Employers seek to navigate rising expenses for health care workers

Employers face rising health care costs and persistent inflation as they attempt to provide competitive benefits in the coming year. Their workers also are experiencing many of the same financial pressures.

“With significant cost-shifting off the table for most employers, they will have to get creative to meet the challenge of offering benefits that employees want and need, and health care they can afford, while also managing cost growth,” according to the Health & Benefit Strategies for 2024 Survey Report from Mercer.

The survey results brought three key themes into focus:

• Plan sponsors have to prepare for the impact of inflation on their health plan costs but with the understanding that inflation is creating financial stress for employees at all income levels. For low earners, inflation makes it harder to meet normal monthly expenses, let alone medical bills. On top of that, the labor market is still tight in many industries and HR needs to pull all levers, including health benefits, to attract and retain employees.
• Employers are looking to enhance benefits, but they need to do it carefully — not by adding bells and whistles but by looking for opportunities to add value. Sometimes that means filling gaps in current offerings with more-inclusive benefits. It might mean revisiting time-off policies to give employees more flexibility. And it definitely means paying close attention when employees say they need better support for their mental health, a message that is coming through loud and clear in surveys of workers.
• Employers are looking to manage cost growth without shifting cost to employees

The average per-employee cost of employer-sponsored health insurance rose by 3.2% in 2022, according to the survey. This relatively modest increase was only about half the rate of general inflation for 2022, which ended the year at 6.5%. One factor holding down cost growth in 2022 was simply timing. Because health care providers typically have multiyear contracts with health plans, employer plan sponsors were shielded from the full impact of inflation.

Related: Hospitals are raising pay to combat the health care worker shortage

“However, we can expect that wage increases and higher supply costs in the health care sector will result in higher prices over the next few years as provider contracts are renewed,” the report said. “Employers projected an average cost increase of 5.4% for 2023, and we should be prepared for continued accelerated cost growth in 2024 and beyond.”