Again, health care costs increase. According to a recent Mercer study, the total cost of health benefits per employee is expected to increase by 8.2% in 2027 – after employers’ planned cost-cutting measures (without action, employers told Mercer their existing plans would increase by about 11%). This would be the largest increase since 2003.
And once again, we see the same reaction from employers. The Wall Street Journal recently reported that even as health care costs have increased, the share of those costs coming from employee salaries has “climbed” even faster.
Health care costs are still rising. Naturally, employers care about their bottom line. But is this the right approach to pass these cost increases on to employees? Or maybe it’s just a little short-sighted, even lazy. Especially when many employers — especially small businesses, 44% of which offer no health benefits — have options instead of simply charging their employees more.
For example, offering an Individually Covered Health Reimbursement Plan (ICHRA) is one potential answer. Under this type of plan, an employer does not need to purchase group health insurance. Instead, reimbursement is provided to employees when they have their own health coverage.
An HRA is not for everyone. But it’s a good answer, especially for small business owners. And that’s why ICHRA adoption has increased between 73% and 128% among employers with fewer than 100 employees.
Another way to reduce costs is through health savings accounts, or HSAs. If a company already has a high-deductible group insurance plan, it is usually very easy to attach an HSA plan to it. There is a minimal cost to setting up an HSA plan, 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, co-pays, prescription drugs, many over-the-counter medications, and dental and vision costs that may not be covered by the insurance policy.
An HSA allows employees to reduce their taxable income, which helps them save money on healthcare. Workers like these plans because there are no required distributions and the money grows tax-free. Plus, if they change jobs, they can take their savings with them. This is an easy and inexpensive benefit to offer that keeps costs down.
Once reserved for larger businesses, a growing number of small employers are now also choosing to self-insure. Some of my clients have signed up to level endowment plans, with which they reimburse their employees for healthcare expenses up to a certain amount, then purchase stop-loss coverage to cover larger claims.
When a company self-insures, it begins to pay more attention to the out-of-pocket expenses paid by its employees. For this reason, a growing number of companies are negotiating their rates with local urgent care centers, healthcare providers and pharmacies, and asking their employees to use them to better control their costs. Amazon and other online pharmaceutical suppliers are now offering aggressive discounts on products under corporate plans.
For many of us, choosing a health care 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 which plan is best for your family. Paying a consultant to work directly with employees to help them choose the right plan (or perhaps go to the health exchanges or Medicare for older employees) not only helps them make smarter, more profitable decisions, but also helps you reduce a company’s health care premiums.
Any or all of these strategies can play an important role in controlling health care costs, both at the corporate and employee level. So why aren’t more companies doing this? Because it takes time, effort, resources. It’s a lot of work. Rather than doing this, most employers simply pass the cost on to their employees and move on.
But moving on is not a good idea. This type of laziness has its risks. At some point, costs become too high and, given that healthcare is still one of the most in-demand benefits, it can impact worker attraction and retention. The job market is tight. Most of my clients continue to look for talented workers. Those who strive to offer these types of plans are more attractive to workers and position themselves not only to better control their costs, but also to grow.
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