How to Reduce Healthcare Costs for Employers Effectively

Employee healthcare costs have been on a steady rise over the past decade.

In fact, recent reports by the Kaiser Family Foundation showed that employer-sponsored health insurance coverage had increased by 5% per employee in the past year, and another 6% in the preceding year, bringing it to 11% over 24 months.

As such, it is not surprising that organizations would be looking for ways to manage their healthcare costs, without downgrading coverage level or asking employees to increase their out-of-pocket contributions.

In this guide, we’ll cover how to reduce healthcare costs for employers, including how to monitor your team’s medical-related costs, and common pitfalls you might encounter when looking to make your health benefits more affordable.

TL;DR - How to Reduce Healthcare Costs for Employers

Reducing healthcare costs for employers is not a one-time event but a series of continuous interventions aimed at improving members’ health over time.

The following strategies can help improve your team’s health status and manage health risks before they advance into chronic conditions:

1. Implement health and wellness programs
2. Promote preventive care
3. Shift to telehealth
4. Promote health literacy among members
5. Leverage predictive analytics
6. Promote work-life balance

Continue reading to understand how these strategies can help you reduce your team’s medical expenses at a time when healthcare costs are rising every year.

Why Healthcare Costs Are Rising for Employers

Organizations are incurring higher healthcare costs year-over-year because of a multitude of internal (employee-related) and external factors (market forces), including:

• General Inflation: Healthcare workers have been lobbying for better compensation, with the cost of covering these wages being passed on to service users. Consequently, insurance companies have raised health premiums, increasing the healthcare costs for employers.

• High-Cost Treatments: Specialty medications for cancers and substance disorders are costly, so companies have to foot higher medical bills for their employees.

• High Incidence of Chronic Conditions: Employees are living sedentary lifestyles, placing them at a greater risk of onsetting chronic conditions like diabetes and hypertension, whose management is often perpetual, driving up costs.

• Increased Utilization: More employees have become health-conscious and undergo regular checkups, resulting in higher diagnosis-related healthcare costs.

• External Pressures: Companies are under increasing pressure to provide premium benefits to attract top talent, which comes with higher premiums and overall healthcare costs.
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How Much Do Health Benefits Cost Per Employee?

The cost of health benefits per employee varies from one company to another, depending on the following factors:

• Company Size: Number of employees; companies with 5,000+ personnel negotiate for lower rates per person.

• Workforce Demographics: Age, family status, and health status of your employees.

• Core Benefits: Whether you only provide general medical coverage or include dental, vision, and wellness benefits.

• Cost-Sharing: How much employees contribute to the benefits plans out-of-pocket.

• Regulatory Environment: States have different mandatory health benefits, which influence the final cost.

With this in mind, we can now estimate the health benefits costs per employee, as highlighted in the table below:

Sources:

• Forbes

• Forbes

• KFF

• SoHookd

Ways to Reduce Employee Healthcare Costs

Based on the estimates above, a company of 50 employees would incur $514,850 annually for single-person covers, with the costs expected to double ($1,029,700) for organizations providing family covers. This is unfathomable for most employers, considering that 82.8% of all registered businesses in the US generate less than $1,000,000 million in annual sales (before taxes and other deductions).

Consequently, companies have to find ways to reduce the cost of providing health benefits. Let’s discuss some of the most effective ones:

1. Implement Health and Wellness Programs

One of the most effective ways to reduce your healthcare costs is by introducing corporate health and wellness programs aimed at promoting healthy behaviors among employees. Simple programs like paid gym subscriptions and healthy office snacks help employees to stay in shape, reducing their risk of lifestyle diseases.

Partner with a wellness broker to help you design and implement a wellness program that is personalized to your employees’ individual preferences.

At SoHookd, we offer pre-built programs that you can customize to your team’s needs and launch within 2 weeks. Alternatively, we offer a build-your-own program option that lets you align initiatives with each member’s wellness needs to increase enrollment and participation rates. Additionally, our programs are procurement-friendly, as we don’t tie you down with contracts or PEPM fees.

Schedule a free call to learn how personalized health and wellness programs can help reduce your healthcare costs.

2. Promote Preventive Care

Encourage employees to undergo regular medical screening and checkups to catch health issues early.

Oftentimes, this makes the medical conditions easier and cheaper to treat/manage. Additionally, some insurance providers cover health screenings at no extra cost to employers, making this a win-win for your organization and workforce.

3. Shift to Telehealth

Telehealth services are often cheaper than in-person physician visits due to reduced administrative costs and optimized staffing. Virtual consultations work exceptionally well for routine checkups or prescription refills, which account for a significant portion of physician visits.

Additionally, the increased access to health services often encourages employees to seek care promptly, reducing overall treatment costs.

4. Promote Health Literacy

Organize expert-facilitated training and workshops to educate your team on self-management of chronic conditions, such as diabetes and hypertension.

Additionally, we have found on-demand wellness webinars to be effective for delivering health education, especially if you have remote members who cannot attend on-site training.

5. Predictive Analytics

Leverage technology advancements like machine learning to identify high-risk employees, allowing you to provide targeted interventions before their underlying conditions become complex health issues.

For example, you could provide wearables that track employees’ heart rate, hydration, and sleeping patterns for insights into each member’s health status.

6. Promote Work-Life Balance

Chronic overwork and burnout make employees more vulnerable to stress-related illnesses, substance abuse, and cardiovascular problems, all of which drive up your healthcare costs. 

