Employers Face High Health Care Benefit Costs for 2021

Many are already implementing strategies to drive down expenses.

Plan sponsors are remaining committed to their health benefits, even as the coronavirus pandemic means they’ll likely face higher health care costs for 2021.

According to a poll by the National Alliance of Healthcare Purchaser Coalitions, 71% of employers are keeping or accelerating their health benefit strategies for 2021, while 63% plan to do so for 2022.

The poll finds that caregiving benefits have tripled since the start of stay-at-home orders, including leave (30%) and protected time to support employee caregiving needs (28%). As employees re-enter the work environment and students return to the classroom, some employers stated that they’re interested in expanding allowances for emergency day care (13%) and for home tutoring or teachers (12%).

Employers said rising health care costs could jeopardize the affordability of employer-provided health care coverage for employees and their families. Ninety percent of plan sponsors said high drug prices are a threat. Others named hospital prices (71%) and surprise medical bills (58%) as a concern.

Meanwhile, a Willis Towers Watson (WTW) analysis of medical claims predicts employers will see higher health care benefits costs in 2021, noting that, in 2020, many employees deferred care to avoid hospitals and clinics. The analysis found that employer health care costs in 2020 will likely be 3.3% to 8.8% lower than originally expected before the pandemic. In 2021, costs are expected to rise between 0.5% and 5% above pre-pandemic projections, according to WTW.

The analysis finds employer plans will be affected differently based on location and the needs of employees.

“Employers need to pay special attention to the impact of COVID-19 on their health care spend,” says Trevis Parson, chief actuary, Willis Towers Watson. “The pandemic is driving significant volatility, which demands effective measurement. Broader changes to the health care system are likely to result, which will challenge employers as they look to drive value to employees through their health care plans. Employers will need to understand the rapidly changing health care market landscape and the shifting needs and risk profiles of their workforce.”

The National Alliance study illustrates the urgency behind these projections. Employers are already incorporating strategies to reduce costs. According to the study, employers are currently reducing waste and inappropriate care (61%) and steering employees to stay within networks (47%). Top strategies sponsors are considering implementing in the next two years include improving hospital quality transparency (44%) and hospital pricing transparency (43%), elevating regional centers of excellence (39%) and encouraging advanced primary care (36%).

“Rising health care costs continue to burden our businesses and employees, and they are crowding out jobs, wages and, in the age of COVID, our economic recovery,” says Elizabeth Mitchell, president and CEO, Pacific Business Group on Health. “The results of this survey reinforce employers’ justified concerns about how high drug and hospital prices, surprise medical bills and continued overuse of low-value health care services threaten the health and economic security of American businesses and workers. Employers well understand that health care is broken and that they can no longer wait for the system to fix itself.”

Improving education on health care benefits for employees and employers can lower costs, as it can be difficult for employees to understand which plan is the best fit for their lifestyle. Education is needed for financial advisers, too, whether that’s understanding how health savings accounts (HSAs) can benefit workers during their career and in retirement, or helping employers recognize the intersection of health wellness with financial fitness and emotional well-being.