Health care is a major expense in the U.S. – and employers bear much of the burden. However, cutting health benefits isn’t always a good option. In addition to meeting ACA requirements, offering attractive benefits enables employers to compete for top workers. A better option than reducing benefits is to learn how to manage employer health care costs.
Health Insurance Costs Keep Rising
Employers spend significant sums of money on employee health care – and the costs keep rising.
The U.S. Bureau of Labor Statistics (BLS) says the average compensation for civilian workers was $41.86 per hour in September 2022. Only $28.88 of this came in the form of salary or hourly wages; the other $12.98 was benefits. In other words, benefits account for nearly one-third of a worker’s total compensation. Health insurance alone accounts for 7.8 percent of total compensation – or an average of $3.28 per hour.
Health insurance costs have been rising. According to the 2022 Employer Health Benefits Survey from KFF, the average annual premium amount for family coverage was $22,463 in 2022. Employers paid $16,357, and workers contributed $6,106. This is 20 percent higher than just five years earlier. In 2017, the total annual premium was $18,764, with employers paying $13,049 and workers contributing $5,714.
In addition to rising health care costs, employers are dealing with inflation, higher property and casualty insurance premiums and increased labor costs. Something has to give.
Employees Value Health Insurance
Although reducing health insurance could save companies some money in the short term, it could hurt their retention and recruitment strategies.
Under the ACA, employers with 50 or more full-time or full-time-equivalent employees can face expensive penalties if they don’t offer affordable health insurance that provides minimum value. There is no federal requirement for smaller companies to offer health insurance, but many choose to do so anyway. KFF says 73 percent of firms with 25 to 49 workers offered health insurance in 2022.
Many employers know they need to offer health insurance to attract quality workers. According to the U.S. Chamber of Commerce, 96 percent of Americans believe it is important for a job to offer health insurance.
The following five strategies can help you control employer health care costs without sacrificing quality.
1. Invest in Employee Wellness
If you want to lower your employer health care costs, it makes sense to encourage your employees to be as healthy as possible. After all, chronic conditions associated with smoking, obesity and other risks can result in higher health care spending. Poor health can also contribute to higher rates of sick days and turnover – another reason why employers should care about employee wellness.
Investing in comprehensive health insurance and employee wellness programs can pay off. According to the U.S. Chamber of Commerce, employer-sponsored health insurance provided a return on investment of 47 percent in 2022. For every dollar spent, the return is $1.47. This includes $275.6 billion from improved productivity and $101 billion from a reduction in direct medical costs.
2. Consider Value-Based Care
Value-based programs incentivize providers to consider the quality of care: the focus is on prevention and outcomes. This is in contrast to traditional fee-for-service models, which incentivize performing as many procedures as possible, regardless of outcomes. According to McKinsey & Company, value-based care investments quadrupled during the pandemic, and its adoption will likely continue to grow in the coming years.
HR Dive says employers that partner with value-based care providers can see a healthier and happier workforce while lowering costs.
3. Encourage the Use of Generic and Biosimilar Prescriptions
Prescription costs account for a substantial chunk of overall health care spending. HHS says that before rebates, the U.S. health care system spent $603 billion on prescription drugs in 2021. Spending is increasing – the higher costs are largely due to a small number of high-cost prescriptions. Between 2016 and 2021, the cost of specialty drugs increased by 43 percent.
The use of less expensive generic and biosimilar prescriptions can result in significant savings. According to the Association for Accessible Medicines, the health care system saved $338 billion in 2020 by using generic and biosimilar drugs. Generic drugs represent 90 percent of filled prescriptions but only account for 18.1 percent of prescription drug spending.
4. Provide Convenient Care Options
Imagine you think you have an infection, but you’re unsure. You don’t have time to go to the doctor, so you decide to wait and see. Your condition worsens, causing you to go to the emergency room over the weekend. That will involve some major costs – costs you could have avoided by receiving care earlier.
Benefits like telemedicine and nurse advice lines provide a convenient and lower-cost way to access care. This can help individuals avoid more expensive care options down the road.
According to mHealth Intelligence, Cigna members experienced lower health care costs through virtual options. Plus, members without a primary care physician had expanded access to care due to virtual care. Virtual care reduced health care costs by approximately $100 per visit.
5. Help Employees Make the Most of Their Health Benefits
Employees don’t always make the most of their benefits. Since underutilization of employee benefits results in wasted costs and reduced ROI for employers, this is an area of concern.
In many cases, employees may fail to use their benefits because they don’t understand them. ValuePenguin found that 39 percent of Americans admit to having experienced confusion regarding their health insurance. An even higher percentage struggle with basic health insurance concepts. For example, 54 percent are confused about deductibles, and 48 percent don’t know what a copay is. Even more alarming, 57 percent of insured consumers say they sometimes avoid medical care because they don’t know if they have coverage for a particular service.
Employers can help by providing better education and resources to help workers make the most of their benefits. This can contribute to better care and lower costs.
- Educate employees on key health plan elements. Key concepts employees should understand include deductibles, copays, out-of-pocket maximums and premiums. This will help workers select the plan options that best meet their needs.
- Encourage employees to use their benefits. This is especially important when it comes to preventative care, such as regular screenings and routine vaccinations. Employees often have no out-of-pocket costs for preventative care.
- Direct employees to tools that can help them find the best prices. The cost of prescription medications and care can vary widely. For example, one lab may charge more for a test than another lab; a prescription medication may cost more at a local pharmacy than via a mail order pharmacy. Show employees how to use price transparency tools to shop around.
Reining in Health Care Costs
Employers need to keep costs down, but they also need to provide quality benefits that support happy, healthy employees. Choosing the right health plans to offer is also important. Higginbotham can help you figure out how to manage employer health care costs. We provide custom benefit packages designed to meet your unique needs. Learn more.