How to Reduce Healthcare Costs for SMBs and Their Employees

Quick look: Global healthcare costs are slated to increase by 10% in 2023. While this is a tough pill for many clients and employees to swallow, brokers can provide some relief by partnering with a PEO that can offer access to more affordable and highly personalized benefits plans designed to help SMBs attract and retain workers and pad employees’ budgets amidst rising inflation.

Despite a variety of personalized benefits being desired by employees today, quality health insurance still remains the most important benefit to staff.

However, the cost of healthcare benefits continues to outpace even inflation. This puts both clients and their workforce in a tough spot; businesses are eager to offer competitive yet affordable benefits packages to attract and retain talent, and employees seek comprehensive plans that don’t eat into their monthly budgets.

Luckily, brokers can help by partnering with a professional employer organization (PEO) that provides clients with comprehensive benefits plans at a lower cost than if they were to purchase them on their own.

The proven value of high-quality benefits

Before we discuss the rising cost of benefits and how to reduce healthcare costs for your small- and medium-sized business (SMB) clients, it’s important to review just how important these plans are to employees and an organization’s success.

For instance, data from the National Alliance for Insurance Education & Research reveals 78% of employers feel that attracting quality talent and retaining employees are more important than ever, and 100% believe that health and well-being benefits are needed to accomplish that priority.

Rising costs

The importance of employer-sponsored healthcare coverage is clear, but unfortunately, nearly 75% of organizations say rising costs are impacting their ability to provide salary and wage increases, according to the National Alliance survey. The research also found that 82% of businesses report that healthcare costs impact their ability to remain competitive, as this pinch can impact a business’s capacity to offer appealing salaries to potential talent.

Employer-sponsored healthcare premiums have steadily risen over the past 20 years, and premiums have risen faster than employees’ wages over the past five years. According to the Kaiser Family Foundation, between 2011 and 2021, costs for family coverage rose at more than twice the inflation rate.

These price hikes have a serious impact on employees. Research shows that half of the people who struggle to afford healthcare delay their or a family member’s needed care or medication due to cost. Further, almost 75% of Americans agree that inflation has made them more stressed about their financial situations (up from 66% in March 2022). This economic and medical stress can cause otherwise engaged employees to seek new employment opportunities that offer better salaries and benefits packages.

Why the rise? The National Alliance found that drug prices (93%), high-cost claims (87%), and hospital costs (79%) are the three most significant cost drivers of employer-sponsored health plans. And the RAND Corporation found that commercial rates for hospital care are about 224% of the Medicare rates, meaning clients and their workers are paying higher prices for the same services.

Unfortunately, this rate increase isn’t expected to go away anytime soon. Willis Towers Watson (WTW) recently reported that U.S. employers believe their healthcare costs will rise 6% this year, compared to an average of 5% last year. In fact, 71% of businesses predict moderate to significant increases over the next three years, and global healthcare costs are projected to spike 10% in 2023, the highest jump in almost 15 years.

What’s being done?

Both clients and their employees are taking steps to soften the financial blow.

According to the National Alliance research mentioned above, 47% of employers are using centers of excellence, or a healthcare facility separate from the place of diagnosis where patients continually return to receive care, and during the next one to three years, businesses are considering:

• Tiered networks (46%)
• Site of care strategies (43%)
• Contracting or applying performance guarantees to tie hospital prices to Medicare (39%)
• Reference-based pricing (36%)

Other strategies employers are implementing include high-cost claim management (94%), developing mental health and substance abuse care access and quality (94%), hospital quality transparency (93%), price transparency (91%), and embracing holistic healthcare that includes physical and emotional well-being (90%).

On the employee front, research from Voya Financial found that 70% are interested in receiving help to optimize their spending across retirement savings, health insurance, health savings accounts (HSAs), and voluntary benefits including critical illness, hospital indemnity, disability income, or accident insurance.

How brokers can help lower healthcare costs

Many clients are finding themselves in a challenging situation. They want to control the amount they’re spending on healthcare, yet also hope to provide robust and affordable coverage to employees to attract and retain them and help pad their personal budgets.

Brokers can help business leaders find this middle ground by leveraging a PEO partnership. PEOs can provide access to comprehensive, competitively priced health plans that feature economies of scale, meaning SMBs can likely receive lower-priced, higher-quality plans than if they were to purchase the policies independently.

And access to plans is just the beginning. The benefits administration and management services offered by a PEO can educate and help employees feel more confident about spending their benefits dollars.

As brokers evaluate potential PEO partners, it’s important to note that not every PEO is the same. While many offer large group health plans, a PEO like ExtensisHR distinguishes itself by also providing:

• Personalized benefits options designed to suit today’s multigenerational workforce, including family-forming support, 401(k) and 529 savings plans, and more
• A wide range of benefits administration and management services, like benefits planning and servicing, benefits consulting, ACA and COBRA compliance and administration, and more
• Top-tier customer service where you know your clients will have constant, direct access to a dedicated support team
• A broker-centric business philosophy that prioritizes helping you grow your book of business

How can you help to reduce healthcare costs for your clients as prices continue to creep up? Contact the ExtensisHR team today to discover how a partnership with us can help you achieve that goal.