Costs for employer-sponsored health plans are on the rise

In a survey of over 450 employers, WTW found that health coverage costs may increase by an average of 6.4% in 2024, not including any impact from plan design changes — the highest increase in this measure since 2012.

Similarly, preliminary results from a separate survey from Mercer, which included around 1,700 employers, suggested that healthcare costs will increase by 6.6% in 2024. With any potential plan design changes, Mercer projected a slightly smaller increase of 5.4%, which is in-line with its estimate for 2023.

These increases could significantly boost the costs of employer-sponsored health plans. In 2022, data from Mercer found that the average total health benefit cost per employee was roughly $15,000 for employers of all sizes. 

"It's much worse than we've seen over the last decade," said Elizabeth Mitchell, CEO of the Purchaser Business Group on Health. "It comes out of wages and core business."

According to the Wall Street Journal, some factors contributing to the faster cost growth include higher labor costs at hospitals and high demand for new and expensive drugs, such as gene therapies or diabetes and obesity drugs like Ozempic and Wegovy.

Hospitals negotiating higher prices from insurers has also likely led to some cost increases this year and will likely accelerate for many employers in 2024. "Inflation we saw a year ago is finally making its way into the contracts," said Tim Stawicki, WTW's chief healthcare actuary. "It's like a delayed reaction."

How employers are trying to control costs

According to Beth Umland, director of research at Mercer, many employers will likely avoid passing higher health coverage costs onto their employees to better attract and retain workers amid ongoing labor shortages.

In a 2022 survey from Mercer, 84% of large employers with 500 or more employees said it was important or very important that they enhance their benefits to improve attraction and retention. Other strategic priorities for their benefits over the next few years include managing high-cost claimants, expanding access to behavioral healthcare, and improving healthcare affordability.

"The affordability issue cuts both ways. Employers will be challenged to absorb the higher costs coming down the pike, but they also know some people will forego important care when they feel they can't afford it," said Tracy Watts, Mercer's national leader for U.S. health policy. "Particularly with inflation putting added stress on household finances, budget concerns need to be balanced with the downstream implications of healthcare affordability. So the focus now is on strategies to rein in cost growth without shifting the cost to the employee."

To avoid shifting costs to employees, 35% of employers with 500 or more employees in the 2022 survey said they planned to guide employees to high-performing provider networks and other sources of high-value care. To help employees find high-quality, affordable care, 36% employers with 20,000 or more employees said they offer a telephonic navigation and advocacy service, and 17% offer a digital navigation tool.

(Reed, Axios, 9/8; Mathews, Wall Street Journal, 9/7; Mercer 2022 National Survey of Employer-Sponsored Health Plans, 12/8/22)

Employer-sponsored health insurance surveys offer valuable data, but they don’t tell the whole story. Learn how employers are balancing cost, employee satisfaction, and administrative burden — and how misaligned incentives between employers and partners are limiting innovation.