Companies expect surge in health care costs in 2022

From CFODive:

  • U.S. companies expect health benefit costs to rise 5.2% next year as employees seek care that they deferred during pandemic lockdowns and support for their emotional wellbeing, data from a Willis Towers Watson survey of 378 employers found.
  • “The pandemic has re-framed the importance of a healthy workforce, and there are selected areas like mental health that have become more prominent,” according to Julie Stone, managing director of health and benefits at WTW. “It’s no longer taken for granted, just in the background like the wallpaper — it is really key.”
  • Employers are taking several steps to hold down health care costs for both themselves and employees, including indexing premiums to pay levels, reducing the number of in-network providers and increasing on-site health promotion, WTW said.
CFOs face rising costs for health care amid an economy-wide surge of inflation. The consumer price index rose in August at a 5.3% annual rate, slowing 0.1 percentage point from the fastest pace in 13 years.

 

Meanwhile, a labor shortage has increased pressure on CFOs to raise compensation and benefits to attract and retain talent.

The number of U.S. job openings rose to a record high of 10.9 million at the end of July, the U.S. Bureau of Labor Statistics reported last month, as the highly contagious delta variant of COVID-19 discouraged many workers from employment. BLS tracks information dating to 2000.

U.S. manufacturers see workforce shortages as their biggest risk and, during the next 12 months, plan to increase wages by 3.5%, a record rate in quarterly surveys dating to 1997, according to the National Association of Manufacturers.

CFOs already face high cost pressures for company health care, and expect spending to rise 5.5% this year compared with 2.1% in 2020, WTW said.

“Employers were distracted during the first 18 months of the pandemic,” Stone said. Now, as they assess their companies’ health care needs, “there’s a lot of focus on ‘what did we learn, and what will be key to long-term sustainability?’”

CFOs should view money budgeted toward health care as an investment rather than an expense, helping to retain talent, increase productivity and avert the costs from poor employee health, company health plan experts said.

Employee disengagement due to illness annually costs U.S. employers $530 billion, according to Kate Brown, leader at the Mercer Center for Health Innovation.

In order to get the highest return from health care spending, companies should get a detailed grasp of employee demographics, including such factors as location and specialization, Stone said.

Companies should view health care within the framework of their overall strategy, accounting for future hiring plans, the relationship between health and productivity, and their desired goals for health care affordability and accessibility, she said.

WTW found in its survey that companies are taking several steps to hold down costs and make the most of spending:

  • 22% are indexing health care premiums to pay, with 8% planning to do so within the next two years;
  • 25% impose a surcharge when an employee’s spouse signs up for health care coverage while rejecting it at his or her employer, while 9% are planning or considering doing the same in the next two years;
  • 89% offer coverage for “telebehavioral” health services, with 7% either planning or considering doing so;
  • 21% have trimmed the network of health care providers, and 30% are either planning or considering doing so.

“There are things within an employer realm where they can steer people to cost-effective programs,” Stone said, referring to the survey conducted during June and July of employers with 5.9 million workers.

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