Although health care costs lagged behind inflation in 2022, rising just 3.2% in 2022 compared to inflation’s year-end 6.5%, they’re expected to grow by 5.4% this year due to wage increases and higher supply costs in the sector. That’s according to new data from Mercer presented at a webinar last week. 

Per-employee health care costs rose to $15,000 on average in 2022, up from around $14,500 in 2021. Smaller employers (50–499 employees) paid more per employee, at $15,278, vs. $14,948 for larger employers (500 or more). Prescription costs grew by 6.8%, driven by rising prices for specialty drugs that treat conditions like cancer and autoimmune disorders, which grew 9.5%

Overall, employers don’t seem to be shifting the cost increases to employees, much as they do to consumers on the commercial side. In a tight labor market, it seems companies recognize that providing quality, low-cost health care is crucial. Leaders in Mercer’s survey cite enhanced benefits as their No. 1 strategy to attract and retain top talent.

Only 3% of large employers say they will raise employee cost-sharing in 2023, while 46% say they will not.

“We’ve seen that over the course of the pandemic, large employers have mostly avoided shifting costs to employees by raising deductibles, co-pays, and out-of-pocket limits,” says Beth Umland, director of employer research for health and benefits at Mercer. While that could change as employers prepare for accelerated health care costs, “these new results suggest that cost shifting is still going to be used more as a last resort than the go-to cost management strategy,” she says.

Interestingly, Mercer found that employers are actually providing more affordable options to employees. Fifteen percent offer free employee coverage for at least one medical plan, and 18% use salary-based contributions. Thirty-nine percent of employers offer medical plans with no or low deductibles, and 6% make larger HSA contributions for low earners.

“Those are three kinds of strategies that, if you need to address the affordability issue, you might want to consider,” says Tracy Watt, senior partner and national leader for U.S. health care policy at Mercer.

Addressing employee needs

Expanding health care access while reducing costs requires employees to consider their workforce’s financial and medical needs.

According to Mercer’s Health on Demand survey, 34% of employees below the median income, 29% of female employees, and 28% of part-time employees are not confident they can afford health care. Some employers are helping these workers identify accessible providers, eliminating language barriers through multilingual offerings, and offering inclusive benefits like maternal care or discounts on hearing aid costs.

Reproductive health and PTO

Companies are increasingly providing women’s reproductive health benefits targeting high-risk pregnancy, lactation, postpartum, pregnancy loss, and menopause. Nearly half of surveyed employers with 500 or more workers plan to offer such benefits in 2024, up from 37% in 2023. Sixty-three percent also provide fertility benefits.

Paid time-off coverage has increased too. “What we’ve been seeing since the pandemic is acceleration by employers in ensuring that their absence programs are competitive because it’s becoming a real differentiator,” says Richard Cooper, a partner at Mercer.

About one in four large employers plan to offer unlimited PTO to at least some employees, and more are expanding paid parental and bereavement leave. Seventy percent of employers provide paid parental leave, over half offer paid adoption leave, one-third offer foster care leave, and over a quarter offer paid surrogacy leave. In a sign of the changing times, 57% of employers offer or plan to provide bereavement leave for a miscarriage.

Mental health

Forty-seven percent of employees globally report feeling stressed daily; in the U.S., 49% report the same. Mental health ranked fifth out of the 16 top concerns for workers. But for employees under age 35, female caregivers, and LGBTQ+ employees, mental health ranked at No. 2, while Black and Latino workers and women ranked it No. 3.

Expanding behavioral health access is the No. 3 health program priority among large employees and the No. 1 priority among jumbo employers (20,000 or more workers). And to assess the scale of employees’ mental health needs, employers rely on internal surveys or focus groups, health assessments, claims analyses, and anxiety or depression screenings. 

But there are still some types of behavioral health offerings in which employers fall short. Employees’ desire for certain benefits outnumbers the actual coverage provided by employers, including alternative mental health therapies, targeted services to support youth mental health, socialization and learning issues, and access to virtual support groups.

Addressing rising costs

Employers are testing out multiple strategies to address increasing health costs without shifting the price to employees. That includes steering members to quality care with a navigation or advocacy service, managing specialty prescription drug costs, and limiting plan coverage to in-network care. 

Virtual health care provides employees with cheaper alternatives as well. Sixty-four percent of employers now offer virtual care beyond telemedicine or plan to in 2024.

How employers approach cost-saving varies by organization. But across the board, all companies are keeping an eye on cost growth and getting creative to address their workforce’s unique needs. “Whether that’s thinking about your behavioral health strategy [or making] your paid time-off policies more inclusive, there are lots of ways to do things differently,” says Kate Brown, a leader at Mercer’s center for health innovation.