Uncertainty Weighs on Group Plan Cost Expectations

U.S. employers are expecting their group health insurance costs to climb 4.4% in 2021, despite the ravages of pandemic and a likely uptick in health care usage next year, according to a new survey.

The expected rate increases are on par with much of the last few years when insurance premium inflation has hovered between 3% and 4%. Despite the expected increase, employers do not plan to cut back on benefits for their employees, according to the Mercer “National Survey of Employer-Sponsored Health Plans 2020.”

The COVID-19 pandemic has injected a large dose of uncertainty into the marketplace. Overall, health care expenditures have plummeted since the pandemic started, which at first seems counterintuitive. But many hospitals postponed elective and non-emergency surgeries and procedures, while fewer individuals were seeking care either out of fear of going in for it or because they could not get appointments.

For example, the first three months after the pandemic had gotten a foothold in the U.S., according to the Willis Towers Watson “2020 Health Care Financial Benchmarks Survey,” monthly paid claims per employee dropped as follows:

  • April: 21%
  • May: 29%
  • June: 14%

“So far, the additional medical costs associated with the testing and treatment of COVID-19 have been more than offset by significant reductions in utilization across many service categories,” the insurance industry research firm recently wrote in its report.

Additionally, the Mercer report predicts that a significant portion of the deferred care will never be realized. And, for those people who have deferred care, when they eventually decide to come for the care will also depend on the course of the pandemic, hospital capacity and whether people feel safe to go in for the treatment.

“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,” Tracy Watts, a senior consultant with Mercer, said.

Employer reactions

Despite the expected cost increases, Mercer found that few employers plan to make any changes to their benefits this year, as they seek to keep things stable for their staff. The survey found that:

  • 57% will make no changes at all to reduce cost in their 2021 medical plans (up from 47% in the prior year’s survey).
  • 18% will take cost-saving measures that shift more health care expenses to their employees, including raising deductibles and copays.

Employers are also adding benefits, some of them prompted by the pandemic and shifts in how health care is accessed. For example:

  • 27% are adding or improving their telemedicine services (telemedicine for episodic care, artificial-intelligence-based symptoms triage, ‘text a doctor’ apps, and virtual office visits with a patient’s own primary care doctor).
  • 22% are adding or improving their voluntary benefits (critical illness insurance or a hospital indemnity plan).20% are boosting their mental health services coverage.
  • 12% are offering targeted health services, like for diabetes and other chronic conditions.
  • 9% are offering more support for complex cases.
  • 4% are offering services to limit surprise billing.

The takeaway

Mercer noted the following trends going into 2021:

Keeping the status quo – A majority of employers surveyed are avoiding making any changes to their health plans, including increasing employee cost-sharing, even if premiums increase. Instead, they are focused on providing a stable source of health insurance for their staff and supporting their workers as they deal with stress and effects of the pandemic.

Digital migration – More employers are offering digital health resources like telemedicine, telehealth apps, and virtual office visits, for their convenience, safety, efficiency, and cost-effectiveness.

Costs uncertain – Due to the effects of the COVID-19 pandemic, cost projections are uncertain at best. The avoidance of medical care could translate into a higher utilization in 2021 and hospitals may start charging more to recoup lost revenues from 2020. Or people may have forgone a lot of that care forever. It’s too early to tell.

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