U.S. employers say they expect employee health benefits costs to climb 5.6% in 2023 if they take steps to reduce expenses, or rise an average 7% if they do not, according to early results of Mercer’s National Survey of Employer-Sponsored Health Plans 2022.

This projected increase lags the rate of inflation, which has been running at about 9%. Sunit Patel, Mercer’s Chief Actuary for Health and Benefits, said health plans typically have multi-year contracts with healthcare providers, so businesses have not yet felt the full effect of price inflation in health plan cost increases.

“Rather, it will be phased in over the next few years as contracts come up for renewal and providers negotiate higher reimbursement levels,” Patel said. “Employers have a small window to get out in front of sharper increases coming in 2024 from the cumulative effect of current inflationary pressures.”

Patel also said that while most large, self-insured employers have a good sense of their 2023 costs at this time, many smaller, fully insured employers have not yet received renewal rates from their health plans. “Those may well come in higher as insurance carriers hedge their bets in today’s volatile health care market,” Patel added.

The survey asked employers to rate nine benefit strategies in terms of their importance over the next three to five years. “Enhancing benefits to improve attraction and retention” came out on top, with 84% of large employers (those with 500 or more employees) rating it important or very important. It’s an even higher priority than “monitoring and managing high-cost claimants,” which was second this year but historically tops the list.

“In today’s environment of record-breaking inflation and widespread labor shortages, employers face a really tough balancing act,” says Tracy Watts, Mercer’s National Leader of U.S. Health Policy. “They must manage rising health care costs while making smart decisions about how to attract and retain the workers they need. For now, we are seeing the majority of employers prioritizing attractive benefits.”

Behavioral health is one benefit area where many employers are looking to expand. Nearly three-fourths of large respondents (74%) say that improving access to behavioral health care will be a priority over the next few years. Examples of benefit enhancements include expanding EAP services and adding virtual behavioral health care options.

Another area of concern is health care affordability. Despite rising costs, most employers said they will not take cost-saving measures that shift healthcare expenses to employees, such as raising deductibles or copays. Only 36% of survey respondents are making cost-cutting changes in 2023, down from 40% in 2022 and 47% in 2021.

Further, overall, employers do not intend to increase employees’ share of the cost of coverage in 2023. Among large employers responding to the survey, employees will be required to pick up 22% of total health plan premium costs, on average, in 2023 through paycheck deductions, unchanged from 2022 and 2021.

“Healthcare affordability is a real issue for many employees, especially with inflation stressing household budgets,” Watts said. “Employers want to do what they can to keep more money in employees’ paychecks and remove cost barriers when care is needed.”

The 2022 National Survey of Employer-Sponsored Health Plans results are preliminary. Final results are scheduled to be released later in the fall.