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U.S. Employer Medical Costs Projected to Increase 5 Percent Next Year

Budgeted health care costs for clients increased to an average of $12,792 per employee in 2021, an increase of 5.2 percent from 2020

Published on October 14, 2021

Aon plc predicts costs for large U.S. employers that pay for their employees’ medical care will increase on average 5 percent to more than $13,000 per employee in 2022. This cost increase projection would be slightly less than what employers budgeted this year compared to last, according to Aon (NYSE: AON), a leading global professional services firm.

Budgeted health care costs for clients increased to an average of $12,792 per employee in 2021, an increase of 5.2 percent from 2020. The analysis uses the firm’s Health Value Initiative database, which captures information for more than 700 U.S. employers representing 5.6 million employees.

Employer health plan costs and medical claims were suppressed for most employers in 2020 due to the COVID-19 pandemic, during which time a lot of care was postponed or skipped during quarantines. Employers have been anticipating that the medical claims experience will return to more typical levels of growth in 2021 and 2022.

“Looking ahead to next year, medical utilization levels are expected to be higher than were observed since the start of the pandemic,” said Ed Cwikla, Aon’s chief global actuary for Health Solutions. “Preventive and outpatient care are the medical services projected to increase the most in 2022. Utilization of telehealth services is also expected to rise, continuing the strong increase observed during the pandemic.”

In terms of 2021 plan costs, employer costs were budgeted to increase 6.2 percent, while employee premiums from pay checks were slated to be a more modest 1.2 percent increase from 2020. Plan costs represent the employer’s and employee’s combined premiums for medical and prescription drug costs but exclude employee out-of-pocket payments such as deductibles, co-pays and co-insurance. On average, employers subsidize about 81 percent of the plan cost, up from 80 percent in 2020. Employees paid the remainder.

Focusing on Chronic Condition Care Management and Cost Efficiency

“Employers will look to manage plan costs with both traditional and emerging cost containment strategies,” said Will Sneden, U.S. practice leader for Health Solutions. “For example, virtual care now goes beyond a quick visit for flu symptoms or prescription refills. It now expands to primary and specialty care, with emotional health and women’s health services. It also is providing greater access to new providers and medical tests, helping to build a more resilient workforce.”

The success of employer benefit cost management goes beyond competitive design, strong medical networks and negotiated pharmacy contracts. Condition management solutions and navigation services, both live and digital, have become an essential part of health benefits. Managing conditions like musculoskeletal, diabetes and mental illness remain a priority for plan sponsors. Once implemented, many employers measure the effectiveness of these new solutions using Aon’s Cost Efficiency Measurement (CEM).

“CEM is powered by machine learning technology and can rigorously match an employer’s own population to a national dataset with millions of members based on factors such as geography, demographics and more than 25 different co-morbidities,” Cwikla said. “Quantifiable insights based on actual data can shape better decisions, helping determine if the implemented solutions are delivering results above and beyond typical performance or if it’s time to shift the health plan investments elsewhere.”

Aon’s Health Value Initiative

The historical information and projections shown above were developed using Aon’s Health Value Initiative database, which captures healthcare costs and benefit designs for more than 700 U.S. employers representing 5.6 million employees and $74 billion in 2021 healthcare spend. The projections above are developed after taking plan design changes and vendor negotiations into account. To learn more about Aon’s Health Solutions practice, click here.

Increase to U.S. Medical Plan Costs from 2020 to 2021

Plan Cost*



Change from
2020 to 2021

Employer Cost




Employee Premiums from Paycheck




Total Plan Cost




“In a tight labor market, employers are willing to absorb most of the health care cost increases,” Cwikla said. “Employers are budgeting higher due to uncertainty and the anticipation of members facing health conditions with increased severity due to unmanaged or undiagnosed chronic conditions, ‘long haul’ COVID-19 patients and those with increased mental health needs.”

Slight Increase for Employees in 2021

Employees in 2021 are contributing about $4,505 for health care coverage this year, of which $2,482 is paid in the form of premiums from pay check and $2,023 is paid through plan design features such as deductibles, co-pays and co-insurance.

Employee Costs*



Change from
2020 to 2021

Employee premiums from paycheck




Employee out-of-pocket costs




Total Employee Costs




* Based on the weighted average cost of clients participating in Aon’s analysis in both 2020 and 2021.

Finance Reporter