Healthcare costs are expected to rise over 5% in 2025 for the third year in a row. The cost to provide prescription benefits alone rose 7% in 2024. In response, 53% of employers have reported they will employ cost-cutting measures when it comes to benefits in 2025, and many of these tactics will place a larger financial burden on the employee. But there are many reasons to take a different tack and instead focus on plan optimization. 

Plan optimization means utilizing plan usage and claims and reimbursement data to decide which types of coverage, and levels of coverage, will result in the best health and productivity outcomes for the company’s workforce. A properly optimized plan will boost employee engagement with benefits and improve employees’ physical health, as well as improve recruitment and retention efforts without increasing company cost. 

To optimize their benefits plans, companies must employ technology to collect and interpret data in real time. Companies will gain insights on which benefits employees are actually using, and use this data to inform their strategies on how to strengthen the benefits’ value proposition for employees while hedging any cost increases to both the employer and employee. 

Why it’s important for employers to contain healthcare budgets 

Increasing healthcare costs make hiring and retaining talent more expensive. Healthcare costs rose 5.2% per employee in 2023, with the average increase in costs of benefits higher for small and medium-sized companies. And costs are estimated to increase 5.8% in 2025, and a recent Lively survey found that 64% of employers expect health insurance costs to rise 10 - 35% in the next year. So it makes sense that 84% of employers say managing high-cost claims is the most important strategy for the next 3-5 years. Strategies that slow organizational spend over the long-term are essential to organizational planning in the next few years. But strategies that involve shifting costs to employees aren’t likely to be successful.

Why employers can’t shift the cost to the employee

Employees are already shouldering a heavy burden of higher living costs. In the last 10 years, average housing costs have increased 96% in the U.S. and the cost of childcare has increased 26%. In the last five years, the cost of food has increased 24%. 

A higher cost of living means employees have less money for medical expenses. In fact, 38% of Americans have put off medical treatment in the last 12 months due to cost. One in three employees struggle to afford prescriptions. One in four employees must dip into savings to cover the cost. 

Delayed care is associated with worse health outcomes and higher costs for patients and benefit providers. Several research studies have shown the financial cost of absenteeism and presenteeism due to poor employee health, and outweigh the cost to provide insurance coverage for medical and prescription costs. Employees with poorer physical health report missing more work (absenteeism) and being less productive at work (presenteeism) when they are there, costing U.S. companies about $575 billion a year.

In addition, Millennials and Gen Z employees feel the higher cost of pharmaceuticals more acutely than other generations, with Millennials paying the highest out-of-pocket costs on average (nearly twice what other generations pay).

To decrease healthcare costs without shifting the burden to employees, employers must engage with the problem in three steps:

1. Understand the economic factors contributing to high healthcare costs.

2. Employ technology to collect and analyze data, and increase employee engagement with benefits.

3. Use data insights to optimize plans and allow personalization.

Analyzing data and beginning to plan now can give companies enough time to rework their benefits strategy and identify the right providers that can help bring that strategy to life. 

Why employers should understand the economic factors affecting the cost of healthcare

In order to create a 3-5 year benefits strategy, employers must understand the economic factors that affect healthcare pricing. This will enable them to offer benefits that proactively address these issues.

• Health worker labor shortage. The demand for physicians, nurses and other healthcare professionals is predicted to exceed supply in 2025. And an estimated 65 million healthcare workers will leave the profession by 2026 and only 1.9 million are on-track to replace them. This will lead to increased costs for employer-sponsored, private health insurance. 

• Aging population. As the population ages, their medical care typically becomes more expensive. This places a higher financial burden on the entire health insurance system and the younger contributors to that system. 

• Supply chain volatility. While the supply chain has mostly recovered from the disruption caused by the pandemic, geopolitical unrest and political uncertainty around tariffs and trade deals has caused further disruptions. 

