As we get closer to 2022, plan sponsors are wondering what next year will mean for their employee benefits plans, especially group health plans. Health care costs are complicated, and the pandemic made everything even more complicated. COVID-19 continues to impact plans through increased utilization and spending due to deferred care in 2020 and 2021, expanded telehealth resources, and mental health and substance abuse health issues, to name a few.

What factors are used to determine health plan costs, especially for large plans?

The below list is a high-level overview of some of the components that determine overall health plan costs:

  • Changing demographics of employees
  • Location of employees
  • General employee health care utilization
  • High, unexpected claims
  • Prescription claims, including specialty pharmacy
  • New medical treatments and therapies and updated technology
  • Consolidation of health care systems
  • Costs for COVID-19 treatment
  • For self-funded plans, increased administration costs and stop-loss insurance premiums
  • Medical trend

What is medical trend and how does it impact health plan costs?

Much of the medical trend data referred to in various publications cites to PwC’s “Medical Cost Trend: Behind the Numbers 2022.”  The report defines medical trend as the “projected percentage increase in the cost to treat patients from one year to the next, assuming benefits remain the same.” The percentage of medical trend is part of the calculation actuaries use to determine the following year’s projected costs to the health plan. Plans may hear their brokers and consultants refer to this number during their renewal process to justify premium increases.

Further, the report explains, “The pandemic made a pronounced impact on how and where Americans gain access to care, a shift large enough to influence multiple aspects of price and utilization and, thus, medical cost trend. Some of these shifts represent deflators of trend, others, inflators. These changes may persist for years in a system that has long resisted profound shifts.”

What can we expect for health care cost increases for 2022?

Below are four sources that forecast health care costs in 2022. The predicted cost increases are in the range of 4-7%.

  • Willis Towers Watson 2021 Best Practices in Health Care Survey projected 5% increases in 2022 and said “Employers expect their costs for medical and pharmacy benefit expenses to increase 5.2% in 2022, even after taking cost management initiatives into account. The increase is slightly lower than the 5.5% increase employers projected for 2021 but sharply higher than the actual 2.1% increase in 2020.”
  • Segal’s 2022 Health Plan Cost Trend Survey indicates that health plan cost trends have increased between 5-7% each year for the past 10 years excluding 2020’s negative trend. Segal expects that 2022 will return to pre-pandemic cost trend levels in the 5-7% range.
  • Aon, in its 2022 Global Medical Trend Rates Report says that globally, “The average Medical Trend Rate for 2022 is 7.4%, up from 7.2% in 2021.” For the U.S. “the average gross medical trend rate is 6.6%, down from 7% in 2021.”

Finally, Kaiser’s new report 2021 Employer Health Benefits Survey, explains where average premiums and deductibles landed in 2021. “Annual premiums for employer-sponsored family health coverage reached $22,221 this year, up 4% from last year, with workers on average paying $5,969 toward the cost of their coverage. The average deductible among covered workers in a plan with a general annual deductible is $1,669 for single coverage.” These dollar amounts can be helpful when calculating a percentage increase for estimating 2022 premiums and deductibles in dollars.

What are health care cost strategies that employers can use in 2022?

Over the years, plan sponsors have been applying a variety of methods to combat escalating costs and many of those continue to be effective strategies in 2022, including:

  • Controlling drug spending by covering the full cost of generic drugs, changing the drug formulary and adding step therapy requirements.
  • Expanding virtual health options and educating employees on how and when to use the services to deliver high-value and quality health care.
  • Targeting benefits communications on health literacy, health care consumerism, and encouraging employees to make educated decisions for their own health care.
  • Suggesting multiple options for seeking out preventive care and wellness activities.

Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.

Anne Newhouse, CEBS
Information/Research Specialist at the International Foundation of Employee Benefit Plans

Anne Newhouse

 Marketing Communications Specialist

Favorite Foundation Product: Benefits Magazine. Bella’s a classic, physical book-in-hand kind of person, so the Foundation’s magazine keeps her up-to-date on all things benefits!


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