As health care costs continue to rise, employers are struggling to provide comprehensive health benefits—benefits that have become increasingly necessary to attract and retain workers in the current tight labor market.

Rising health care costs are a top concern for employers

According to survey of over 150 employers from the National Alliance of Healthcare Purchaser Coalitions (NAHPC), the three main cost drivers for employer-sponsored health benefits are drug prices, high-cost claims, and hospital costs.

As these costs increase, so do health insurance premiums, making it more difficult for some employers to offer comprehensive benefits for their workers. In the survey, 73% of respondents said high health care costs are crowding out salary and wage increases, and 82% said these costs are affecting their ability to be competitive.

Although average premiums for employer-sponsored health plans did not increase much from last year, data from Mercer found that the cost of providing benefits is expected to increase 6% next year. Inflation, along with patients visiting their doctors more often, could also lead to larger premium increases going forward.

"The consensus among many of the responding employers is that attracting and retaining employees has become a street fight," said NAHPC president and CEO Michael Thompson.

In the survey, most employers (78%) said attracting and retaining employees is a higher priority now than it was before the pandemic, and 100% agreed or strongly agreed that health and well-being benefits are essential going forward.

In fact, a survey from Pew Research Center found that 43% of workers who left their job last year cited insufficient benefits as one of the reasons. "You don't want employees to be unhappy about their benefits," said Gary Claxton, an SVP at the Kaiser Family Foundation.

How employers are changing their benefits to retain workers

Although health care costs are increasing, Mercer found that most employers do not plan to shift costs to their employees by raising deductibles or co-payments.

In fact, many employers are planning to expand their health benefit options in 2023, focusing on improving affordability and access. According to a July survey of 700 employers from Mercer, more than two-thirds said they planned to enhance their health and benefit offerings next year, and 61% are currently surveying employees on their benefit preferences.

Some benefits that employers are considering adding include mental health benefits, such as meditation apps and substance use treatment, and family planning benefits, such as in vitro fertilization treatment. According to Modern Healthcare, data suggests that these benefits, among others, are highly important to younger employees.

Outside of providing more benefits, some employers are working to better communicate with employees about the benefits already offered.

According to Candice Sherman, CEO of the Northeast Business Group on Health, many employees at the group's member companies do not understand the full scope of their benefit plans.

"Many of our members talk about employees saying they've got this issue, and they're surprised to learn they have benefits for that," Sherman said. "Members are focused on how to communicate and promote benefits."

In addition, Sherman said she believes businesses will focus on providing more "wraparound, holistic" benefits in the future, including more family-building resources, financial wellness, child care, gym memberships, and even pet care.

"They have to offer more than medical, vision and dental," said Brandon Weber, CEO of Nava Benefits, a brokerage that provides benefits consulting. So far, traditional benefits and how they are communicated are "proving year over year to be a broken value proposition for the average American employer," he added.

"The cost-increase tsunami that we're facing is moving employers to look past the status quo," Weber said. (Lagasse, Healthcare Finance, 11/4; Neber, Crain's New York Business/Modern Healthcare, 10/31; Carrns, New York Times, 11/4)