Mercer projects total per-employee health benefit cost rising 8.2% after planned cost cuts in 2027

Marks highlights ICHRA, HSAs and self-insurance as employer cost-control options

Mercer projects that total health benefit cost per US employee will rise 8.2% in 2027 after employers’ planned cost-reduction measures, the highest projected increase since 2003, according to a study Gene Marks cited in his US small business column in The Guardian, published Nov. 8. Employers told Mercer their existing plans would rise about 11% in 2027 without action.

The Wall Street Journal recently reported that, even as healthcare costs have risen, the share coming out of employees’ paychecks has “shot up” even faster, Marks wrote. He said healthcare costs always rise and employers are concerned about their bottom lines. Marks also noted that smaller employers have options beyond making their people pay more; 44% of smaller US companies provide no health benefits at all.

ICHRA offers smaller employers a reimbursement option

Marks offered the individual coverage health reimbursement arrangement, or ICHRA, as a potential answer. Under this type of plan, an employer does not need to purchase group health insurance; instead, a reimbursement is made to employees when they obtain coverage on their own.

He cautioned that an HRA is not for everyone but described it as a good answer, particularly for small business owners. Marks linked that suitability to ICHRA adoption growing between 73% and 128% among employers with fewer than 100 employees.

HSAs add portable, tax-advantaged savings

If a company already has a high-deductible group insurance plan, Marks said, attaching an HSA plan is usually very easy, and setting it up incurs a nominal cost. Employees can contribute their own pre-tax dollars and use the savings for healthcare expenses, including deductibles, copays, prescription drugs, many over-the-counter medicines, and dental and vision expenses that may not be covered by the insurance policy.

Marks said an HSA allows employees to reduce taxable income, helping them save money on healthcare. Workers like these plans, he wrote, because there is no required distribution and the money grows tax free. Employees can also take their savings with them if they change jobs. He described the HSA as an easy, inexpensive benefit for employers to provide that cuts costs.

Self-insurance shifts attention to employee expenses

Self-insurance, once a consideration mainly for the biggest companies, is now being chosen by a growing number of smaller employers, Marks wrote. Some of his clients have signed up for level-funded plans, under which a company reimburses employees for healthcare expenses up to a certain amount and then purchases stop-loss coverage for larger claims.

When a company self-insures, it starts paying more attention to the out-of-pocket expenses its employees are paying. As a result, a growing number of self-insured companies are negotiating rates with local urgent care centers, healthcare providers and pharmacies and requiring employees to use them to control costs. Amazon and other online pharmaceutical providers now offer aggressive discounts on products under corporate plans, Marks added.

Consultants can support employees’ plan choices

Marks wrote that choosing a healthcare plan can be extremely complicated but is necessary to attract and retain good workers. “For many of us, choosing a healthcare plan is more complicated than designing a bridge,” he wrote. Understanding the ins and outs, deductions, credits, copays, networks and nuances requires “a PhD in healthcare,” he said, while properly estimating costs to decide which plan is right for a family requires “an MBA.”

Paying a consultant to work directly with employees to help them choose the right plan can lead to smarter, more cost-effective decisions and cut back a company’s healthcare contributions, Marks argued. Within that discussion, he tentatively suggested that older employees might use health exchanges or Medicare.

Cost-shifting can affect recruitment and retention

Marks said any or all of these strategies can play a big part in controlling healthcare costs at both the corporate and employee levels. He asked why more companies do not adopt them and answered that the strategies take time, effort and resources — “a lot of work.” Rather than doing so, he wrote, “most employers just pass the cost to their employees and move on.”

Marks questioned whether passing increases to employees is the right response, writing that the practice may be “a little shortsighted, if not lazy.” He called moving on “not a great idea” and said the approach carries risks. At some point, he wrote, costs become too high; because healthcare is always one of the most requested benefits, they “can have an impact on both attracting and retaining workers.”

The labor market is tight, Marks wrote, and most of his clients continue to hunt for talented workers. Employers that put in the effort to offer these plans are more attractive to workers and position themselves both to control their costs and to grow, he said.