How employers can reduce healthcare costs

A lot has been written about how the working world has changed in the wake of the COVID-19 pandemic. Where many managers once linked productivity with their ability to see staff in the office, work-from-home policies are now commonplace. Job interviews are just as likely to take place on online platforms such as Zoom and Microsoft Teams than in person. Terms such as ‘Quiet Quitting’ and ‘The Great Resignation’ have entered the lexicon after people started weighing up their work/life balance.

Then there is another revolution that, while not attracting as many headlines, is having a significant impact on businesses’ budgets. The sobering reality of the global pandemic saw many workers become increasingly conscious of their own health and this has led to demand for better benefits packages, especially those related to healthcare. 

One respected HR survey found that 72% of employers offer health benefits compared to only 61% before the pandemic¹, while another revealed as many 88% of businesses rank health-related benefits as extremely important². 

Then there was the 2004 SHRM Employee Benefits Survey, one of the longest-running annual studies of employee benefits trends across the U.S., which found 97% of employers are providing some form of health plan coverage - even though individuals and families have the option to purchase insurance through the federal and state marketplaces created under the Affordable Care Act³.

As those employers would appreciate, providing such benefits can be an expensive exercise and many of them struggle to get the balance right between managing healthcare costs and staff expectations. That challenge can even be overwhelming and that is why we are going to explore how healthcare costs are calculated, which are under a business’s control and how they can reduce such costs.

What are healthcare benefits?

Healthcare benefits are services and financial support provided by employers, governments or insurance companies to cover medical expenses. Employers provide health insurance as part of employee contracts, with benefits reducing out-of-pocket costs and making care more accessible and affordable. While this is a boost for staff, it also benefits employers as it improves employee well-being, productivity and promotes overall health and wellness.

^{Source: Average Cost Of Employer-Sponsored Health Insurance [2023]: What Percentage Of Health Insurance Do Employers Pay? - Zippia}

How is the cost of healthcare benefits calculated?

The cost of healthcare benefits is based on several factors, including the type of coverage, employer contributions and risk assessments. Each U.S. state also has its own set of regulations for group health insurance, making where businesses are based one of the most important factors affecting their premiums. 

Insurance providers determine premiums by evaluating employee demographics, medical history and industry risk, with organizations typically sharing costs with staff (eg: covering a portion of premiums while employees pay the rest through payroll deductions). Employers can also negotiate group rates with insurers, leveraging workforce size to lower expenses.

What healthcare benefit costs are under a business’s control?

There are several factors that influence the cost of healthcare benefits that are under employers’ control including:

• Carrier: it may seem obvious but identifying the best insurance carrier for one’s particular business is a key factor in managing costs. Don’t simply sign up with the carrier you find at the top of an internet search.
• Deductible: higher deductibles typically equally lower premiums so take the time to do research and choose a plan that offers the best mix of coverage and affordability.
• Copay: it may seem a hassle to pay a set amount each time an employee actually visits a health service but offering a plan that incorporates a higher copay amount is a surefire way to reduce plan premiums.
• Prescription: it goes without saying that if your coverage pays for highly specialized name-brand medications, the more you will be paying for your coverage.

^{Source: Strategies for Employers to Reduce Health Care Costs (yourerc.com)}

5 ways employers can reduce healthcare costs

Employers can take several relatively simple steps to help reduce the cost of healthcare benefits including:

1. Educate yourself: it may seem like a good idea at the time but many employers have made the mistake of choosing the cheapest plan as opposed to the best plan for their business. Saving money upfront may be appealing but if employees regularly encounter obstacles when trying to access healthcare, organizations will pay the price via higher employee turnover. It is not about price – it is about value and that will vary depending on the breakdown of one’s workforce. Investing time in educating yourself about insurance will be worth it in the long run.
2. Educate employees: there are many ways that staff can help reduce their healthcare costs – and subsequently yours – but only if they know how to. As an employer, the onus is on you to provide accessible and easy-to-understand information that teaches them about their health plans and how to reduce costs. Employee seminars can highlight the cost benefits of them using urgent care centers rather than emergency departments, teach them how to review medical bills for errors or introduce them to tools that help them compare the costs of care.
3. Offer integrated wellness programs: it may not reap immediate rewards but there is lot to be said for encouraging staff to make better choices and adopt positive behaviors. Healthier workforces make less insurance claims and, in turn, can result in lower premiums. Another bonus is they are known to be more productive and engaged with their work. Consider rolling out smoking cessation programs, diabetes management, subsidized gym memberships and sponsored activities that get people moving.
4. Analyze data: most people rarely consider switching carriers for their personal insurance, simply paying their ever-increasing premiums year in, year out. The same applies for employers but smart organizations take the time to constantly evaluate whether their existing carrier should be their future one. By conducting annual evaluations of claims data and employee feedback, businesses can see how their carrier has performed and compare their services and premiums to competitors.
5. Use healthcare cost transparency tools: just as technology has changed the way clinicians deliver healthcare, there are a growing number of tools and platforms that help people better understand the cost of that care. Healthcare cost transparency tools are an excellent way for employers to gain insights into the costs of different hospitals, clinics and doctors, empowering them and their staff to make more informed decisions. Look to link with insurance carriers that offer such tools as it is a sign they are keen to promote affordability and prevent unexpected bills.

Conclusion

Choosing a provider of healthcare benefits for your employees is not a simple task. With so many types of insurance offered via different carriers, it can be difficult to know exactly what you are paying for, let alone what you will get. The key is to take your time, do your research and engage with your staff to ensure the best results for them and you.

Staff resignations are a fact of business life but high levels can be cause for concern. Take a closer look at employee turnover, its causes, costs and ways to avoid and deal with it.