Whether it’s because they read news of an impending recession or they experienced pains from last year’s high inflation, or they simply need to sustain efficient growth, many employers are currently focused on reducing healthcare costs. If this rings true for your company, there are many options for reigning in your benefits budget, some of which might surprise you.
Your first instinct might be to start covering a smaller percentage of employees’ health insurance premiums. And while this would reduce your costs in the short term, it might actually cost you more money down the line. This is because while companies have been deeply affected by rising costs, so too have their employees. In fact, the Bureau of Labor Statistics (BOL) found that employees’ real earnings fell by 1.7% between 2021 and 2022. In addition, financial stress is a chronic problem in the workplace with 1 in 5 employees admitting that it has negatively impacted their performance at work. Of the people who reported feeling financially stressed, 49% said they spent 3 or more working hours dealing with their financial issues.
So, while you could push more of the financial burden of health insurance onto your employees, it might not benefit you to do so. Beyond increasing their financial stress and lowering their productivity, it could cause them to seek employment elsewhere, at which point it could cost you between 1.5x-2x their annual salary to replace them. The good news is, you have multiple ways you can reduce your healthcare costs as an employer without losing talent or productivity (and perhaps even improving in these areas).
1. Choose value over cost
When looking to reduce healthcare costs, it would be natural to look almost exclusively at the price tag of your different health insurance plan options. But that could be a mistake. Here’s how to effectively evaluate your benefits package to make sure you’re adding value to your employees’ lives and therefore getting “more bang for your buck” from your premium payments so-to-speak.
- Audit your benefit utilization data and drop any under-utilized offerings.
- Survey your employees to see what they want most out of their benefits packages.
- Look for health insurance plans that offer the best value (i.e. cover more of the services and care your employees want at a price that works).
- Consider offering multiple plan types so that employees can choose the health plan that works for them.
- Include a High Deductible Health Plan (HDHP) paired with an Standard Health Reimbursement Arrangement (HRA), a Flexible Spending Arrangement (FSA) or Health Savings Account (HSA). HDHPs are typically the cheapest health plans in terms of premiums and while they do carry higher deductibles than traditional plan types, the ability to use an HRA, FSA or HSA to help pay for those out-of-pocket costs could be a powerful incentive for employees to choose the more affordable insurance.
- Consider offering an Individual Care HRA (ICHRA) to help your employees purchase a health insurance plan in the private marketplace in lieu of offering a group health insurance plan.
- Group health insurance plans vary in price depending on the demographic makeup of the company, where it's located, the company’s size and more. So gather the necessary data for your broker and ask for their help in finding a way to add value and cut costs when it comes to your health insurance benefit.
2. Look into low-cost and virtual services
In a recent study by Cigna, the health insurance provider found that patients who saw virtual providers had 19% fewer visits to the ER or Urgent Care and that virtual care led to a 16% reduction in duplicate care. In addition, virtual visits cost, on average, $141 less than in-person visits.
This is all to say, adding virtual health services to your benefits offerings can reduce expensive claims (which can cause an increase in your annual premiums the following year) and lower your employees’ financial burden overall by giving them access to less expensive medical care. If employees have access to more affordable medical care options, they might be more inclined to choose the more affordable health insurance option of an HDHP. The more employees that choose an HDHP, the greater the potential savings in your health insurance budget.
3. Encourage healthy behavior among your employees
There are many reasons to promote a healthy culture amongst your employees. First, healthier people are more likely to choose lower-cost, less comprehensive health insurance because they don’t anticipate using the medical system often. Second, healthier employees are more productive and miss work less often. Here are steps you can take to encourage healthier behavior amongst your employees:
- Offer wellness incentives to stop negative behaviors like smoking and to encourage positive behaviors like seeing preventative care and getting the recommended number of steps each day.
- Regularly host an onsite clinic to help employees receive preventative care and immunizations.
- Reduce workplace exposure to harmful substances.
- Offer health reimbursements or lifestyle spending accounts for gym memberships, standing desks, wellness apps, etc. To offer this type of benefit you’ll need to set a monthly budget and upper limit (e.g. they can’t accumulate more than $300 in their wellness accounts), and then employees submit costs for reimbursement. Just note that these are taxable benefits and should be included in employees’ taxable income. You will also want to make sure you communicate the taxable nature of this benefit to employees.
4. Ensure your employees are making informed decisions
Educating your employees about their health benefits options serves two purposes:
- It helps them to make the best decisions for themselves and their families (which helps to ensure they’re happy with their benefits and don’t start to look for other employment).
- It helps employees to fully utilize their benefits. Fully utilizing their health benefits can help employees to be healthier, more productive and happier with their benefits package overall.
Employee education can also help reduce fear around multiple types of benefits offerings including HDHPs, HRAs, FSAs and HSAs. The less anxiety employees feel, the more likely they are to participate in the more economically efficient health plans and to fully utilize these offerings.
5. Consider HDHPs
If you already offer a traditional group health insurance plan and you want to give your employees a more affordable option, or if you’re looking to provide one cost-effective health plan for everyone, consider an HDHP paired with an HSA. High deductible health plans are not only the lowest priced health insurance option, on average, for both individuals and families, but they come with the added benefit of an HSA. To be clear, HDHPs don’t automatically come with an HSA, but all employees who sign up for an HDHP as their only health insurance coverage, are eligible to participate in this type of account.
The benefits to an HDHP and HSA pairing include:
- Lower annual premiums for both employers and employees.
- A wide range of preventative care is covered prior to the deductible being met.
- Contributions to HSAs are tax-free in the year they’re made, they grow tax-free and distributions made for qualified medical expenses are tax-free as well (for account owners under age 65).
- Both employers and employees can contribute to an HSA.
- HSA contributions lower employers’ tax liabilities.
- HSA contributions can be used for a wide range of eligible out-of-pocket expenses including deductibles, prescriptions, coinsurance responsibilities and more.
- HSA contributions can be used to pay for expenses for account owners, their spouses and their dependents.
- HSA contributions roll over from year-to-year, never expiring.
- Once account owners turn 65, their HSA converts to a typical retirement account with one exception: distributions for qualified medical expenses remain tax-free. All other expenses are subject to the appropriate income tax rate. This gives employers a way to offer a retirement benefit and a health benefit in one.
- HSAs give employees a way to save for and pay for that medical rainy day, helping to ensure they receive the care they need before a minor problem turns into a major one.
Get started with Lively today!
If you’re interested in a cost-effective way to bolster your benefits package (that could end up lowering your overall health insurance spend), reach out to Lively today. We offer best-in-class HSAs, FSAs and Integrated HRAs so you have a complete toolkit to work with.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.