Managing the projected rise in benefits costs

Health care is immensely important to virtually every worker. The need to maintain stable health coverage dictates the job offers that people do or don't take — not to mention those that they stay in, perhaps longer than they might have in a vacuum.

As such, it's critical for HR department heads (and company leaders in general) to do everything in their power to provide employees with the best health insurance they can afford to offer. This remains true even as the overall costs of coverage continue to increase from year to year. Examining this pattern in detail will be essential for determining the best way to strike an optimal balance between the needs of your staff and the bottom line of your organization. 

Looking at present and past cost increases
An October 2020 study conducted by Mercer — the HR consulting firm's annual National Survey of Employer-Sponsored Health Plans — projected that the average cost of employee benefits will rise by 4.4.% in 2021. This rate is generally in line with the rates of increase that Mercer has predicted over the course of the past six years: only slightly greater than the 3.6% uptick that the consultancy forecasted for 2020 (a projection that cannot be finalized until early next year).

Unsurprisingly, the still-raging novel coronavirus pandemic is a major factor in these and other similar cost projections, though there is some disagreement about just how much that increase will be. According to Employee Benefit News, other groups expect an uptick of 5% or more. (Anything in the 5-7% range would be consistent with data that firms like PricewaterhouseCoopers have cataloged in recent years.)

In a statement reported by BenefitsPRO, Mercer senior consultant Tracy Watts pointed out this variance: "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."

Examining related factors 
Any rise in operating costs of any kind is, of course, not something that company executives and HR leaders want to deal with. In an environment where benefit expenses are going up even as wage growth and increases in the Consumer Price Index are stagnant, the increase may appear even more dire and risk putting serious strain on the bottom line.

However, Mercer noted in the summary of its survey that these unpleasant realities do not seem to be persuading employers to significantly cut their health care budgets. Out of 1,113 different companies whose leaders were preliminarily queried for the Mercer study, only 18% of them said they planned to raise deductibles or copays, or make other moves that would shift more of the monetary burden of health care to employees' pockets.

A sizable plurality of respondents — 57% — stated that they would make no changes whatsoever to their benefit offerings. Additionally, 27% of company representatives who spoke with Mercer had pledged to add telehealth resources to their coverage, while 22% wanted to add more voluntary benefits and 20% said they aimed to expand behavioral health resources. 

Walking the delicate line 
Any employer required by law to offer health care coverage must not only provide something adequate to meet any applicable compliance requirements, but rather a set of benefits that accounts for the needs of a workforce that is (most likely) diverse in terms of age and background. At the same time, there are few businesses that weren't hurt in some way by economic fallout of the pandemic, and there will likely need to be some belt-tightening as the health crisis continues. The key is to find ways to limit costs that do not affect workers' ability to get the care they need. 

According to Access Perks, adjusting prescription drug plans so that they provide employees with generic medications rather than their brand-name alternatives is one viable method of mediating cost increases. Using a multi-tiered drug coverage structure that minimizes the purchase of expensive specialty medicines may also be effective. 

Utilizing telehealth services is another way of cutting costs. While it's become increasingly popular in no small part due to the constraints of the pandemic, there's also evidence that it saves serious money: As noted by The Wall Street Journal, in-person doctor's visits can reach up to $100 ($160 for urgent care), whereas the average telehealth appointment costs $45. 

Other possible cost-saving options include consumer-driven health plans, wellness programs and direct relationships with local health care facilities. Employers must choose the most appropriate avenue for their unique business needs, but must be careful never to let the big picture of staff well-being fall out of focus.