Employer healthcare plan costs will rise again next year

Employers in the United States should brace for higher healthcare costs next year, according to a recent estimate from Aon.

In 2023, healthcare costs for employees are expected to rise 6.5%, to more than $13,800 per employee, Aon found. That more than doubles the 3% increase seen from 2021 to 2022. Notably, the increase is still below the latest 9.1% inflation rate, according to the Consumer Price Index.

Aon used its Health Value Initiative database, which captures information for nearly 700 U.S. employers representing approximately 5.6 million employees, for its analysis, and found the budget healthcare costs per employee in 2023 is $13,020. That figure comes as medical claims have returned to normal levels after a steep decline during the early days of the COVID-19 pandemic, when elective procedures and routine care were temporarily halted or delayed. That return to levels of growth is leading to anticipation of higher healthcare costs ahead.

"In complete contrast over the last decades, we are measuring that healthcare budgets for U.S. employers will come in nearly three times lower than the Consumer Price Index this calendar year," Debbie Ashford, the North America chief actuary for health solutions at Aon, said in a statement. "Despite this historic occurrence, employer health costs are expected to increase 6.5[%] in 2023 due to economic inflation pressures."

The difference between the inflation rate and the anticipated increase in healthcare costs could be due to the slow effect of inflation in medical trends, as payor contracts are conducted on a yearly basis. That means prices could be even higher later on. However, there are several key trends impacting healthcare prices, including new technologies, severity of catastrophic claims, blockbuster drugs and increasing share of specialty drugs, according to Aon. Employers are also facing a labor crunch, coughing up higher wages in certain sectors and utilizing benefits to retain and attract employees. 

"In what remains a tight labor market, employers are absorbing most of the healthcare cost increases," Ashford said. "Employers are budgeting higher due to uncertainty and the anticipation that inflationary pressures will increase the cost of healthcare services."

With such a high cost to employers––and even higher prices down the road––many are looking for ways to lower health plans costs, such as addressing chronic conditions.

"The effect of chronic conditions has far-reaching implications beyond what we see with health care costs, out to the other areas of the business, like absence and productivity, disability and worker's compensation," Farheen Dam, Aon's North America health solutions leader, said in a statement. "By focusing on chronic conditions, not only are we improving the health and happiness of employees, but we're helping to improve the way they live and work."

According to Ashford, complex medical conditions are also huge drivers of costs. In some cases, just 1% of plan members could drive 40% of the costs in a given year. While employers saw a 3.7% increase in healthcare costs in 2022, employees only saw a marginal difference in their share of premium payments, at just 0.6% from 2021. Employers subsidize 81% of plan costs on average, with employees typically paying the remaining share.

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