2023 Benefit Plans Are Hardening: What to Expect in Plan Design and Funding Status

In the face of record premium increases, employee benefits design is starting to look different for large employers in 2023, while their funding status and approach remain relatively constant. On the other hand, the offerings for small and midsize employers are likely to remain consistent, while their funding status looks wildly different.?

The labor market has been white-hot since the shock of the pandemic. With unemployment rates now at 50-year lows for two?of the past three?months, it’s no surprise that the supply of jobs continues to outpace demand. Much has also been said about the many ways in which the labor market has (or has not) been influenced by pandemic-inspired events including, early retirements, great resignations, adaptations in consumer behavior, and labor force participation.?

One significant net effect,?at least in the short term, is a power shift away from employers and toward employees. The competition for top talent among employers remains stiff–despite economic headwinds–a reality that?is unlikely to change.??

Large Employers?

According to a recent study from Aon, the average costs for U.S. employers that pay for their employees' healthcare will increase 6.5% to more than $13,800 per employee in 2023. This projection is more than double the 3% increase to healthcare budgets that employers experienced from 2021 to 2022, though still?significantly below the 9.1% inflation figure reported through the Consumer Price Index.?

Large employers are often more insulated from these cost increases than smaller employers, due to self-funding status and proactive tactics to control healthcare spend. From a funding or tactics perspective, there is no significant change; however, where there is change is via plan offerings. ?

Recently, three major U.S. corporations–Amazon, General Motors, and Apple–announced enhancements to?their employee benefits offerings for 2023.?

Amazon?

Last week, Amazon announced it would be augmenting employee benefits, specifically with regard to improved mental health offerings, beginning in 2023.?

Topping the list of newly added perks is five?free counseling sessions that will be available to employees each year, further building upon the giant’s global Employee Assistance Program (EAP) that launched in 2022 and complementing a newly formed partnership between Amazon and the National Association of Mental Illness to ensure local care is accessible.?

Amazon also announced a?partnership with Twill to provide employees with 24/7 access to self-guided programs designed to track and analyze data to help manage stress, improve confidence, and address the mental health issues and concerns of employees and their family members.?

General Motors ?

Beginning in 2023, the full range of employee benefits packages will be available for the domestic partners (and children) of all salaried GM employees.??

Of course, this benefits structure is not novel outside of the U.S.; January 1, 2023, will mark the first time that GM has offered these benefits to all salaried employees’ domestic partners and their children in the U.S. As an aside, hourly employees will be exempt because their benefits are negotiated directly by the United Auto Workers.?

Apple??

Last week, Apple also announced that it would expand its employee benefits offerings. Apple’s new benefits do come with a catch–they only apply to employees at non-unionized stores.?

There is currently only one unionized Apple store, so the exemption carved out is pretty narrow. Still, given recent trends toward union support, not to mention that another Apple store is likely?to join the union next week, the implications of the unionized store exemption are clear.?

As for the benefits themselves, Apple’s new perks are largely centered around?continuing education, including extending tuition reimbursement opportunities at select higher education institutions and free Coursera memberships. Apple is also experimenting with a health plan that eliminates copays for doctors pre-approved by Apple for non-union employees in Georgia, New York, New Jersey, Washington, and Connecticut.?

Although Apple’s decision to beef up its benefits package was likely influenced by the desire to quell unionization efforts, the fact remains that the new perks will be available to 99% of employees.?

Small Employers ?

On the other side, premium increases are felt even more by smaller employers without the?available tactics to combat increased costs that large employers can utilize. That is until now.??

According to the Kaiser Family Foundation, employers between 3-200 lives have shifted dramatically over the past 18 months to level-funding mechanisms.?Level funding is an approach where small employers can use a captive to enter a self-funding mechanism by using stop-loss insurance to cap their exposure. Since 2020, for employers with less than 200 lives, the industry has shifted from 13% level-funded to 42% last year and is expected to see similar growth in 2022 and 2023. This is in addition to the 20% that are self-funded.?

Level-funding for small-to-midsize employers utilizing pseudo-carrier partners like Pareto and Roundstone enables small employers to use tactics like pharmacy carve out, modeling out scenarios, and taking certain risks such as adjusting key vendors and similar approaches in use by larger employers.??

With additional options available also comes improved?resource utilization inside the company from capital and claims management, employee communication, and stronger alignment with broker partners.?

Our Take?

Comprehensive and well-considered benefits offerings have long been one of the best ways for companies to differentiate themselves from their competitors in both attracting and retaining employees. ?

If larger U.S. corporations are setting the tone by determining the battlefronts where companies will compete for talent, then thoughtfully tailored benefits packages appear well-positioned to be more important than ever.?

For smaller employers, the shift in the 2022-2023 cycle is on to new mechanisms for cost controls and absorbing those new policies and procedures. Look for smaller employers to follow cues from the larger ones in expanding benefit plan designs and offerings in 2023-2024 and beyond.?