Moderate Cost Increases Projected for Health Benefits in 2021

Most employers aren't further shifting health care costs to employees

Stephen Miller, CEBS By Stephen Miller, CEBS October 15, 2020
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Moderate Cost Increases Projected for Health Benefits in 2021

Employers expect a moderate health plan cost increase next year of 4.4 percent, on average, compared to this year, according to early results from HR consultancy Mercer's National Survey of Employer-Sponsored Health Plans 2020.

The increase, based on 1,113 employer responses since early July, is marginally lower than a recent forecast by the nonprofit Business Group on Health, which in August expected a 5.3 percent increase in health plan premiums for 2021. But Mercer's projection is within the broad range of 4 percent to 10 percent forecast by consultancy PwC's Health Research Institute over the summer.

Mercer projects that 2020 will end with a 3.3 percent health benefit cost increase, which is still largely in line with the average annual cost growth over the past several years. Still, health benefit cost growth is now far outpacing the consumer price index and wage growth, both of which have slowed significantly.

Change in Total Health Benefit Cost Compared to Inflation and Workers' Earnings

Mercer 2021 health benefit cost - crop.jpg

*Projected.
**Preliminary data.
Sources: Mercer's National Survey of Employer-Sponsored Health Plans; the U.S. Bureau of Labor Statistics. 

Cost-Shifting No Longer Favored

Even amid economic uncertainty caused by the COVID-19 pandemic, only 18 percent of the employers surveyed by Mercer will take cost-saving measures for 2021 that shift more health care expense to employees, such as raising deductibles or co-pays.

The majority of survey respondents (57 percent) will make no changes to reduce cost in their medical plans in 2021. That compares to 47 percent making no changes last year and just 44 percent doing so in 2018.

"This is different from what we saw at the start of the economic recession in 2008, which drove many employers to trim health benefits," said Tracy Watts, a senior consultant with Mercer. "Given all the turmoil employees have been through this year, employers are putting big changes on hold, looking to balance economics with empathy."

But while many employers are avoiding shifting more costs to employees, "they know managing cost must remain a priority," Watts said. "Stress and care avoidance in 2020 may result in higher utilization in 2021, and struggling health systems may seek to recoup lost revenue through higher prices. On the plus side, the momentum behind digital health innovation is driving toward greater efficiency, better health management and greater member satisfaction."

Employers Planning to Provide Additional Support Benefits for Employees in 2021
(or Seriously Considering It)

Mercer benefits 2021 chart-crop3.jpg Source: Mercer's National Survey of Employer-Sponsored Health Plans 2020.

Delayed Care

Fear of contracting the coronavirus in medical settings continues to drive a significant number of people to forgo and defer care, according to consultancy Willis Towers Watson.

"COVID-19 has played havoc with all previous projections of health care utilization levels," said Trevis Parson, chief actuary at Willis Towers Watson. "In 2020, we may see a reduction in national health care expenditures on a per-capita basis for the first time since 1960. However, this reversal in trend is highly likely to be only temporary, despite the continued uncertainty about the virus, as previously deferred care returns in 2021."

Self-insured employers, in particular, "need to pay special attention to the impact of COVID-19 on their health care spend," Parson said, as the pandemic is driving significant volatility in health care use.

Watts also believes health plans face many unknowns in developing cost projections for 2021. "Different assumptions about cost for COVID-related care, including a possible vaccine and whether people will continue to avoid care or catch up on delayed care, are driving wide variations in cost projections for next year," she said.

Another View on Health Plan Cost Increases

Consultancy Segal's 2021 Health Plan Cost Trend Survey findings, released in October, report somewhat higher expected plan increases for both 2020 and next year, compared to surveys of large employers.

Conducted during the summer of 2020, 70 health insurance providers, collectively representing more than 80 percent of the commercially insured and self-insured market, projected per-person cost trends for the following types of plans:

  • Open-access preferred provider organization (PPO) and point of service (POS) plans: cost increases of 7.7 percent in 2021, up from 6.8 percent in 2020.
  • PPO and POS plans that require primary care physicians to serve as gatekeepers for specialty care: up 7.2 percent in both 2021 and 2020.
  • Health maintenance organization (HMO) plans: cost increases of 6.6 percent in 2021, up from 6.3 percent in 2020.
  • High-deductible health plans (HDHPs): cost increases of 7.2 percent in 2021, up from 7.0 percent in 2020.

Sega'sl forecast is a reminder that whoever is right about the overall cost trend for 2021, some employers will be facing steeper increases based on workforce claims and other unique factors.

"The pandemic's impact on future cost increases is still uncertain," said Edward Kaplan, the national health practice leader at Segal. "Plan sponsors need to closely track their plan costs, vendor premium and fee renewals in the months ahead."

He advised, "For the coming year plan sponsors may wish to explore total well-being programs, expanding access to specialized virtual therapy options, evaluating value-based arrangements and more efficient provider networks."

Kaplan also recommended that plan sponsors study the key cost drivers for their plans by evaluating actual group claims history, to determine which targeted cost containment strategies are most likely to reduce excessive claim expenses.


[SHRM members-only content: Memo Announcing Increase in Health Insurance Costs]

Related SHRM Articles:

Average Worker Paid $5,588 Out of Pocket for Family Health Coverage This Year, SHRM Online, October 2020

Helping Employees Navigate Health Benefits During Open Enrollment, SHRM Online, October 2020

Biden and Trump Want Lower Health Care Costs, but Approaches Differ, SHRM Online, September 2020

Employers Project Health Plan Costs Will Rise 5.3% for 2021, SHRM Online, August 2020

15 Ways Employers Can Reduce Health Care Spending That Aren't Cost-SharingSHRM Online, February 2019

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