Tight labor market impacting employer health insurance trends

While health insurance rate changes are back in line with historic trends, employers still face a balancing act between offsetting rising costs and attracting and retaining talent.
Feature M3 Health Insurance Trends Panel

The annual M3 Trends Report shows a welcome bit of normalcy in the rising costs of health insurance but also highlights the challenges facing business leaders trying to attract and retain talented workers.

The report notes that M3 clients experienced a 6.6% growth rate in health insurance costs over the past year, compared to 5.1% in 2021. This rate of change represents the historical norm in health insurance costs since the inception of the annual report in 2004; however, it is the highest rate of change since 2017 (7.7%). According to the report, this growth appears to be the result of several factors, most notably ramifications from the pandemic and resistance to plan design changes in light of the tight labor market.

The south-central Wisconsin market, centered by Madison, is largely defined by HMO providers who continue to experience territorial growth, the report notes. These tightly managed carrier networks make fully insured health plans highly desirable and self-funding less common than in other markets. In 2022, the market experienced an overall health benefit cost increase of 6.4%, which is up from 4.2% in 2021. The average cost per employee of $14,146 represents a slight increase from $13,925 the previous year.

Among the notable insights from the report:

Public vs. private sector

2022 saw a repeat of the public sector rate of change growing slower than those in the private sector. M3 public sector clients experienced an overall health benefit cost increase of 3.6% compared to 7.2% in the private sector.

  • The average private sector annual cost per employee increased to $13,301 in 2022, up slightly from $13,107 in 2021.
  • The 2022 public sector annual cost per employee rose to $19,310 from $18,800 in 2021.

These numbers may be a sign of a few factors moving forward. A majority of public sector employers renew their plan mid-year, versus a traditional calendar year renewal in the private sector, according to the report. The public sector may not have yet experienced a large amount of deferred care claims prior to their last renewal. Also, employers in both sectors appear to be very resistant to changing much of their cost sharing mechanisms to expand employee-cost sharing. This is likely a reaction to the highly competitive labor market.

Plan structures

Over the past year, employers on average appeared to slow or even decrease employee cost-sharing mechanisms within their offers of employee health coverage. While some of these costs have purposefully driven consumer behavior, labor market pressures appear to be further enhancing this change. This year’s highlights include:

  • Deductibles largely remained flat, while maximum out-of-pocket expenses did increase in line with their long-term trend.
  • The percentage of plans leveraging copayments continues to recede. This is likely in correlation to the rise in high-deductible health plans and market forces.
  • Private and public sector copayments for low-cost services such as office visits remained largely stable, whereas those for high-cost services such as an emergency visit demonstrate increases.

The major long-term trend appears to show employers plan design to drive behavior. Including:

  • Office visit copayments have remained largely stable since 2018. For example, public sector PPO plans have had an average copayment of $21 since 2018. This trend is common regardless of plan type and sector and extends to other low-cost services.
  • Copayments for emergency room visits have sharply increased since 2018. For example, private sector PPO plans have seen a rise in copayment cost from $173 per visit in 2018 to $278 in 2022. This trend is consistent regardless of plan type and sector.

Employee contributions to premiums

Health benefit plan premium costs are typically shared between an employee and their employer. Like many factors, this can vary greatly between sectors. Private sector employee contributions were as follows:

  • On a percentage basis, private sector employee contributions experienced a decrease for the second straight year, falling to 26% for single coverage and 34% for family coverage (the corresponding values in 2021 were 28% and 35%, respectively).
  • On a dollar basis, the report notes minor decreases with monthly dollar premium contributions falling to $172 for single coverage and $673 for a family plan (compared to $181 and $674 in 2021, respectively).

Public sector employee contributions were as follows:

  • On a percentage basis, public sector employee contributions saw a decrease. The contribution rate for single coverage decreased to 12% and 13% for family coverage (compared to 17% and 16% respectively in 2021).
  • The amounts on a dollar basis reflected the percentage results, as public sector monthly dollar premium contributions were $100 for single coverage and $248 for family plans (compared with $134 for single and $297 for family coverage in 2021).

This year’s changes appear to reflect the observation that employers, regardless of sector, are generally holding or even decreasing employee cost-sharing in their plan design. This could be the result of minimization that started during the pandemic and continues during the current tight labor market.

IB spoke with Brian Meyer, M3 director of risk management-employee benefits, about the report and what local employers can take away from some of its insights.

Why do you think the south-central Wisconsin region is still so heavily defined by HMO providers and more traditional fully insured health plans compared to other parts of the state? What about this region has made it more resistant to adoption of self-insured plans such as HSAs and HRAs?

“The south-central Wisconsin region has a larger footprint for HMO providers than other regions for a few reasons. First, provider-owned insurance carriers can maintain market share with competitive contracting arrangements; this provides the providers with stable membership. Second, the competition created in the market created by having multiple viable HMO offerings has created an environment of competition and market acceptance for a more narrowed HMO offering vs. a PPO offering.

“The adoption of self-insured plans in this market has grown over the last several years, but it’s still largely a fully insured HMO market. A contracting differential exists when moving from a narrow HMO offering to a fee-for-service PPO offering. This has limited the growth of self-funding in the south-central region.

“Health savings accounts (HSAs) and health reimbursement arrangements (HRAs) are still seen in this market in both fully insured and self-funded models. They are becoming more prevalent, but the competitive labor market with employers and the state plan has kept the plan design offering of copays in an HMO plan to be more common.”

In the hunt for talent, especially in such a tight labor market, what are workers looking for from their employer health plans, and are employers providing that or are they more focused on keeping their own costs low?

“Workers continue to look for health plans with competitive plan design offerings that feature lower out-of-pocket contributions. Appealing to multiple generations in the labor market and providing choice has become more important. Employers are responding to that demand, while also keeping an eye on controlling costs, stabilizing their plan designs, and keeping employee contributions competitive.”

As the health insurance market continues to shift over time, do you see fully insured health plans disappearing as employers seek out ways to offset the rising cost of health care as well as encourage employees to take more control over their health care decisions? Or will the competition for labor result in more of a return to those more traditional plans?

“I don’t see fully insured health plans disappearing, as every company has a different risk tolerance when it comes to funding health insurance plans. Some employers do not want to take on the financial risk or volatility that may occur in a self-funded environment. We have seen more employers make the decision to self-fund their health insurance over the past decade. With employers wanting more access to data, more control of health care decisions, and having more tools to help control costs, self-funding can be attractive. However, there is not a one-size-fits-all for funding your health insurance and multiple factors need to be evaluated and considered when making those decisions.”

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