Inflation on general goods and services might be slowing, but HR leaders and healthcare experts around the country expect healthcare costs to rise by double digits next year. As consumers and providers of health insurance and other benefits, employers are in a unique position to combat this increase. In this post we’ll walk through how providing certain benefits not only helps employers and employees save money, they can also help reduce future cost increases.

Let’s get started.

Most HR leaders expect healthcare costs to rise next year

In a recent survey Lively conducted with HR leaders around the country, 64% of respondents said they expected to see an increase in healthcare costs of between 10% and 35%. This could be driven in part by expected increases in commercial healthcare costs which are projected by Price Waterhouse Coopers (PwC) to increase by 8% in 2025. PwC’s projection is based on increased prescription drug spending, inflation, and behavioral healthcare utilization. Health insurers use this projected information to calculate health plan premiums for the following year.

One behavior that PwC highlighted as adding to the healthcare price increase, was the fact that more people need more acute care when they seek it. Their theory is that people delayed seeking care during the Covid pandemic and (or couldn’t receive care at all), and this has resulted in not only a backlog of medical care, but a rise in health issues that may have been less severe if they were treated earlier. In addition, the rising cost of brand name prescription drugs, which increased on average 15% in cost in 2023, and unhealthy lifestyle habits are contributing to cost increases.

The good news is, companies can influence the behavioral and consumption choices their employees make by offering the right mix of benefits. These are the benefits to consider.

How benefits help combat healthcare cost increases

The benefits a company offers its team can determine how they engage with and access the medical system. And this engagement helps to determine future cost increases imposed by health insurers and the medical system at large. The following benefits can help keep your people healthier and help them to make savvier decisions as healthcare consumers.

The High Deductible Health Plan (HDHP) paired with a Health Savings Account (HSA)

The HDHP is the most economical of the traditional health plans as it typically has the lowest annual premium. By offering this plan to employees, employers can lower their overall health insurance spend as well as the amount their employees must pay for their health insurance plan. By offering an HSA alongside the HDHP, employers can incentivize their employees to choose the more economical health plan by providing them with a way to save for the higher deductible and other health costs tax-free. According to Lively's recent survey, 78% of employers offer HSAs to help their employees offset the cost of healthcare.

The tax-free benefits of the HSA also mean that employers save money on their FICA responsibility for every dollar employees deposit into their account, and employees can save up to 37% on the expenses for which they use their deposits (depending on their tax bracket). That’s because deposits to HSAs are tax-free in the year they’re made, they grow tax-free and distributions from the account are tax-free as long as they’re used for qualified medical expenses.

Tax-deductible and tax-free benefit accounts 

There are several types of tax-advantaged benefit accounts that can help both employers and employees save money. Tax-deductible benefit accounts are accounts into which employees can deposit money from their paychecks before federal income taxes are assessed. These benefits, which include HSAs and Flexible Spending Accounts (FSAs), save employees money on their taxes, as well as the expenses for which they use their contributions.

Tax-free benefit accounts like Health Reimbursement Arrangements (HRAs) are employer-funded accounts through which employees can reimburse for approved health-related expenses. This benefit is a way for employers to help employees pay for the cost of medical care and employees don’t have to pay taxes on the reimbursements they receive.

All three of these benefit account types directly help lower the cost of healthcare to employees and employers.

Post-tax benefit accounts

Lifestyle Spending Accounts (LSAs) are employer-funded accounts through which employers can reimburse employees for everyday life expenses. Employers have a lot of flexibility in how these accounts are structured including the types of expenses they will reimburse for, how much they will allocate to each employee’s account, the cadence at which that amount resets, the reimbursement procedures, and more. Employers can even offer multiple LSAs, each with a different focus. 

Examples of eligible LSA-eligible expenses could be: gym memberships, healthy food delivery, nutrition counseling, financial planning, mindfulness apps, personal development retreats, and more. Employees will be responsible for paying income taxes on the amounts for which they reimburse through an LSA.

Use benefits to promote a healthier lifestyle among your team members

A simple way to lower healthcare costs is to promote a healthier lifestyle among employees. That’s because healthier people utilize the health system less frequently and tend to have fewer high-cost conditions and illnesses that need management. Employers can use benefits to encourage employees to maintain a healthy lifestyle by promoting positive behaviors like regular doctor visits, being physically active, and quitting smoking. 

These are the benefit accounts that help promote a healthier lifestyle among employees.

• HDHPs. With an HDHP, well visits, vaccinations, and other preventative care like screenings are covered at 100% prior to the deductible being met. When people see the doctor regularly, they’re more likely to be healthier as issues can be caught early before they grow into something that requires more acute (and expensive) medical care.

• HSAs. Cost is one of the most common reasons to skip going to the doctor. By saving money for qualified medical expenses with an HSA, employees can build a safety net to pay for the medical care they need, when they need it. To contribute to an HSA, employees must be signed up for an HDHP and that must be their only health plan. 

• FSAs. Like HSAs, FSAs provide a way for employees to save pre-tax money to pay for eligible everyday health expenses like copays, coinsurance, and prescriptions, as well as preventative health costs like sunscreen, air purifiers, and vitamins. Since employees have the money saved for needed medical expenses, they are more likely to seek medical attention when they need, as well as take proactive measures to keep themselves healthy. The added benefit to FSAs is that they can be paired with any type of health insurance plan. 

• HRAs. There are several types of HRAs that employers can use to either provide employees with additional financial support in paying for health expenses like copays or coinsurance, or to allow employees to buy their preferred health insurance plan in the private market. Both types of HRAs help to encourage employees to seek medical attention when they need it as they have a way to pay for the care.

• LSAs. Employers can use LSAs to promote healthy behavior. One way LSAs can be used is as a reward for achieving positive health outcomes like lowering blood pressure or cholesterol levels, or achieving a certain number of steps in a certain time period. LSAs can also be used to pay directly for wellness activities like gym memberships and fitness classes, mindfulness apps, personal development retreats, and more.

Get started with Lively today!

This open enrollment season, check out Lively’s suite of flexible benefit that can be customized to meet the needs of your company and employees. We can help you craft the most impactful benefits package so that you can reach your culture and business goals in 2025 and beyond. Reach out today.