These factors are beyond the employers’ control, but they can be mitigated by offering certain benefits like telehealth coverage which has been shown to decrease the cost of healthcare and increase healthcare access. Another benefit that can help mitigate the cost of an aging population is increasing preventative care coverage to include screenings for menopause, bone density, and diabetes. 

How employers can use technology and data to contain healthcare costs for everyone

The right technology can collect benefits usage data in real time, it can run reports, and it can provide employees more efficient access to their benefits, which increases their benefit utilization and engagement. The right technology can help human resources departments save time generating insights so they can make more timely decisions. The right technology can also make companies more responsive to issues in their workforce so everyone stays healthier and more productive.

How employers can best use technology to collect and analyze data

Eighty percent of employers still use manual data collection and a spreadsheet to analyze benefits data. This results in a time-intensive process for human resources staff and dated insights. 

Benefit usage data isn’t just relevant during the pre-open enrollment period when human resources departments decide on which benefits to offer the workforce in the coming plan year. By collecting benefit usage and engagement data in real time, companies can stay on top of the state of their employees’ health and make timely decisions that reduce costs and improve the experience for everyone. But if employers use a technology platform to gather data and run reports instantly, employers can see how employees are using their benefits in real time. 

Once employers know how and why people are using their benefits, they can streamline their offerings. If employers use a benefits provider like Lively that offers comprehensive dashboards and reporting, they can track reimbursement trends to know what types of coverage and support they need to add next. 

For example, if employers see that employees have reduced or stopped their voluntary contributions to their 401(k)s, they can look into other financial benefits the company can offer. If they see an increase in reimbursements and claims for conditions related to fatigue and burnout, they can increase their mental health offerings or perks to retain talent and head off other health issues.

How employers can best use technology to increase employee engagement benefits

Employees want digital access to their benefits and they want to be able to manage their benefits online. In fact, 82% of employees stress the importance of managing benefits online and 8 in 10 employees say it's important for benefit providers to innovate by leading in digital tech. Easy digital access to their plan can increase employee engagement with their benefits. Employers should look for benefit providers like Lively that offer a digital app that allows employees to manage their benefits from their phone. 

For example, on Lively’s app and dashboard, HSA participants can see how close they are to meeting their deductible, they can see their recent claims and reimbursements, they can see how much their account has grown and they can manage their investments if they’ve chosen to invest their HSA contributions. 

Another way employers can use technology to increase employee engagement with their benefits is to centralize all benefits plan management for the employee. Employers should look for a benefit provider like Lively that has proprietary technology that enables them to integrate into your existing system. This improves the benefit administration and employees’ engagement with the benefits.

Increased employee engagement with their benefits leads to better health outcomes for the employee, which leads to lower healthcare costs and increased productivity for the company.

How employers can use data to optimize their benefits

Employees from different generations and demographic groups want different things from their benefits. One way to ensure you’re not wasting money on unused benefits or benefits that aren’t valuable enough to employees to justify the cost, is to collect data on employee engagement with the benefits and analyze the numbers. 

Once employers have collected the data on their plan usage, they should benchmark employee engagement and measure the return on their investment in the benefit. The most obvious response is to drop under-utilized benefits in favor of plans you think will be more valuable. But the problem might not be the type of plan you offered. The problem could be the benefit administrator and the type of access it affords employees.

To understand which benefits will be truly valuable to employees and provide the company with the highest ROI, human resource departments should analyze not just claims, reimbursement and engagement data, but also employee responses to surveys about the quality of company benefits.

When in doubt, companies can and should lean on their benefits brokers to help them analyze their data to generate the appropriate insights. Benefits brokers can help steer companies towards high performance, national health plans, and benefits administrators like Lively that offer a suite of cost-effective benefit solutions that can be customized to fit the needs of any company.

Get started with Lively!

If you’re ready to partner with a benefits provider that offers an easy-to-use platform, with data and insights at your fingertips, reach out to Lively today. Our proprietary technology allows you to integrate our benefit plans into your current system for easy benefit administration and increased employee engagement. We make offering benefits simple. Reach out to us today.