One way to support your team’s work-life balance is to provide paid time off so employees can rest or spend time with friends and family and return to work recharged. Additionally, provide experiential wellness gifts for employees, such as paid yoga sessions and calming teas, to help them decompress after work or on weekends.

How to Monitor and Evaluate Healthcare Costs

Some companies treat health insurance as a fixed expense they can't influence. However, closely monitoring your healthcare costs is the first step to reducing your medical expenses, as it helps you identify cost drivers and make data-driven decisions.

We have found the following tips to be effective for organizations looking to monitor their healthcare costs:

• Analyze Your Claims Data Regularly: Request detailed claims reports from your insurance provider and audit the data to determine your healthcare costs trends over time. Also, use the data to identify high claimants and analyze the data for context, such as the number of physician visits or whether they have chronic conditions that require continuous management.

• Track Essential Metrics: Establish key metrics and monitor them over specific periods, such as monthly, quarterly, and yearly. For example, you could track emergency room utilization rates to determine the prevalence of acute conditions among your team. Also, track employee utilization of the implemented health and wellness programs and correlate the data with your healthcare costs to determine whether the programs have been effective in reducing them.

• Regular Health Risk Assessments: Conduct periodic employee surveys, asking members about their lifestyle status, chronic conditions, family history, and health behaviors, to help you determine your team’s health risks. Use the data for targeted interventions, and then monitor how they impact your healthcare costs in the long term. For example, a workforce being 40% pre-diabetic warrants implementing stress management and nutrition counseling.

• Track Your Spend on Prescription Drugs: Monitor how much you spend on prescription-related claims as a percentage of your total healthcare costs. An increase in prescription drug spending often correlates with a higher health risk among your team, indicating that your healthcare costs will likely increase in subsequent years.

• Benefits Benchmarking: Compare your healthcare costs to those of your competitors to determine the difference in spending per employee. Additionally, benefits benchmarking helps you identify opportunities for improving your healthcare perks without increasing cost, optimizing your healthcare dollars. 

Common Challenges in Reducing Employee Healthcare Costs

Given the rising healthcare costs, it is only reasonable that organizations find ways to provide affordable employee health benefits. However, you risk compromising on the quality of health benefits, which often increases your healthcare costs multiple-fold in the long term. 

Avoid these pitfalls when implementing measures to control your healthcare costs:

• Rising Premiums: Healthcare premiums seem to increase every year, erasing any efforts organizations make to control the costs. Combat this by partnering with a benefits broker to negotiate multi-year rate locks and make costs more predictable.

• Limited Visibility Into Cost Drivers: Some insurance providers are often reluctant to provide claims data to help companies identify the underlying issues that are driving up their costs. Only partner with insurance providers that allow you to integrate data analytics software and predictive modeling tools that can help you with insights on how to control your costs.

• Addressing Individual Employee Needs: It is expensive to tailor health benefits to each employee’s needs, especially for a large workforce of 500+ members. Unfortunately, this may cause some employees to feel left out, leading them to disengage from the programs and the company. Offer flexible benefits that allow employees to choose the perks they need. Additionally, engage employees to identify high-priority health benefits that align with most members’ needs. 

• Low Employee Participation Rates: Employees are often unwilling to enroll in wellness programs or attend regular screening, which can be frustrating when looking to reduce healthcare costs through preventive care. Provide psychology-backed incentives to get members excited about the wellness programs and drive participation.

SoHookd offers the only wellness-focused marketplace that allows employees to redeem gifts that support their holistic well-being. Also, we can help you implement an employee wellness incentive program that is tailored to both desk-based and mobile workers, which is convenient if you have a remote team.

Download our free ebook for data-driven evidence of how wellness incentives can improve your team’s health and reduce illness-related absenteeism.

Frequently Asked Questions (FAQs)

Let’s wind up this guide by answering common questions about reducing healthcare costs for employers:

Is Outsourcing Healthcare Management a Cost-Saving Option?

Yes. Outsourcing healthcare management to third-party administrators (TPAs) or professional employer organizations (PEOs) can reduce costs through administrative efficiency. 

Also, the agencies enjoy economies of scale, which enable them to negotiate competitive rates with insurance providers.

Can Self-Funded Health Plans Reduce Employer Healthcare Costs?

Yes. Self-funded health plans can reduce employer healthcare costs because you eliminate the insurer’s markup. 

However, this model is best suited for large organizations because it comes with significant financial risks in the event of catastrophic claims.

What Are Emerging Trends in Employer Healthcare Cost Control?

Examples of emerging trends in employer healthcare cost control include:

• Transition into telehealth services for routine checkups

• Predictive analytics for early condition detection

• Holistic wellness programs for addressing social determinants of health

Can Wellness Incentives Replace Traditional Health Benefits?

No. Wellness incentives cannot replace (and aren’t meant to replace) traditional health benefits. 

Instead, they are intended to complement conventional health benefits by empowering employees to lead healthy lifestyles that reduce their risk of illnesses and workplace accidents.

Conclusion

Reducing healthcare costs doesn’t mean downgrading your employees’ health insurance coverage. You just need a better strategy: combine preventive care, data-driven insights, and wellness programs to address health issues before they become emergency room visits or a lifetime of prescription refills.

At SoHookd, we have nearly a decade of experience partnering with wellness brokers and companies to provide health and wellness programs that promote your team’s holistic well-being. Our corporate wellness product packages can stand alone, or you can implement them to complement your existing benefits programs. Additionally, our procurement-friendly partnerships mean you can customize your wellness program and launch it in 2 weeks.

Schedule a one-on-one call today to learn how our programs can support your healthcare cost reduction strategy.