In 2018, average per-employee health benefit costs are expected to increase at the highest rate since 2011, driven in part by the high prices of prescription medications and other medical advances, according to the results of a survey of health plan sponsors conducted by human resources consultancy Mercer.

Early responses to a national survey of employer-sponsored health plans of approximately 1,500 employers (who responded by August 15, 2017) indicated that even after they make planned changes, such as raising deductibles or switching carriers, employers predict that health benefit costs per employee will rise by 4.3% on average in 2018. Researchers noted that this increase is considerably higher than the average annual increase over the past five years of around 3%; and is the highest since 2011, when costs rose 6.1%.

In addition, researchers pointed out that the projected underlying cost growth from 2017 to 2018—or the increase employers would expect if they made no changes to their medical plans—is 6.0%. The survey findings indicated, however, that 46% of employers will take steps to reduce cost growth in 2018.

Researchers also observed that employers must contend with cost increases related to medical advances, including the introduction of new medications used to treat complex conditions like cancer, multiple sclerosis, and hepatitis C. The survey found that between 2017 and 2018, spending on these specialty drugs is expected to increase around 15%, and the overall cost of prescription drugs is on track to rise more than 7%.

Moreover, researchers pointed out that many employers are concerned that they could be liable to pay the excise tax on higher-cost plans, which, after the failure of efforts to repeal and replace the Affordable Care Act, is still scheduled to go into effect in 2020. They cited research showing that 31% of large employers (500 or more employees) would be liable to pay the excise tax in 2020; and that with the tax threshold indexed to inflation and rising at about half the rate of health bene-fit costs, more employers will pass the threshold in subsequent years. According to researchers, many employers are introducing lower-cost, high-deductible health plans to minimize their exposure to the excise tax and to hold down overall health benefit costs.

Researchers also reported that employers are increasingly adopting strategies to manage medical costs without raising employee out-of-pocket spending, including providing care coordination and support for high-cost claimants. In addition, they noted that many employers are addressing quality by using incentives to direct employees to Centers of Excellence and other high-performance provider networks, and are moving away from traditional fee-for-service provider reimbursement and toward new payment models that reflect the value as well as the quantity of the services provided.

From Benefit Trends Newsletter, Volume 60, Issue 10

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