Business Health Insurance Costs are Rising: Here’s How to Keep Them Low

health benefits administration
Health benefits administration isn’t just expensive—it’s also time-consuming for HR. Save time and money by managing these costs.

Key points:

  • Business health insurance costs are rising rapidly.
  • Managing costs requires a shift to preventative care and wellness.
  • Licensed brokers can help facilitate shifts in the cost management of employee health benefits.

Sticker shock is hitting consumers everywhere. Prices are rising for everything from groceries to gas. Employers across the U.S. are also dealing with unsustainable price increases on a product that doesn’t get a lot of attention on the nightly news —business health insurance costs.

Currently, employee benefits account for roughly 30% of an employee’s total compensation. It cost employers nearly $7,500 for single coverage and $21,500 for family coverage in 2021.

While the Affordable Care Act (ACA) in the United States has made significant changes in the healthcare landscape, it does not require all employers to provide health insurance. However, the ACA imposes penalties on large employers (those with 50 or more full-time employees) that do not offer their workers affordable and comprehensive health coverage. This mandate encourages employers to contribute to the well-being of their workforce, but smaller businesses often face difficult choices when it comes to providing health benefits due to financial constraints.

Despite the cost considerations, offering health insurance is a wise investment for businesses of all sizes. Studies have shown that employees who have access to comprehensive health benefits are more likely to be satisfied with their jobs. Better employee satisfaction leads to lower turnover rates and increased productivity. An overall healthier workforce translates to reduced absenteeism and better overall performance, which positively impacts a company’s bottom line.

However, business health insurance costs rose between 6-7% over the past three years, according to a McKinsey survey of over 300 employers. Any rate increases beyond 4-5% are unsustainable, so if costs continue to climb—even by just 4% —roughly 95% of employers may consider cutting benefits.

These cuts would likely take the form of higher employee contributions to premium costs or a shift to high-deductible health plans. Both of these options will leave employees paying even more out-of-pocket for their existing health plans.

In today’s tight labor market, they are far more likely to leave for a more competitive job elsewhere. Keeping good employees while cutting costs is a tricky balancing act for any employer, but it isn’t impossible. 

Here are some tried-and-true strategies to manage (and cut) health benefits costs:

How to Manage Business Health Insurance Costs

Manage your benefits in a way that benefits both your company and your employee’s health 

Benefits are among the biggest perks for any employee, but they aren’t cheap from a company’s perspective. 30% of total worker compensation is spent on benefits alone, according to the Bureau of Labor Statistics. Fortunately, there are a number of ways for companies to cut business health insurance costs: 

Analyze employee program use 

Before you cut costs, you need to understand how employees use your programs. The first step is to take stock of all the health benefits you offer employees right now, review benefits enrollment records, and speak to employees themselves). From there, you can answer the following questions:

  • What are the most popular benefits solutions? 
  • How much do employees spend on healthcare, versus wellness perks like gym memberships or weight loss programs?

One easy way to find these answers is to use a Human Resources Information System (HRIS) to easily pick out enrollment trends. 

If there are any very low-enrollment perks or packages on your company’s health benefits program, cut them. Also, try to pare down any undersubscribed benefits plans to ensure employees are actually choosing the options you’re paying for. This process isn’t just about saving money on business insurance costs—it also allows your employees to get as much out of their benefits as possible. 

Promote the right healthcare plans 

Employers can offer a wide variety of health benefits packages, but some of these options might be more cost-effective than others. Be sure to promote high-deductible plans that are just enough to serve an employee’s health requirements without breaking the bank —or your benefits budget. Conversely, employers can offer Health Savings Accounts (HSAs) to let employees save money for healthcare needs without paying income tax.

Cut down on administrative costs 

Health benefits administration isn’t just expensive—it’s also time-consuming for HR. Saving money on this whole process can be as simple as delegating the benefits enrollment to your workforce, freeing up your company’s HR members to handle more complex tasks. 

Instead of making HR do a week’s worth of seminars and onboarding every time Open Enrollment comes around, use online portals or pre-recorded informational webinars. This empowers employees to take control of their own health benefits and cuts down on the time HR spends managing employee data.

Invest in workplace wellness programs

Preventing illness or injury in the first place is far less expensive than paying premiums for an extended hospital stay. While some medical conditions are driven by genetics, roughly 70% of all healthcare spending comes from behavioral or lifestyle factors—such as not exercising or eating poorly—that can be changed. 

Investing in a solid workplace wellness program will reduce healthcare costs by as much as 25%. Additionally, workplace wellness programs will decrease absenteeism related to poor health. These plans might not benefit every employee, but they can keep relatively healthy employees from sliding into a higher-risk category and driving up benefits spending. These programs will also improve the overall physical and mental health of employees who are at high risk of developing complications like type II diabetes, depression, or cardiovascular disease. 

