Again, healthcare costs are going up. According to a recent study from Mercer, total health benefit cost per employee in 2027 is expected to rise 8.2% – after employers’ planned cost-reduction measures (without action, employers told Mercer their existing plans would rise about 11%). This would be the highest increase since 2003.
And, again, we see the same reaction from employers. The Wall Street Journal recently reported that even as healthcare costs have gone up, the share of these costs coming out employees’ paychecks has “shot up” even faster.
Healthcare costs always rise. Naturally, employers are concerned about their bottom line. But is the right approach to pass these cost increases to employees? Or perhaps this is just a little shortsighted, if not lazy. Particularly when many employers – specifically smaller companies, of which 44% don’t provide any health benefits at all – have options instead of just making their people pay more.
For example, offering an individual coverage health reimbursement arrangement (ICHRA) plan is a potential answer. Under this type of plan an employer doesn’t need to purchase group health insurance. Instead, a reimbursement is made to employees for when they get their own healthcare coverage.
An HRA isn’t for everyone. But it’s a good answer, particularly for small business owners. And it’s why ICHRA adoption grew between 73% and 128% among employers with fewer than 100 employees.
Another way to cut costs is by leaning into health savings accounts, or HSAs. If a company already has a high-deductible group insurance plan, it’s usually very easy to attach an HSA plan to it. Setting up an HSA plan incurs a nominal cost but with it employees can contribute their own pre-tax dollars to these accounts and then use the savings to pay for healthcare expenses including deductibles, copays, prescription drugs, many OTC medicines, and dental and vision expenses that may not be covered under the insurance policy.
An HSA enables employees to reduce their taxable income which in turn helps them save money on their healthcare. Workers like these plans because there’s no required distribution and the money grows tax free. Plus, if they change jobs they can take their savings with them. It’s an easy, inexpensive benefit to provide that cuts costs.
Once only a consideration for the biggest of companies, a growing number of smaller employers are now also choosing to self-insure. Some of my clients have signed up for level funded plans, with which they reimburse their employees for healthcare expenses up to a certain amount and then purchase stop-loss coverage to cover larger claims.
When a company self-insures, they start paying more attention to the out-of-pocket expenses their employees are paying. Because of this, a growing number of companies are negotiating rates with local urgent care centers, healthcare providers and pharmacies, and requiring their employees to use them to best control their costs. Amazon and other online pharmaceutical providers are now offering aggressive discounts on products under corporate plans.
For many of us, choosing a healthcare plan is more complicated than designing a bridge. It’s like you need a PhD in healthcare to understand all the ins, outs, deductions, credits, co-pays, networks and nuances, and you need an MBA to properly estimate your costs to decide on what plan is right for your family. Paying a consultant to work directly with employees to help them choose the right plan (or maybe go to the health exchanges or Medicare for older employees) not only helps them make smarter, more cost-effective decisions but also helps you cut back on a company’s healthcare contributions.
Any or all of these strategies can play a big part in controlling healthcare costs, both at the corporate and employee level. So why don’t more companies do this? Because it takes time, effort, resources. It’s a lot of work. Rather than doing this, most employers just pass the cost to their employees and move on.
But moving on isn’t a great idea. This type of laziness has its risks. At some point, the costs get too high and, considering that healthcare is always one of the most requested benefits, can have an impact on both attracting and retaining workers. The labor market is tight. Most of my clients continue to hunt for talented workers. The ones putting in the effort to offer these types of plans are more attractive to workers and position themselves not only to better control their costs but to grow.
