How Companies Can Reduce Employer Healthcare Costs

Employees are looking for healthcare in their benefits packages. How can you offer a plan while still being mindful of your bottom line?

In response to the shockwaves through the workforce generated by the COVID-19 pandemic and Great Resignation, businesses have boosted their benefits packages, especially those related to healthcare. For employers, learning how to reduce employer healthcare costs can be overwhelming. However, doing so is important.

Providing healthcare benefits and managing the associated costs is critical to staying competitive in attracting and retaining employees as well as safeguarding the productivity of those employees. The Paychex Pulse of HR Survey 2022 reveals that 72 percent of employers offer health benefits compared to only 61 percent before the pandemic. And as high as 88 percent of employers rank health-related benefits as extremely important according to the Society for Human Resource Management's 2022 Employee Benefits Survey.

When it comes to reducing healthcare costs, where do you begin? In 2022, healthcare premiums for the average family were $22,463 reported by the Kaiser Family Foundation. This is a tremendous financial burden for many workers. As an employer, you want to offer your employees the best possible healthcare benefits at a cost you can afford. Understanding how health insurance premiums are calculated, costs that are under your control, and ways to reduce employer healthcare costs can help you select a healthcare plan that is the best fit for your business.

Who Sets Group Health Insurance Premiums & How Are They Calculated?

Each state has its own set of regulations for group health insurance, making where you do business one of the most important factors affecting your premiums. Insurance carriers calculate premiums based on applicable regulations along with your group's age, whether the employee is insuring an individual or a family, and tobacco use to calculate the premiums you pay for different plan types. Under the Affordable Care Act (ACA), an individual's health, medical history, or gender cannot affect their premium.

When searching for a health plan for employees, small businesses can benefit from the Small Business Health Options Program (also known as SHOP). This program provides qualified smaller companies with options to offer employees quality health and dental care plans. Participation in SHOP is required to qualify for the small-business healthcare tax credit, which can equal up to 50 percent of their healthcare costs. Managed online, the SHOP marketplace is a resource that offers several healthcare plan choices by state. If a business qualifies, it can enroll and administer the programs online.

Which Healthcare Costs Are Under Your Control?

Research from the Kaiser Family Foundation shows that the average small employer contribution for single coverage in healthcare premiums in 2022 was $8,012 (for large firms it was $7,873). Multiply this amount by your number of employees and you can see how even a small cost-control measure can make a big difference to your budget. Some of the important factors affecting costs are under your control as an employer, and carriers often structure their plan offerings around them. Here is a look at some of them:

1. Carrier: Identifying the best insurance carrier for your business is a key component in managing costs. Your plan premiums may be higher or lower depending on your choice of insurance carrier.
2. Deductible: Plans with high deductibles typically feature lower premium amounts and vice versa. You can choose which plan or range of plans provides the best balance of coverage and affordability.
3. Copay: Offering a plan with a higher copay amount may help to reduce plan premiums. Lower copays for participants usually translate into higher premiums.
4. Prescription: Coverage for prescriptions may be offered separately from your company's main health insurance plan, or not at all. In most cases, the more your prescription coverage pays for generic to highly specialized name-brand medications, the higher the premium amount.

7 Ways To Reduce Employer Healthcare Costs

Healthcare costs can be difficult to manage, which is why it's important to take time to research additional options early in the year. Here are some ideas for reducing healthcare costs and making the most of the dollars spent.

1. Shift to Plans With Higher Deductibles and Health Savings Accounts (HSAs)

Requiring employees to contribute more to their health insurance is one of the more common employer strategies for reducing healthcare costs. Be aware, however, that employees are financially burdened and typically have little room to absorb more monthly expenses. Shifting to plans with higher deductibles while also offering the tax and retirement benefits of an HSA can help everyone stretch their dollars. In fact, retirement plan benefits came in as the second most popular benefit offered by companies with 20 to 500 employees according to the Paychex Pulse of HR Survey 2022. An HSA is a solution for both.

2. Improve Employee Education About Healthcare

Employees can be given the opportunities to reduce their healthcare costs, and, in turn, their employer's healthcare costs, but they need to be informed consumers to act on those opportunities. It's up to you, the employer, to provide accessible, helpful information that educates and empowers employees to take full advantage of their benefits.

Companies can host employee seminars to teach employees about their health plans and how to reduce their costs — whether that's using urgent care centers instead of emergency rooms when appropriate or understanding how to read their medical bills and review for errors. More tools are also becoming available to allow employees to better compare the costs of care. Regular education and information dissemination may also be needed to connect employees to other employer-sponsored health benefits.

3. Telehealth

Going to the doctor can be time-consuming and difficult. With the advancements in video conferencing through a computer, smartphone, or tablet, telehealth has become an acceptable, alternative healthcare delivery method. Not only is telehealth convenient, but it's one way to help mitigate healthcare costs for you and your employees. Its efficiency makes it less expensive and a more affordable option than an office visit.

4. Wellness Programs

Wellness programs can heighten employees' awareness of their health, which encourages better choices and behaviors. Such efforts may lead to a lower number of claims and higher levels of productivity along with employees who feel physically and mentally healthier and thus more engaged with their work. Smoking cessation programs, fitness class discounts, diabetes management, biometric screenings, stress reduction, and even organized activities sponsored by the business can encourage healthier behaviors.

5. Work/Life Balance

The COVID-19 pandemic thrust the issue of work/life balance into the spotlight and employees' response ushered in the Great Resignation. The Paychex Pulse of HR Survey 2022 reports that incorporating work/life balance into the company culture is one strategy HR teams are using to help employees prevent burnout and manage stress, both of which negatively impact physical and mental health. Supporting remote and hybrid work situations and offering an employee resource group (ERG) are just two of the low-cost strategies employers can use to reduce healthcare costs through a work/life balance approach.

6. Healthcare Assistance Programs

Offering additional healthcare benefits may seem like an odd strategy for how companies can reduce healthcare costs. But providing assistance services can help manage healthcare costs in the long term. Research the cost of an outside or supplemental healthcare assistance service or ask your insurance provider if they have any offerings. Hotlines and other forms of communication such as texting, chats, or video conferencing staffed by nurses, coaches, or other licensed, experienced personnel can help employees with basic health issues, specialist referrals, or even insurance questions. Programs that manage asthma, diabetes, chronic pain, obesity, addiction, and other chronic diseases are another area that can benefit your workers and may reduce employer healthcare costs over the long haul.

7. Deductibles and Co-pays

Companies looking to reduce healthcare costs may consider changing current deductibles or employee co-pays. For employees who rarely visit the doctor outside of preventative screenings, paying more per visit may be preferable to an increased healthcare premium amount subtracted from their bi-weekly paycheck. Understanding how your workforce uses health plans can help you choose a plan that works well for everyone. Deductibles and other forms of cost-sharing, especially for individuals or families with low-income levels, could take up a large portion of a worker's paycheck. Conversely, you want to help make sure your employees understand their options so they can be prepared in the event of a medical emergency.

Select the Right Healthcare Plan for Your Businesses Needs

With many types of group insurance offered through different carriers, it can be difficult to know exactly which plan will help ensure that you and your employees have the appropriate coverage.

The more options you explore when choosing an insurance plan, the closer you can match the insurance needs of your business and employees to your budget. Engage a dedicated insurance agent to help you determine the best way to control costs.

Disclaimer: Insurance sold and serviced by Paychex Insurance Agency, Inc., 225 Kenneth Drive, Rochester, NY 14623. CA License #0C28207.