Will an Avalanche of Healthcare Costs Hit Employers This Year?

Few things are more certain in American life than the rising cost of healthcare. In 1969, only 6.4 percent of GDP was spent on healthcare, according to the federal government. In 2019, that figure was 17.7 percent of GDP. Healthcare spending in October 2021 (the most recent month for which data is available) reached 23.9 percent of GDP.

And so while it is a likely bet that costs will continue to rise in 2022, nothing is normal during the pandemic. Cost projections are being made under uncertain conditions due to unexpected Covid-19 surges, unknown long-term impacts of the coronavirus on infected individuals, potential downstream effects of delayed and avoided care, and the ongoing labor shortages in the healthcare sector.

As an employer, what do you need to know about rising healthcare costs and the continuing impact of Covid-19 in 2022 and beyond?

Overall Spending Will Increase

Employers expect healthcare costs to rise by 4.7 percent in 2022, according to a survey by asset management and benefits firm Mercer. And while that’s in line with the historical rate of change, it’s still a large number.

Among the factors expected to drive the increase are conditions that worsened due to delayed or avoided care and may require more expensive treatment as a consequence. The CDC documented that about 41 percent of adults delayed or avoided medical care early in the pandemic, and more recent reports suggest that this pattern continued in 2021, albeit to a lesser extent. A survey in April 2021 found that approximately 11 percent of adults and 9 percent of children had delayed or decided not to seek care in the previous 30 days due to concerns about coronavirus exposure. Recent studies have also been published on delayed care in elderly adults, delayed childhood vaccinations, and the causes of the delays.

While the impact of delayed and avoided care remains to be seen, recent findings from cancer experts provide clues. According to the American Association for Cancer Research, “the pandemic impaired referrals for preliminary cancer diagnoses and led to an 11 percent increase in patients diagnosed with inoperable or metastatic cancer during March–December 2020 when compared [with] the same time frame in 2019.” A year into the pandemic, two-thirds of radiation oncologists indicated that new patients were more likely to have advanced-stage cancers than before.

Employers may also encounter an increase in individuals developing new chronic conditions, driven by adverse shifts in behavior, including lower rates of exercising, worse diet habits, unintended weight gain, and increased stress and depression. A study of approximately 15 million patients found that almost 40 percent had gained more than 2.5 pounds during the first year of the pandemic, with about 10 percent gaining more than 12.5 pounds.

The increasing number of individuals working from home is likely to result in more members with musculoskeletal issues due to poor ergonomic setups and reduced activity throughout the day without normal breaks, like walking to the coffee machine or meeting room. A study of individuals working from home found that over 40 percent reported musculoskeletal discomfort—related to the back, shoulders, neck, and head—or visual issues. These issues are probably driving the reported 15 percent increase in average weekly patient visits reported in a survey of chiropractors that examined utilization of services during the pandemic.

Psychological Needs Have Increased Dramatically

Indicators of worsening mental health are easy to find. For instance, a February survey by the American Psychological Association found that 42 percent of respondents said pandemic stress had brought about significant unwanted weight gain, two-thirds of respondents said their sleep patterns had worsened, and nearly one-quarter said they were drinking more alcohol—behaviors that are costly in and of themselves, and can also lead to other conditions. As a literature review in the Psychiatric Times concluded, “in the general population—at least during the first year of the pandemic—there were substantial rises in the rates of anxiety and depression,” which were more pronounced for young people and women.

While many patients pay out-of-pocket for some mental health treatments, many employers are now recognizing that they can and should offer or increase mental health coverage. The Business Group on Health’s large employer survey found that 62 of workplaces had added new mental health benefits—and intended to keep them permanently. As these much-needed expansions continue, so will costs.

More Uncertainty Ahead

While employers would prefer certainty about what they should expect to spend on employee healthcare in 2022 and beyond, one unfortunate trend is clear: Future risks are more difficult to predict than employers would hope. Here are some further trends to pay attention to:

1. One large element of uncertainty is the effect of the omicron variant on the incidence of “long Covid.” Despite widespread worry, there’s currently not enough information to indicate whether the new variant will drive an associated wave of long-term cases, and whether the severity of symptoms will be similar to those associated with previous variants. It may be best to err on the side of a null hypothesis that omicron’s impact on long Covid will be similar to previous variants. As one physician recently told Vox, “Right now, we have no reason to think any differently about long Covid.”

2. In the winter of 2021–22, the omicron wave caused some hospitals to halt elective surgeries. If patients reschedule those surgeries for the following months without pushing other surgeries further out, that may increase costs in the first quarter of 2022. Conversely, if it leads to canceled procedures early in 2022, and rescheduling pushes other surgeries further out, it may lower costs in 2022.

3. One burning question is whether there will be more major surges after omicron. No one knows for sure, and opinions vary. On the one hand, there may be greater immunity due to a combination of vaccination and high rates of infection. On the other hand, high rates of infection give the virus more chances to mutate, which may ultimately lead to another variant of concern.

4. The healthcare staffing crisis continues. Some studies have found that the industry’s workforce has declined by 20 percent to 30 percent since the outbreak of the virus. In the short run, staffing shortages may limit capacity to provide services, causing a reduction in costs. But labor shortages are likely to ultimately raise the cost of services because providers will need to pay higher salaries or hire temporary replacements.

Are We Headed for a Newly Punctuated Equilibrium?

As the pandemic winds its way to becoming endemic, we may look back at 2022 as a transitional year. By 2023 or 2024, many of the long-term trends in spending associated with Covid-19 may have expressed themselves fully, and the healthcare system could find itself in a new cost equilibrium.

This may be more of a hope than a prediction—as with all things about the virus, much remains to be seen.

Dr. Janet Young serves as lead clinical scientist on Springbuk’s Data Sciences and Methodologies team.

From: BenefitsPRO