Released last December, Mercer's 2022 National Survey of Employer-Sponsored Health Plans predicts employer-sponsored healthcare insurance premiums will increase to be larger than normal annual premium increases due to those costs finally being reflective of inflation.
According to Risk Strategies State of the Market 2022 Market Wrap-Up, 2023 Initial Outlook, businesses must consider alternatives to traditional health insurance to help mitigate costs. One such alternative known for its ability to save company's money is a captive health insurance plan.
According to the Mercer report, "average per-employee cost of employer-sponsored health insurance rose by 3.2% in 2022," and 2021 had a cost growth of 6.3% as healthcare needs were caught up on following the pandemic. Though 2022's increase did come across as normal, Mercer said the percentage is far below general inflation, which averages around 8% for the year. The 2023 projected average increase is set at around 5.4%, with continued accelerated cost growth to be expected for 2024.
"While this year’s increase may seem like a return to normal trend, it is far below general inflation, which is averaging about 8% for 2022. Typically, health benefit cost growth runs higher than general inflation. According to Sunit Patel, chief health actuary at Mercer, 2022 is an anomaly because employer health plan sponsors haven’t felt the full impact of inflation yet," according to Risk Strategies.
For businesses averaging 50-499 employees, it was reported that the health benefits cost per employee was more than 2.6% higher than the 2022 average of $15,013 and that of larger companies, which generally have more resources to spend on health care plans, according to the Mercer report. For a majority of small to midsize businesses, 40% of the more than 4,000 survey respondents said an important focus for the next three to five years included enhancing benefits to improve attractions and retention of employees. Another 31% said managing high-cost claimants and 37% said expanding behavioral healthcare access were important strategies of focus over the next few years.
“The affordability issue cuts both ways. Employers will be challenged to absorb the higher costs coming down the pike, but they also know some people will forego important care when they feel they can’t afford it,” Tracy Watts, national leader for U.S. Health Policy, Mercer, said, according to the report. “Particularly with inflation putting added stress on household finances, budget concerns need to be balanced with the downstream implications of healthcare affordability. So the focus now is on strategies to rein in cost growth without shifting the cost to the employee.”
One of those alternative options that can allow businesses to lower cost, increase retention and manage risk is a captive model. According to Risk Strategies, "captive solutions including feasibility, implementation, reinsurance placement and ongoing management. Stop loss insurance and reinsurance solutions for healthcare providers, payers and self-insured employee medical plans include detailed analytics, actuarial modeling and hands-on claims management. A full range of employee benefit services include market-leading, healthcare specific employer stop loss solutions, best-in-class self-funded program diagnostics and customized pharmacy solutions.
"More than ever before, business owners are recognizing that significant coverage gaps in commercial insurance policies can be solved with a captive. Businesses are shifting to captive insurance companies to better manage substantial enterprise risks residing on balance sheets," Risk Strategies writes.
"Existing captive owners are expanding the utility of their captives to take advantage of current market conditions. Strategies include group medical stop-loss, pivoting away from high deductible plans to more favorable alternative structures and adding more robust coverage for emerging and previously uninsured risks such as business interruption covering viral/bacterial events. We do not anticipate a significant slowdown in the captive insurance industry in 2023. As concerns about a recession build, companies will be hyper-vigilant about how each dollar is spent. Captives will continue to be a favored tool in helping mitigate risk and reduce overall costs."
The average costs that U.S. employers pay for their employees' healthcare will increase 6.5% to more than $13,800 per employee in 2023, up from $13,020 per employee in 2022, according to professional services firm Aon.