Healthcare costs have skyrocketed in recent years, with 2019 being no exception. Healthcare costs have risen at a rate faster than inflation and the expansion of the U.S. economy. The Office of the Actuary at the Centers for Medicare and Medicaid Services estimated that health care spending will grow 5.8% between 2015-2025, which is 1.3 percentage points more than the estimated growth of the gross domestic product during that timeframe.
This is forcing employers to take a step back and assess their healthcare offerings. While offering health benefits is essential to remaining competitive, employers are spending an average of almost $9,000 per employee per year for healthcare, which is not sustainable for many companies. Human resources professionals need to take a strategic approach to healthcare benefits, so they can lower costs without compromising coverage for their employees.
Here are a few strategies that can be beneficial in this scenario:
Offer consumer-directed health plans. Consumer-directed health plans, specifically High Deductible Health Plans (HDHPs) help employees carefully consider the financial consequences of their decisions and actions. For example, an individual with a HDHP might be more inclined to visit an urgent care center than an emergency room in certain cases, which comes at a much lower cost. This often leads to long-term behavior changes in order to avoid high out-of-pocket expenses, which results in a reduction of healthcare spending from year to year.
Promote health and wellness. Another great strategy is to invest in the prevention of medical issues through health and wellness programs. Especially in the United States, majority of healthcare spending can be traced back to lifestyle choices. Promoting active and healthy lifestyles is shown to reduce healthcare costs and number of work days missed. These programs look different for each organization but can include gym membership reimbursement/incentives, activity challenges, and smoking-cessation incentives, and health and wellness seminars.
Revise spousal healthcare coverage options. Employers can set limits to how their coverage extends to employees’ spouses. Although employers need to carefully consider the legal requirement and possible employee backlash, these limitations can lead to substantial savings in some organizations. These provisions typically involve either excluding spouses from purchasing health insurance through the organization if their employer offers it, or including a premium surcharge for doing so.
Offer self-funding or level-funding options. Self-funded plans give financial responsibility to the employer for providing health care benefits to employees. Employers pay for claims out of pocket on an ad hoc basis, rather than paying a premium. For employers with a relatively healthy workforce, this can be extremely beneficial. For smaller employers, however, it’s typically a large risk; those employers might benefit more from a level-funded plan, where they still contract with insurance companies, but take on more of the financial responsibility. In either scenario, the ability to forego upfront pre-paid costs could end up lowering overall costs long-term.
Offer a narrow network option. Narrow network plans trade lower costs for limited amount of doctors, hospitals, labs, and other providers. However, these plans must meet minimum requirements for the number of doctor’s they include for different specialties, so employees are usually able to get the basic care they need within network.
Provide financial wellness tools. As costs increase, it becomes increasingly important that employers help their employees find ways to save money in other areas and build a financial buffer. Providing financial wellness tools beyond just a 401(k) can help offset the increase in healthcare costs. Access to financial seminars, budgeting tools, mortgage brokers, tax preparation, student loan repayment, and more can make a big difference long-term.
While human resources professionals should continue to negotiate with vendors for the best possible rates, sometimes that just is not enough. As healthcare costs continue to increase, there is a need for a strategic overhaul of benefit practices. This is not an exhaustive list of strategies by any means, but can serve as a good starting point for many organizations looking to cut costs without sacrificing coverage for their employees.
Sources:
https://www.shrm.org/resourcesandtools/tools-and-samples/toolkits/pages/managinghealthcarecosts.aspx
https://health.gov/news/blog/2017/05/five-reasons-employee-wellness-is-worth-the-investment/
https://www.benefitspro.com/2017/04/18/why-brokers-should-explore-level-funded-plans-for/
