As inflation takes hold, employers will need to revise how they budget for both compensation and benefits. Planning for employee health care poses particular challenges, given that the annual increase in health benefits costs routinely outpaces general inflation, as medical services are subject to unique cost factors. The current situation for health care costs is atypical, as health care spending in 2020 fell as many Americans delayed care during the pandemic.
Who Pays as Prices Rise?
Higher prices for medical services affect employers differently based on their insurance model:
- For fully insured group health plans, insurance companies set plan premiums before the start of the year. Employees, however, pay many health costs below the plan deductible out of pocket, and often are charged co-payments after reaching their deductibles, making them susceptible to inflation’s bite.
- For self-insured group plans, employers are responsible for all costs for health claims beyond what employees pay under the plan, although reinsurance coverage typically protects employers against unexpected “catastrophic” costs.
- For individual coverage, PPO plan costs are projected to be $6,516 by year-end 2021, up from $6,052 in 2020.
- For an average family of four, PPO costs are projected to be $28,256, up from $26,078.
Prescription drug prices are rising faster than any other medical good or service, pharmaceutical discount company GoodRx reported in September. Drug prices have increased by 33% since 2014, while costs for inpatient hospital services increased by 30% during the same period.
Under a Transparency in Coverage final rule — issued by federal agencies last November — insurance companies and self-insured group health must provide plan enrollees with estimates of their out-of-pocket expenses for services from different health care providers, through an online self-service tool, so enrollees can shop and compare costs for services before receiving care. The rule will begin to take effect in January 2022 but will not take full effect until 2024.
The transparency rule will require plans and issuers to disclose in-network provider negotiated rates, historical out-of-network allowed amounts, and drug pricing information.
The Consolidated Appropriations Act, 2021 (CAA) also requires group health plans to report certain information related to health care and prescription drug costs to the secretaries of the departments of Health and Human Services, Labor, and the Treasury. The first report is due by Dec. 27, 2021, which is one year after enactment of the CAA.
The agencies will use the reported information to analyze trends in overall spending by group health plans, to help insurers and self-insured plans to negotiate fairer rates and, ultimately, lower costs for plan participants.