Mercer Projects Another Increase in Benefit Costs: How Brokers Can Handle the Challenge

Quick look: Boosting affordability regarding health benefits is an ongoing challenge, particularly for smaller businesses, as a recent Mercer survey points out. To keep clients competitive without causing internal benefit costs to skyrocket, brokers are turning to collaborations with trusted professional employer organization (PEO) partners for solutions.

With the reprioritization of benefits and revamp of plans over the past few years, it’s no surprise utilization has increased as well. However, as one employer survey points out, it’s not the only thing on the rise. 

Benefit costs are also trending upward, which greatly affects employers as they navigate how to accommodate this growth in budget-friendly ways. The 2023 National Survey of Employer-Sponsored Health Plans takes a look at just how much costs are going up and how brokers can guide clients through this change heading into 2024.

Benefit costs to rise 5.4% per employee

In the immediate pre-pandemic years, the increase of benefit costs ranged between approximately 2.5%-3.5% year after year. However, in 2024, benefit costs per employee are expected to exceed well over 5% in the new year, after costs already rose at least 5.2% in 2023. Furthermore, these costs are highest for small employers who reported a higher-than-average cost per employee than large employers.

In general, larger employees are typically able to self-fund their medical plans and have more resources at their disposal to devote to health plan management. Therefore, small- and medium-sized businesses (SMBs), especially, will need to ensure the relevancy of their benefit options to justify the spend. 

Brokers who focus on plan personalization and benefit education will be seen as extra advantageous for SMB leaders who want to stay competitive but need to watch their bottom line. 

Costly drug treatments are driving overall spike

Inflation and labor shortages have been the main drivers of the jump in benefit costs, but the survey also reveals prescription drug prices make up a substantial portion of the increase. In 2023, prescription drug costs reached 8.4% of the total health benefit cost, an increase of two percentage points compared to the year prior.

Part of this is attributed to costly drugs for obesity and diabetes treatment, as well as the aforementioned increase in utilization. While the obvious reaction is to opt for generic drugs versus name-brand prescriptions, it isn’t always the best nor is it the only option to consider. 

Instead, brokers who provide cost management resources can help retain and grow client relationships by meeting SMB needs and saving money at the same time. This may involve contract negotiations and maximizing drug manufacturer rebates, as they steer clients in the right direction to address their varying medical needs. 

However, introducing mobile apps and new technology can be of further assistance when seeking out less-expensive alternatives and a more diverse array of options.

Balancing benefit plan improvements with cost reduction strategies

With the price fluctuation in health benefits, how can businesses continue to ensure value without causing employees to spend more? Many employers have opted to avoid shifting this increase in costs to employees; although, the survey reports those who did not make an effort to cut costs would see a rise of 6.6%, on average, in health benefits for their largest medical plans. 

Absorbing these costs doesn’t affect larger companies the way it does SMBs. As a result, brokers are being increasingly sought out for their advisory expertise and subsequently, looking for ways to bridge the gap in services and support. Thus, collaborating with a PEO partner has become one of the best long-term strategies for brokers to expand their resources and nurture their portfolio. 

Benefits of working with a  PEO partner

A PEO guides SMBs and brokers to benefit solutions to meet their respective needs. Through a PEO partner, brokers provide a gateway for their clients to premium benefits at cost-conscious rates, as well as an all-inclusive suite of HR services. 

Additionally, it allows brokers to widen their network and provide more value to their clients. After all, researching and negotiating health benefit contracts is only one piece of the puzzle. As the survey highlights, employers want to remove financial barriers to care, provide plan management and education, and customize plan options based on their specific needs. 

Removing financial barriers to care

There are several ways brokers, clients, and a PEO partner can work together to reduce benefit costs as much as possible. Whether it’s offering health plan diversity, such as including high deductible health plans with health savings accounts and generic drug alternatives for prescriptions, or providing free resources through an employee assistance program, there are multiple ways to circumvent common barriers. 

Providing plan management and education

A PEO partner like ExtensisHR focuses on customizing plans which are relevant to SMBs’ changing needs. Additionally, through ongoing benefit education and resources, employees feel confident in their benefit choices, which leads to greater utilization and appreciation. This helps to eliminate unused costs, while simultaneously providing value to boost employee retention. 

Tailoring benefit options based on each company’s needs

Simply adding more benefits isn’t always better since not all employees require the same level or type of care. Big-box PEOs are known for implementing a one-size-fits-all solution, which can end up costing more than it’s worth. Whereas, ExtensisHR provides a personalized level of service to create customized solutions.

Much of what makes brokers successful long-term is the ability to pivot. As clients’ needs change, so must offerings and options. With a PEO partner like ExtensisHR, there is immediate access to experts who are well-versed in all things HR. 

Each client is connected with a dedicated team driven to provide cost-saving solutions and ensure benefit compliance. Services include HR guidance and support, benefit planning and administration, risk and compliance management, and the implementation of proprietary HR technology. 

Our team is well-equipped to support you and your clients’ unique benefit needs. Contact ExtensisHR todayto learn how our cost-effective services can make a valuable difference in your business growth.