Pandemic Lowers Employer Health Care Costs for First Time in Decades

It’s uncertain what will happen with costs going forward, however.

“A global pandemic did what no health expert or innovation has been able to do in decades,” Aon declares. Its survey of health insurance carriers shows the pandemic significantly lowered health care spending costs compared to original 2020 projected levels for most U.S. employers that pay employee medical, dental and vision claims through carriers.

While carrier responses varied significantly, 2020 medical claims are projected to decrease at a rate that is on average 5 percentage points lower than initially projected. The COVID-19 impacts for 2020 dental and vision benefit claims will also decrease budgeted costs further. Insurance carriers expect average downward cost impacts of 15% for dental benefits and 8% for vision benefits. One factor in lower health care cost trends is the deferral of non-essential care by Americans during the pandemic.

“During the 2020 plan year, we believe most self-funded employers will spend less money than what they have budgeted per employee,” says Tim Nimmer, Aon’s chief global actuary for health solutions. “This is a historic occurrence for the U.S. health care industry, but there is still uncertainty regarding COVID-19’s impact on deferred treatments and long-term health care. While employers navigate through different outbreak phases, our current expectation is that medical plan utilization will continue to normalize during 2021.”

However, employers don’t know if their employees will return to their traditional levels of health care spending, and many employers might have had trouble estimating benefit costs for next year.

Carriers in Aon’s survey forecast COVID-19 will increase U.S. employer medical claims by an additional 2 percentage points on average above normal trends in 2021. This will include costs for care that was postponed or skipped in 2020 as well as COVID-19 prevention and treatment that will be delivered next year.

The Business Group on Health’s “2021 Large Employers’ Health Care Strategy and Plan Design Survey” found that employers expect a 5.3% increase in the total cost of health benefits in 2021, and project the average cost of health care to reach $15,500 per employee in 2021.

PwC’s Health Research Institute projects that medical cost trends could range from 4% to 10% in 2021. PwC points out that employers are incurring unplanned COVID-19 testing and treatment costs in 2020, and those costs likely will continue in 2021. “In 2020, these unplanned costs are expected to be more than offset by the savings from delayed care during the pandemic. An increase in spending is expected in 2021 as the demand for care returns,” it says.

Employers said they expect moderate health benefit cost growth for 2021 of 4.4% on average compared with 2020, according to early results from Mercer’s “National Survey of Employer-Sponsored Health Plans 2020.” Health plans face many unknowns in developing cost projections for 2021.

“Different assumptions about cost for COVID-related care, including a possible vaccine, and whether people will continue to avoid care or catch up on delayed care, are driving wide variations in cost projections for next year,” says Tracy Watts, a senior consultant with Mercer.

“Despite the short-term cost savings for many payers this year, the COVID-19 pandemic will continue to provide a level of uncertainty that employers must monitor carefully. Employers must continue to be more creative with their health strategies to control costs and use more insightful tools to help them make better decisions, both for themselves and for their employees,” says Will Sneden, U.S. Health Solutions practice leader for Aon.