Establish health-promoting policies at work

Employees spend a third or more of their weekday hours at work, so establishing better health on the job is an excellent way to cut down on the cost of health benefits costs. One of the simplest policies is giving employees sick time they can take without loss of pay. This might seem like an expensive option, but giving employees sick time to rest is less costly than forcing them to work while sick and potentially racking up health benefits spending. 

Another policy is to supply healthy food for organizational events or parties. Instead of ordering Dunkin Donuts for a Friday afternoon end-of-week meeting, maybe consider yogurt parfaits, hummus and veggies, or other nutritious options. These little acts will lead to a more health-conscious workforce that calls in sick less, works harder, and ultimately requires less healthcare spending. 

Help employees access preemptive care 

A promise to prevent disease whenever possible—“for prevention is preferable to cure”— worn by medical students, is called The Hippocratic Oath. This advice also holds true when it comes to health benefits. Getting employees the screening, immunization, and follow-up care they need will lower healthcare costs. 

On top of ensuring employee access to preemptive medical treatment, employers also need to help their workers better understand the importance of healthy living, warning signs related to illness or injury, and the most efficient ways for them to seek medical care. For example, if an employee can go to a walk-in clinic instead of straight to the ER, the result might be faster care—and a less expensive insurance bill. 

Reduce on-the-job health risk exposure 

Finally, reducing health and safety hazards on the job is a way to lower the cost of health benefits and lost productivity related to injury or illness. These cost savings are significant: in 2020 alone, the total economic impact of workplace injuries in the U.S. was $163.9 billion, according to the National Safety Council.  Each workplace injury requiring medical consultation costs an average of $44,000. 

Safe workplaces cut down on employee turnover, are less prone to negligence lawsuits, and have much better workplace morale than dangerous ones. Ultimately, investing in health and safety leads to fewer injuries on the job, which leads to fewer missed days and healthcare expenses.

Temporarily reduce retirement benefit contributions

Cutting back on employer-side retirement contributions is one way to quickly scale back on benefits spending without any immediate effects on employee well-being. The average retirement and saving costs for employers is currently around 3.5% of a worker’s annual pay, according to the Bureau of Labor Statistics, so trimming retirement benefit contributions can lead to significant savings. 

That said, this is a risky long-term move, especially in a company with older workers. In a tight job market where benefits are consistently seen as one of the biggest perks, robbing the future retirement earnings of employees will not be popular.

Your talent may depart for companies with higher retirement benefit contribution rates. But, during a time of need, companies that use this tactic sparingly might be able to save a lot of money on their benefits plans. 

The Benefits of Managing Healthcare Plan Costs

When you focus on preemptive care, you’ll begin to see improvements in absenteeism and your overall bottom line  

benefits of managing business heath insurance costs

Cost-cutting is generally seen as a downside. However, managing health benefits spending does come with a few upsides if an employer is willing to re-invest some of their savings into employee health and wellness they can expect the following benefits: 

Increased productivity 

Thanks to wellness programs and preemptive care, as well as healthy habits in the workplace, your employees are better able to avoid expensive trips to the hospital. Better overall health will translate into improved productivity in the workplace, a phenomenon known to workplace researchers as the “happy worker hypothesis.” 

In fact, the positive impact of wellness programs on productivity can significantly outweigh the costs of administering them in the first place, according to the International Labor Organization. For every dollar invested on Johnson & Johnson’s workplace wellness program, for example, the firm received a return of between $1.88 and $3.92. 

Reduced absenteeism 

Healthier workers aren’t just better able to do their jobs; they’re also less likely to call in sick. As of last January, the National Institute for Occupational Safety and Health found roughly 2.64% of all full-time workers were absent for health-related reasons

Lowering absenteeism has a profound effect on productivity, efficiency, and workplace performance. Productivity losses linked to absenteeism cost U.S. employers nearly $3,000 per employee, every year. Addressing health-related issues through diet or exercise, or even just a day off to rest and recharge, costs far less labor time than having a worker stuck in the hospital for an extended period of time. 

Support for an aging workforce 

Workers are increasingly skewing older. Roughly 36 million American workers are over the age of 55, according to the latest data from the Bureau of Labor Statistics. These employees naturally suffer more health-related challenges than their younger colleagues and are looking for employers with robust benefits packages. Providing packages, given the presently rising cost of health benefits, is a challenge.

If employers are able to balance rising health spending with comprehensive health benefits plans, they’ll be able to recruit valuable older candidates who bring decades of relevant experience to their jobs. 

How Sentric’s Licensed Brokers Can Help

Work with Sentric to find the best possible health benefit solutions

Deciding how to cut down, alter, or optimize your company’s business health insurance cost isn’t easy, and the benefits process isn’t always smooth or straightforward. But Sentric’s licensed brokers can walk you through building the best benefits plan for your employees, open enrollment, technical benefits questions, and how to educate your workforce to pick the plans that work best for their needs—and for your budget. 

Contact a Sentric broker today to learn more about business health insurance costs and savings. 


The Sentric Team

The Sentric Team

At Sentric, we help businesses make people management easier with industry-leading technology and standout support.

Sentric HR & Payroll Insights

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