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Employers Anticipate Health Costs Rising 5% In 2022

Oct 19, 2021

Due largely to concerns about the COVID-19 pandemic and its continued effects on American healthcare, employers are expecting their health costs to rise more than 5% in 2022, according to a new Willis Towers Watson survey.

Employers expect their costs for medical and pharmacy benefit expenses to increase 5.2% in 2022, even after taking cost management initiatives into account. The increase is slightly lower than the 5.5% increase employers projected for 2021, but sharply higher than the actual 2.1% increase in 2020.

Last year’s increase was the smallest in decades and is seen as an anomaly, because many people deferred non-emergency care and rapidly embraced telemedicine during the pandemic.

With 86% of employers prioritizing employee affordability, employers will take different approaches regarding absorbing a portion of the cost increases or reflecting these fully in the employee cost share.

Ninety percent of respondents said achieving affordable and sustainable costs for the organization was a top priority, while 86% said it was important to achieve affordable costs for employees, especially those who earn lower wages.

Eighty-five percent signaled an intent to enhance employee wellbeing, while 78% said it was a priority to identify programs that support diversity, equity and inclusion, and address the social determinants of health.

What’s the Impact?

The survey identified several measures employers are taking to address affordability, benefit designs and network management issues, including premium contributions based on pay and grade. Nearly a quarter of employers currently structure employee contributions based on pay levels or job grades; another 8% are planning or considering doing so in the next two years.

Another measure is working spouse surcharges. A quarter of employers use spousal surcharges when additional employer coverage is available for the working spouse. Another 9% are planning or considering spousal charges in the next two years.

Meanwhile, about 30% of employers are planning or considering offering a narrow network of higher-quality and/or lower-cost providers. Currently, two in 10 respondents offer narrow networks.

Nearly half of employers, 48%, use centers of excellence within their health plans. Another 23% are planning or considering adding centers of excellence within their health plans. About 31% offer access to concierge services with integrated care management programs, and 25% are planning or considering doing so.

A vast majority of employers, 89%, are offering coverage for behavioral telehealth services, and 7% are planning or considering it. And more than half of employers offer onsite/worksite health promotion activities, while 17% are planning or considering it.

On the pharmacy front, only 13% have plans in place that support medication adherence and improved health outcomes in more vulnerable populations. But nearly 30% are planning or considering changes. And 54% evaluate specialty drug costs and utilization performance through the medical benefit, while another 29% are planning or considering doing so.

The Larger Trend

The findings from Wilson Towers Watson show a slightly lower projected increase in employer medical costs than a similar survey published in June by PricewaterhouseCoopers. That survey projected employer health costs will rise 6.5% in 2022, slightly lower than in 2021 and higher than the period from 2016 to 2020.

Like the more recent survey, PwC cited the ongoing COVID-19 pandemic as the primary driver of this projection.

Although health spending is projected to increase, the deflators identified by PwC will likely have a mitigating effect. One is consumerism: More people are shopping around for care, and millions have become more familiar with receiving care in lower-cost and more convenient ways during the pandemic – shifts in behavior that will likely reduce healthcare spending.

As part of this shift, there has been a decrease in emergency department utilization, which has had a significant impact in bending the cost curve for employers. Some ED visits, especially lower acuity ones, may never return to pre-pandemic levels.

Sources:

JRReport: Jeff Lagasse, Healthcare Finance
Featured Image via Shutterstock