Health care spending in the U.S. is at $4.9 trillion, or roughly $14,600 per person, according to 2023 data from the Centers for Medicare and Medicaid Services. When paired with the recent federal budget cuts to education, the drastic rise and fall of funds within these pools is reshaping the landscape of public sector budgets.
Budgetary Strain on Benefits
One of the most significant impacts of these changes for public sector entities hits the overall administration and budget for their employee benefits. Rising premiums, increased deductibles and mounting prescription drug costs can quickly erode health care budgets.
This strain forces public sector entities to make difficult decisions in regard to benefit design, cost-sharing and overall plan affordability. The decisions can have a ripple effect into other areas, such as:
- Increased Health Insurance Costs: Premium increases directly impact the budget and total health spending that is dedicated to employee benefit programs and services.
- Cost-Shifting to Employees: Higher deductibles, copays and out-of-pocket costs may ease the financial burden for public sector entities, but they could have a negative impact on employee satisfaction and team morale.
- Benefit Plan Design Constraints: Public sector entities may have to limit their coverage options, provider networks or prescription drug formularies to further control costs.
- Long-Term Budgetary Uncertainty: The unpredictable nature of rising health care costs can make it difficult for public sector entities to strategically plan for and offer employee benefits that are stable, desirable and affordable.
In the struggle to balance fiscal responsibility and competitive benefit packages, it’s often the employee benefit programs and services that lose ground. So, given this bleak reality, how can a balance be achieved? Ultimately, public sector entities must consider how to provide comprehensive and sustainable employee benefits programs via innovative solutions.
Benefits and Employee Retention
Health benefits are among the most desirable benefits that employers can offer to their employees. Many employers offer group health insurance on a fully-insured basis. With these more traditional health insurance plans, there is little flexibility in regard to cost or plan benefits; they are more one-size-fits-most in nature.
Traditional health insurance may work well for many employers, but rising costs are making them unaffordable for employers who have a small- or medium-sized employee base. These employers must pass these higher costs on to their employees, who often value having health insurance, but only if it’s at a price they can afford. If employers are forced to change their health insurance and it is deemed “less than” what employees had before, employees will likely not be happy.
Higher premiums, deductibles and copays place a greater financial strain on public sector employees and can negatively impact their morale and productivity. The increased costs may cause employees to delay or even forgo necessary medical care, which further affects health, well-being and job performance. And, stress due to additional financial burdens and tighter controls for health care access may lead to employee absenteeism and decreased job satisfaction.
Since salary and employee benefits are the biggest contributors to total compensation packages, employees may seek other employment that offers higher pay and more robust, affordable benefits. Finding and keeping the best employees is even more challenging for smaller public sector entities, who must compete with employers that have larger budgets for top talent and more robust employee benefits packages.
Addressing the Challenges
Despite these challenges, public sector entities have several ways to address their unique issues and needs, some of which include:
Optimizing Resource Allocation
- Leverage collective purchasing power for pharmaceuticals and medical supplies.
- Analyze the potential of value-based contracting models to align provider incentives with quality outcomes.
- Evaluate pharmacy benefit management strategies for cost efficiency.
Data-Informed Decision-Making
- Invest in health care analytics to gain insights into utilization and cost drivers.
- Implement population health management approaches for targeted interventions.
- Develop performance metrics to monitor program effectiveness.
Investing in Preventive Measures
- Support employee wellness programs for long-term health care cost reduction.
- Partner with community organizations for evidence-based prevention initiatives.
Enhancing Collaborative Efforts
- Integrate telehealth and other virtual clinical services to improve access to care.
A proactive, multifaceted approach is the best way to reduce budget constraints and boost employee satisfaction. Data-driven decision-making, strategic budgeting and employee well-being are three key drivers to successful outcomes.
Ready to learn more?
Higginbotham’s public sector benefit solutions can help you manage some of the most pressing concerns in employee benefits, including rising health care costs. Our specialized guidance and tailored solutions allow us to create the best fit for your budget and your business needs. Talk to a public sector benefits specialist today to learn more.
