How to Reduce Healthcare Costs Without Impacting Patient Outcomes

In 2021, 49% of adults in the United States with an income of less than $24,000 annually were “cost insecure” regarding healthcare affordability. Another 14% were considered “cost desperate.” Sixty percent of adults earning the same amount stated that healthcare costs contribute to their stress. It makes sense that healthcare benefits from employers remain attractive to prospective employees.

However, employers also need to identify how to optimize the costs and ensure they’re spending on the right healthcare benefits. Reducing the costs will help the bottom line, but it’s also imperative not to sacrifice healthcare quality. It’s a tough balancing act.

If you’re a broker aiming to help employers improve their spending, this article serves as a guide on what you can propose. If you’re an employer looking for alternative healthcare solutions, this guide breaks down your options and discusses how brokers can help you.

Key Factors to Rising Healthcare Expenses for Employers

The environment people find themselves in heavily influences their health and decision-making, and unhealthy environments or choices can increase employer healthcare costs. According to the U.S. Centers for Disease Control and Prevention (CDC), 6 out of 10 Americans have at least one chronic disease, with 4 out of 10 having two or more. Medical advances in technology also contribute to the rising prices.

These controllable factors can help reduce healthcare costs:

• Insurance coverage: Plan coverages depend on the carriers that employers work with. Coverage also determines whether employees can afford the prescription they need, which is essential in preventing further health problems. The premium is one of the main healthcare expenses. However, an employee’s health, medical history, and gender should not affect the premium.
• Deductibles: High deductibles may mean lower premiums. However, this can also discourage employees from treating health problems early on, as they would have to spend out-of-pocket to get treatment. Finding the right balance is essential.
• Copayments: Similar to deductibles, high copayments can mean lower premiums, but can be discouraging for employees. Identify what’s good for everyone in the long term when saving on costs.
• Location: Every state has its own regulations for health insurance. Carriers consider the person’s location when calculating premiums. If the employer plans to do business in multiple locations, varying regulations can be something to consider.
• Healthcare options: Employers can offer various health benefits to employees, and finding the right fit is essential. Offering multiple options can be cost-effective in the long run.
• Work culture: Culture plays a huge role in combating healthcare expenses. If an employer develops a work culture that prioritizes employee health, the company can avoid spending on more expensive treatments due to untreated illnesses. For instance, offering enough sick time off is one way to promote a healthy culture.

8 Ways Employers Can Reduce Healthcare Costs

An employer can reduce healthcare costs by making certain changes in their systems and opting for appropriate healthcare programs. As a broker or employer, you can propose or implement the following strategies.

1. Emphasize Preventive Care Programs

There’s no better way to reduce healthcare costs than preventing them in the first place. A business can encourage employees to take better care of their health through the following:

• Wellness programs: Wellness programs can include fitness class discounts, stress reduction programs, biometric screenings, or other activities employees can benefit from. A rewards program can also motivate employees to participate in these wellness activities.
• Employee education: According to one study, more than 43 million Americans have inadequate health literacy. Improving employees' health literacy can help them make better health-related decisions. Employers can regularly disseminate information that can help employees improve their well-being.
• Health-related facilities: Certain facilities can contribute to building a healthy culture. For instance, employers can provide a gym or a fitness center to encourage employees to stay active. Offering on-site healthcare services also makes primary care more accessible.

2. Prioritize Value-Based Insurance Design (VBID)

By prioritizing Value-Based Insurance Design (VBID), the employer shows that improving their employees’ health conditions is the priority, apart from cost reduction. With VBID, employees can access “high-value care” services, which are medical services treated as the most valuable based on cost.

VBID reduces employees’ out-of-pocket costs for primary care visits, which is a high-value service. This helps encourage people to seek treatment, increasing the likelihood of early detection for serious illnesses. Primary care visits can also reduce outpatient and emergency department visits. In the long term, this can reduce hospitalizations and larger expenses.

3. Leverage a Health Savings Account (HSA) or Flexible Spending Account (FSA)

An HSA encourages employees to allot a part of their earnings to a personal savings account specifically for healthcare expenses. Employees can withdraw the funds as needed, tax-free, for qualified medical expenses. Unused funds can also grow in their account tax-free. Growing their funds this way decreases the likelihood of skipping appointments and medication due to budget constraints.

An HSA works together with a High-Deductible Health Plan (HDHP), which is a health plan with higher deductibles but lower premiums. Employees cannot open an HSA without an HDHP. These two options enable employers to enjoy lower premiums without sacrificing the employee’s ability to pay for expenses.

Conversely, an FSA lets employees pay for out-of-pocket expenses, including deductibles, copayments, or prescription medications. The money can also be used for medical equipment like bandages or crutches. Similar to an HSA, employees don’t pay taxes on these funds. Employees cannot have an HSA and an FSA at the same time.

Both of these account types have contribution limits. If the employer chooses to contribute, the cap makes budgeting easier. Employer contributions are also optional, giving more leeway to businesses.

4. Implement a Health Reimbursement Arrangement (HRA)

As the name suggests, an HRA reimburses employees for their healthcare expenses. Employers can provide an HRA or a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) if they’re a small business. An HRA is an employer-funded group health plan, where employees can use the funds for qualifying medical expenses. Employers can also reimburse premiums, deductibles, and copayments. An HRA can even pay for the employee’s household healthcare expenses.

