Many finance chiefs are concerned health benefit costs are increasing at an unsustainable rate relative to inflation.
That’s according to a new survey of 161 CFOs and other finance leaders by consulting company Mercer. The survey, conducted in February and released this month, revealed that 80% of respondents believe any annual health benefit cost increase over 6% would be unsustainable on a three-year time horizon. Just 1% said they could tolerate an increase of more than 10%, while 16% said they could handle an increase between 7% and 8%.
That all assumes such increases would occur against a general inflation rate of 3%, according to Mercer.
And yet, based on a separate Mercer survey of employer-sponsored health plans, average health costs in the U.S. are projected to grow 6.7% this year, which would mark a 15-year high, according to the company. That came even after companies said they took steps to bring down costs, which were initially pegged to grow by 9% this year, according to Mercer’s research.
Still, many CFOs surveyed by Mercer don’t seem convinced their cost-cutting measures will be successful. More than half of respondents in the February survey said they’re not confident their cost management strategies are “effectively saving money,” according to Mercer.
What sorts of cost-cutting measures are finance leaders considering going forward? Deductible hikes are one option. Mercer’s report said 45% of CFOs believe “plan design changes, such as raising deductibles, should be strongly emphasized.” Raising premiums, on the other hand, appears less likely, with 38% of respondents strongly favoring that approach.
Though the survey didn’t ask CFOs their specific reasons for which types of cost management strategies they supported, Beth Umland, an author on the report and director of health research at Mercer US, suggested that responses may depend on employees’ ability to withstand health care cost hikes themselves.
“The downside of premium increases is that they affect all employees by effectively reducing their paychecks, while higher cost-sharing for health care services only affects employees if and when they need care,” Umland said in an email to CFO.com.
“How CFOs view this trade-off will vary from one organization to the next. CFOs in organizations with relatively high-paid employees may be less concerned about their employees’ ability to cover out-of-pocket healthcare expenses, and more concerned about the impact of higher paycheck deductions, which have the disadvantage of effectively blunting pay increases.”
She noted, though, that employers have been moving away from “cost-shifting tactics,” including hikes on deductibles and copays, in recent years. “For some organizations, a return to cost-shifting feels like an aggressive tactic,” she noted. Some employers have considered other “potentially disruptive strategies” like adopting a medical plan with a “narrow provider network,” Umland said.
Umland recommended that CFOs remain “in close contact with their benefit teams to understand the trade-offs involved in bending the health benefit cost trend.”
