In health care, deep dive is a term used to describe something that goes very far into a subject. Health care Costs in the United States are very high, and they continue to rise rapidly. This is a concern for employees and employers who pay the bill.
Changes in Health Care CostsÂ
Trends
The US employer health care costs rose by an average of 3.2% this year, the same as last year but well below the rate of general inflation and workers’ wages, according to Mercer’s 2022 benchmark employer survey. Workers will pick up 22% of their plan costs this year through paycheck deductions, unchanged from 2021.
Despite this year’s modest increase, U.S. healthcare costs continue to rise faster than workers’ wages and inflation, pushing more employers to rethink their benefits strategies. This year, for example, a third of large employers reported directing employees to high-performing provider networks and other sources of value-based care to help them control spending.
Another key strategy is reducing out-of-pocket costs for high-cost medications by introducing tiered copays and rebates, removing step therapy requirements, and offering generic drugs. More than a quarter of large employers also provide telemedicine and digital navigation services to help their employees navigate the healthcare system.
However, the report found that differences in costs and coverage remain stark between small and larger firms and among industries. For example, on average, this year, workers at smaller firms pay $2,000 more for family coverage than their counterparts at larger firms, and they face general annual deductibles that are $1,763 higher than those of large firms. In addition, smaller firms are more likely to use salary-based premiums, shifting healthcare costs burden toward lower-wage workers.
Costs by Region
Spending on premium contributions and out-of-pocket costs is a significant component of many families’ budgets, especially among those covered by employer plans. At the low end, spending can reach $300 per year, while at the high end, it can be $12,000. Spending is divided between those dollars paid directly to private healthcare providers (premium contributions) and those that go toward purchasing goods or services like prescription drugs, dental visits, eyeglasses or contacts, and medical supplies (excluding over-the-counter items).
In 2021, U.S. employers pay for 78% of single-coverage employee health insurance plans and 66% of family coverage plans. On average, workers pick up the rest through paycheck deductions of $4,243 per year for single coverage and $15,754 for family coverage. These numbers are much higher than the median household income of about $50,000 per year.
Affordability is a major concern, as premiums and out-of-pocket costs have risen much faster than worker salaries and wages. In addition, many households face difficulties meeting their deductibles, as the average single coverage annual deductible grew to $1,669 in 2021. This figure is even higher for those with copayments or coinsurance plans, as illustrated by the growth in average copayment rates for primary care and specialty visits and in the share of covered workers who are required to pay for services before their insurance kicks in.
Costs by Industry
Health care is a vital part of the economy and a critical element of employee compensation, but it is also a major source of cost pressures on households. The rapid growth in health care costs has prompted concern that it could damage the overall economy and reduce economic opportunities for workers.
Employers are reducing their healthcare costs by shifting more of the burden to employees through higher deductibles and copayments. However, the pace of this change is slowing. Mercer expects that in 2023, employees will be responsible for paying about 22 percent of their total health plan premium through paycheck deductions, unchanged from last year.
The fastest-growing costs are from services provided in retail clinics and telemedicine, which employers typically cover in small firms. In large firms, employees pay a larger share of their premiums.
Many small employers report concern about their ability to offer health benefits. About half of these firms report being “very” or “somewhat” concerned about their ability to afford premiums and out-of-pocket costs. Nevertheless, most small businesses sponsoring group health insurance say it has not prevented them from increasing wages or hiring additional workers. Meanwhile, most large companies continue to sponsor health plans. However, their costs are increasing slower than the Consumer Price Index.
Costs by Plan Type
As premium costs rise, more and more workers pay out of pocket for their health coverage. This includes deductibles, copays, and coinsurance. These expenses can add up quickly, especially when they’re on top of rising premiums. The good news is that employers still subsidize about 81 percent of employee plan costs, according to insurance broker and consultancy Aon.
Overall, US employers expect medical plan costs to increase 5.6 percent on average in 2023, H.R. consultancy Mercer reported. That’s up from a projected 4.4 percent increase in premiums and is much higher than the 1.8 percent inflation rate.
Cost increases vary widely, however. The type of industry and employer size make a big difference. For example, health insurance costs are highest in professional services firms and lowest in manufacturing and retail. And the rates also change with age, with older workers paying more than their younger counterparts.
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