An HRA is cost-effective as it helps employers set fixed contributions. Employer contributions are tax-deductible, while employees can use the funds tax-free. An HRA is also customizable. Employers can decide which expenses are qualified depending on what their employees need.

5. Encourage Telemedicine Services

Telemedicine services are becoming part of the norm as an alternative method for receiving healthcare. Employees won’t need to visit the doctor for their checkups, which can reduce absenteeism and make healthcare more accessible. Even though telemedicine is more efficient, it is also less expensive compared to visiting a doctor’s office.

Telemedicine includes urgent care, routine care, mental health care, prenatal care, and even management of chronic conditions. Employees may need to visit a clinic in person if they require tests or physical assessments. However, remote consultations encourage people to consult a doctor early on and prevent the progression of illnesses.

6. Consider Allowing Remote Work or Hybrid Setups

Some studies indicate that remote work has improved the overall well-being of workers. Others have claimed an improved quality of life. These improvements can reduce the stress of employees, which is helpful in preventing illnesses due to stress. However, employers need to address the challenge of isolation and loneliness to ensure success.

7. Streamline Administrative Processes

Administrative costs can take a toll on the company’s resources. Streamlining benefits administration processes can be an effective way to reduce healthcare costs without reducing healthcare quality. Companies can invest in automated workflows, data analytics software, and other tools that can increase productivity without using too many resources.

Having a streamlined process also makes it easier for employers to review how many people enroll and how they use the healthcare benefits as a group, allowing employers to make adjustments and only spend on benefits people actually use.

8. Make the Most of Your Broker’s Network

If you’re an employer, working with a broker can help reduce your company’s healthcare expenses. Your broker can help you offer significant benefits without sacrificing the company’s financial stability. You only need to communicate your needs so they can identify what works best for your business. They also have expert knowledge of the insurance market and policies and can carefully explain what you need to know.

Brokers can negotiate with various providers on your behalf, especially with those they’ve built a relationship with. Because they’ve built up a network, they can offer multiple options and get you better rates. If your broker works with multiple businesses, they may have bulk buying power.

Impact of Healthcare Costs on Employee Satisfaction

Providing suitable healthcare benefits keeps a business competitive. According to the U.S. Census Bureau, from 2020-2022, about 86% of private sector employees worked for businesses that offered employer-sponsored health insurance. If a company wants to hire the best talent, it’s imperative that it provides the benefits that attract such talent.

Additionally, according to the American Medical Association, 17.6% of the gross domestic product (GDP) in 2023 came from health spending. Simply lowering health insurance premiums may not be in the best interest of employees. With certain health insurance, some plans still have inadequate coverage.

If an employer can provide adequate healthcare benefits without negatively impacting their bottom line, it can lead to happier employees. This can also lead to better spending overall as it improves turnover rates. According to one study published in the National Library of Medicine, organizations with strong benefits can reduce the chance of turnover by 26%.

How to Find the Right Provider

The right provider — whether that’s an insurance provider or an account provider — depends on the unique needs of a business and its employees.

Whether you’re a broker or employer, if the priority is to save on health insurance, consider the following:

• Monthly premium: Calculate the total cost for the monthly premium by multiplying the amount by 12 months. This number should be within the company’s budget.
• Copayments: Consider the fee or the percentage employees need to pay for every care they receive. Higher copayments can be better for employees who don’t need a lot of medical attention. Fewer clinic visits can mean fewer spending on their end.
• Deductibles: How much will employees need to pay before the health insurer pays the bill? Similar to copayments, higher deductibles can be better for employees who are healthier and don’t need a lot of medical attention.
• Out-of-pocket costs: This refers to the maximum amount employees can spend in a year before the insurer pays 100% of the rest of the covered services.

Employers can also check whether their employees prefer a low-coverage or high-coverage plan. A high-coverage plan generally has higher premiums but lower out-of-pocket costs.

If you’re choosing between special account types, consider fees, investment options, account features, customer service, and testimonials from other users. You should also review the contribution limits and qualified medical expenses to ensure they meet the employees’ needs.

The more employees use their healthcare benefits, the more employers should reflect on this usage. Based on this data, employers and brokers can make adjustments to optimize spending and ensure everyone gets the quality treatment they need.

Reduce Healthcare Costs With The Difference Card

The Difference Card helps businesses create the most effective healthcare plan for their employees without reducing the bottom line. Employers save an average of 18% on health insurance expenses, which are then typically reinvested in the plan to lower an employee’s out-of-pocket costs. Moreover, we have over 20 years of cost-saving experience, with nearly $1 billion in savings.

If you’re a broker looking to pitch the best products, The Difference Card makes it easier as a one-stop shop for healthcare needs. We offer special account types, such as an HSA, HRA or FSA, in just one card.

If you’re an employer looking to reduce healthcare costs, you can count on The Difference Guarantee! We guarantee that your healthcare spend will be below a dollar amount. If your healthcare spend exceeds our guarantee, you’ll get a check back for the claims above the threshold. If you’re ready to learn more, become a partner today and request a proposal!