Optimizing benefit costs begins by exploring the current forces that drive them.
A basic understanding of how they interrelate prepares employers to think more critically about spend allocations for benefits overall, particularly health care, as well as employee communication. The end goal is to gain the best return on investment in organizational well-being, which always factors in workforce well-being.
Both employers and employees are bracing themselves again to endure additional financial pressures from health care cost increases. Employer contributions to private health insurance premiums are projected to grow by 5.1% in 2022 for private businesses and 5% for household premiums, according to the Centers for Medicare & Medicaid Services.
Meanwhile, COVID’s toll on claim costs has not been fully tallied due to unknown costs of delayed and deferred care. Missed opportunities for preventive care in the past two years create the potential for a downstream impact lasting three to five years. It’s the risky price of diagnosing health care-intensive conditions, such as cancer, later rather than earlier.
Existing reimbursement models pose another challenge for employers, because the interests of two major players—health care payers and health care providers—do not align with their own. Although greater consolidation is increasing providers’ leverage with payers, medical loss ratios and enhanced gross margins resulting from higher premiums are lowering payers’ motivation to mitigate costs.
Proven time and again, just thinking differently about complicated or stubborn issues often breaks a seemingly immovable impasse. In this case, direct contracting with health systems offers one cost solution. Yet so far, just 26% of employers apply it, and 13% are evaluating or considering this type of arrangement.
While it’s fairly safe to assume that virtual care is here to stay, fragmentation and spotty utilization make the impact of this model difficult to predict. An increased availability of point solutions more widely supports employees. However, underexposure caused by too little communication often undermines awareness, understanding, and perceived value. Daily demands placed on human resource leaders and resource limitations can make strategic planning difficult. Yet, for ROI-management purposes, it’s essential to consider how employees access care and to evaluate their experience.
Benefits, financial well-being are linked.
If leadership teams and managers expect to lower the expense of health care and other benefits as they increase revenue, certain actions are critical. They need to measure and understand the potential for physical health, mental health, and financial well-being to affect organizational health—and invest in strategic opportunities as an avenue for adding margin to the business. However, to make that commitment, leaders may need to see a clearer connection between employee well-being and operational outcomes.
Providing better insight into what is measured—and why—is the first step toward making a solid case, followed by monitoring key predictors of success. The ability to establish a strong link between benefit outcomes and business metrics validates the importance of this interrelationship. But an overwhelming 91% of HR leaders need more support to achieve this goal and earn leadership’s interest and investment.
Moving data from silos into a more integrated platform also can clarify the well-being connection. Predictive technology will increasingly be able to identify red flags for turnover rates or preventive care spend, allowing employers to address these risks closer to real time.
Metrics on active participation in retirement programs and engagement with financial well-being tools provide insight into employee financial stability, which is linked to organizational sustainability. Optimal financial well-being outcomes, which support better physical and emotional health, become likelier when employers actively help employees engage in benefits. When people don’t retire because they can’t, this predicament often increases costs for organizations.
Sharing hard evidence of the effects of compromised health on employee and business outcomes, spotlighting higher health care costs, elevates the discussion to the level of C-suite interest. Illustrative metrics are abundant. For instance, research shows that 40% of employees report very high levels of stress and 25% cite work as the top stressor in their lives. Those experiencing higher stress levels spend 50% more on health care than their less-stressed peers.
In general, when planning to optimize cost effectiveness, it’s important to evaluate currently available benefits with a focus on health care. New options sometimes fill gaps that others can’t. But it’s also true that redesigning and realigning existing offerings with organizational needs, and maximizing ROI through communication, may achieve equal or better results.
Many organizations now accumulate priorities where they recently invested financial resources. Yet left idle for too long, these intentions may hold back progress. Reviewing significant expenses as the business climate changes can identify opportunities to lower health care and other costs, allowing more constructive budget allocations. And wherever applied, strategically enhanced communication, integrated platforms and effective measurement help improve benefits use by enabling employees to better understand the value of these offerings and employers to realize a better ROI.
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