Do you want to know How to Reduce Healthcare Costs for Employers? Employers seeking to reduce their health care costs can consider a number of benefit design strategies other than just shifting costs to employees through high-deductible health plans.
Let’s take a look at what the phrase “health care costs” really means. It turns out, everybody uses the term to mean something different. Politicians talk about costs in reference to federal and state spending on health care. When hospital administrators and physicians talk about health care costs, they are usually referring to their costs of production, the money they spend on the resources needed to care for patients. Business leaders use the term health care costs when what they really mean is the price of insurance, or the amount they spend on their employees’ health care insurance plans. Meanwhile, everybody bemoans out of pocket costs, the amount patients must fork over at the doctor’s office and pharmacy counter over and above whatever portion of the bill their insurance covers.
Today, most employers are asking: how can health care costs be reduced? It’s not a simple topic for a number of important reasons. Not only are health insurance and claims spend quite complex in nature, but employers must also weigh savings against how valuable the benefit may be to employees and their families. People depend on their employer-provided health insurance to take care of them.
What you Benefits If You Learn How to Reduce Healthcare Costs for Employers
Workplace health programs will not impact many of the drivers of healthcare costs, but they can impact unhealthy behaviors and this is why saving health care costs is one of the main benefits of wellness.
By helping employees adopt and maintain healthy behaviors, they improve their health and avoid chronic diseases. Without chronic disease the cost of health care is greatly reduced. Skeptics may doubt this logic, but that is exactly what happens.
Worksites who do wellness program correctly will experience lower health care costs. They experience wellness outcomes that demonstrate improved health behaviors, lower health risks, and dramatically lower health care costs. You can see this evidence here.
How to Reduce Healthcare Costs for Employers
So how do employers lower their health insurance charges?, while still keeping their team happy with their benefits package?
Here are five strategies to help you reduce health care costs as an employer, without sacrificing the benefits that are so crucial to you and your team.
How to Reduce Healthcare Costs for Employers
1: Offer an FSA
An FSA lets employees set aside pretax dollars from each paycheck to pay for eligible out-of-pocket expenses. FSAs are similar to HSAs, but there are a few key differences you need to consider. The three types of FSAs you can offer include:
- Health care FSA: Employees can use this FSA account to pay for medical, dental, vision, hearing, and prescription drug benefits for themselves, their spouses, and their dependents.
- Dependent Care FSA: This account can be used to pay for eligible child and adult care expenses, such as day care, preschool, and summer day camp.
- Limited Purpose FSA: Your team can use this type of FSA to cover eligible dental and vision expenses. Other eligible expenses may include prescriptions and some over-the-counter items. Employees can enroll in a limited purpose FSA even if they have an HSA.
You can offer more than one type of FSA, and employees can enroll in more than one type of account. For example, a parent can enroll in a health care FSA and a dependent care FSA. Related
In 2020, employees can contribute up to $2,750 / year to their health care FSA accounts. Employers aren’t required to contribute to their team’s accounts, but they can match up to the individual contribution limit for a total savings of $5,500 per year. (Contribution limits differ for dependent and limited purpose FSAs.)
$2,750 (employee FSA contribution) + $2,750 (employer FSA contribution) = $5,500 (maximum FSA contribution)
With a health care FSA, you’ll avoid paying a 7.65% payroll tax (Medicare and Social Security) on the amount employees contribute.
2: Shop around for the best health insurance plans
If you want to reduce health care premiums, you can start by comparing plan prices. Rates for small businesses vary by carrier and change quarterly. Just keep in mind that plans with lower premiums may have higher out-of-pocket costs or fewer benefits.
Before you switch health insurance plans, make an apples-to-apples comparison to your existing plan.
- Use an online comparison tool (e.g. a site like eHealth) to compare your plan’s summary of benefits with plans online.
- Ask a licensed health insurance broker to do it for you by finding the plan that best fits your needs and budget.
Unless you’re confident that you understand the ins-and-outs of health plans, you’ll likely want to consult a health insurance broker before you buy. You don’t want to choose a plan that may cost slightly less, but offers significantly worse coverage.
As you shop, take a look at any additional benefits that come with coverage. Some health plans offer premium discounts to beneficiaries who participate in their wellness programs. These programs help employees and their families tackle common health problems and lead healthier lifestyles.
Some popular wellness programs can help people with:
- Weight loss
- Smoking cessation
- Diabetes management
- Stress management
By choosing a plan from a health insurance carrier that offers wellness programs, you’ll lower your premiums while encouraging your employees to stay healthy.
3: Offer a high deductible health plan
Offering a high deductible health insurance plan (HDHP) is one of the easiest ways to reduce your health care premiums. However, it’s not for all employees.
These plans require employees to pay a higher deductible (the amount paid out of pocket before the insurance kicks in), in exchange for lower monthly premiums. In 2020, an HDHP must have a deductible of at least $1,400 for an individual and $2,800 for a family.
With an HDHP, you’ll pay lower monthly premiums, as will your employees. That being said, some employees are unhappy with these plans due to the high out-of-pocket costs. The out-of-pocket maximum for an HDHP in 2020 is $6,900 for one person and $13,800 for a family, which is quite a lot. As a result, you should consult with a licensed benefits advisor to help you determine if this is the right strategy for your employees.
If possible, offer an HDHP plan in addition to plans with lower deductibles to give your team multiple options.
4: Figure Out Whether You’re Over- Or Under-Insured Based On Your Needs
Data visibility can help employers forecast their healthcare cost for the next year, allowing you to tailor your health insurance options. Barb, for example, could strategically plan her budget to ensure she’s not overpaying for health coverage that doesn’t meet her people’s needs or that she’s not under-insuring in order to save money.
5: Get Visibility Into Your Company’s Health Needs
A strong benefits consultant will be able to analyze your spending, and a strong broker will be able to negotiate the best rates from that insight. If Barb had insight into how her group was spending towards medical costs, she’d be able to insist that her broker fight for fair rates based on their risk profile instead of paying trend renewals each year.