Although Americans have been paying a lot more at the pump and the supermarket this year, they have largely been spared from price hikes for their job-based health insurance and doctor visits.
But that’s about to change.
Most workers can expect to see premiums and out-of-pocket costs increase in 2023 at a faster rate than in recent years due to inflation, experts say. They’ll learn just how much during their employers’ open enrollment period, which typically takes place this month and next.
“It’s going to be harder than ever for employees to be able to afford some of the basics of health care — and those are people who have insurance,” said David Guilmette, chief executive officer for health solutions at Aon, a professional services firm.
About 155 million Americans have work-based health insurance, the largest source of coverage by far, according to the Kaiser Family Foundation.
Companies are trying to minimize the cost increases as they strive to hire and retain workers in the tight job market, experts say. This could force some businesses to subsidize even more of their health plans — employers cover about 81% of workers’ premiums, on average — or find other ways to reduce their overall spending on medical care.
Delayed impact of inflation on health care
While the cost of gas, food and other essentials can change quickly based on inflation and market conditions, health care operates differently. The premiums and out-of-pocket charges that consumers pay are typically set in advance and last a year. What’s more, contracts between insurers and medical providers are usually locked in for several years.
In fact, health care costs are bucking their own typical trend. They nearly always rise faster than general inflation, but that hasn’t been the case this year.
Still, hospitals, doctors and other providers are feeling the pricing pressure. Their costs for labor, particularly nurses and service staff, and supplies have increased sharply due to inflation and demand. And they are seeing more patients this year, after many people avoided going to the doctor and getting medical tests in 2020 and 2021 because of Covid-19.
Because of that delay in care, patients are often sicker when they come in, said Dr. Jeff Levin-Scherz, population health leader at Willis Towers Watson, an advisory firm. Treating people with more advanced cancers, cardiovascular problems and other conditions is more intensive and expensive.
To address these and other factors, providers are pushing insurers to hike their reimbursement rates when contracts are up for renewal.
Companies to spend more
Employers are expected to see their average health care costs soar by 6.5% to more than $13,800 per employee next year, according to Aon’s recent survey of nearly 700 large employers.
That’s more than double the 3% increase to health care budgets that companies experienced for 2022, but still well below the 8.2% spike in annual inflation, as measured by the September Consumer Price Index.
Workers are projected to shell out an average of 2.6% more for health care this year, compared to 2021, Aon calculated. That stems from a 0.6% increase in monthly premiums and a 5.2% jump in out-of-pocket costs, on average.
Aon has not yet determined how much more employees will pay next year, but it is expected to be a larger increase than it was for 2022.
Employees, however, may be spared the full impact of inflation. After years of hiking deductibles, co-payments and co-insurance levels, many employers are now reluctant to make it even more expensive for their workers to actually seek care, experts said. So companies are making changes to their health insurance plans to minimize the increases.
“There’s been a real crisis in affordability,” said Levin-Scherz. Employers “don’t want to offer meaningless health insurance plans for people.”
Steps employers are taking
Some 20% of companies added more funds into their health care plans without taking money away from employee pay or other benefits this year, and another 30% are planning or considering doing so in the next two years, according to a Willis Towers Watson survey of 455 mid-sized and large companies released last month.
But workers are still feeling the impact. Some 14% of employers shifted costs to workers through out-of-pocket expenses this year, while 24% did so through premium contributions, the survey found.
A growing number of employers are also looking to shield workers who earn less. More than a quarter of companies surveyed said that employees who are low wage or hold certain types of jobs are being charged lower premiums than other staffers in 2022, and another 13% are planning to or considering implementing similar measures in the coming two years, the survey found.
Several larger employers are looking to reduce the underlying costs in the health care system, said Elizabeth Mitchell, CEO of Purchaser Business Group on Health, which represents nearly 40 private companies and public entities that buy health coverage for more than 21 million Americans.
They are expanding workers’ access to telehealth and to primary care to try to restrain price increases. Some are challenging hospital charges, which are more transparent than in the past, and identifying higher-quality providers for their employees.
“What our members are trying to do is actually intervene in the delivery system, more than they might have in the past,” Mitchell said.
Increases expected to continue
Next year will only be the start of an extended period of increased health care costs, experts said.
Because contracts between providers and insurers will expire at different times, the pricing pressure will continue. That will likely result in even steeper hikes: Some 71% of employers surveyed by Willis Towers Watson said they were expecting “moderate to significant increases” in their costs over the next three years.
“Now that we’re in a period of higher inflation, that’s going to be making its way into these contracts,” said Debbie Ashford, North American chief actuary for health solutions at Aon. “For 2023, the 6.5% [increase] is somewhat muted.”