas as priorities over the next three years.

Forty-two percent of employers said that managing employee affordability was a top priority.

“With no end in sight to projected cost increases, the need to manage healthcare costs and address employee affordability has never been greater,” Courtney Stubblefield, Insights and Solutions leader of Health and Benefits for WTW, said in the press release.

“Yet, with so many potential actions, employers must focus on changes that go beyond addressing their employees’ needs to also support efforts to attract and retain talent during a tight labor market.”

The survey revealed how employers plan to maintain affordability amid rising costs.

Around half of the employers (52 percent) reported plans to implement programs or switch to vendors that will reduce costs, while 28 percent said they will increase emphasis on account-based health plans (ABHPs) or consumer-directed health plans (CDHPs).

Nearly a quarter of respondents plan to shift costs to employees through higher premiums and 20 percent of employers plan to add more dollars to the healthcare plan without reallocating from other benefits or pay.

Four in ten respondents reported using a defined contribution strategy with a fixed dollar amount provided to employees that differs by employee tier in 2022.

Other employers evaluated employee contributions as a percentage of total income as the basis for future benefit designs (13 percent), while 28 percent of respondents structured contributions to reduce costs for low-wage employees.

Nearly a third of employers offered a plan with a low deductible of $500 or less and another 7 percent are planning to do so in the next two years, the survey found.

Additionally, 23 percent of respondents reported implementing higher out-of-pocket costs for the use of less efficient services or sites of service, including the use of non-preferred labs and high-cost facilities for imaging. Almost one in five are considering using this strategy by 2024.

Employers have also used programs to combat fraud, waste, and abuse (24 percent); offered plan concierge navigation (21 percent); and added voluntary benefits to plans (35 percent). More employers plan to leverage these strategies in the future as well.

Despite rising healthcare costs, data from Avalere Health found that employer-sponsored health plans will generate a 47 percent return on investment (ROI) for employers in 2022. Researchers attributed this to improved employee productivity, reduced direct medical costs, and tax benefits.