Having data and supporting analytical expertise is critical to answering these questions and designing a healthcare benefits plan that delivers desired strategic outcomes.
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Large or small, every organization must ask themselves what and who to cover, as no employer can offer everything that every employee wants"
Ashley Ellis Díaz, strategic relationship partner, Enterprise Benefits and Human Resources Consulting
The essential role of data and how smaller firms can gain insight
Access to claims data and associated insights is the key to developing a customized approach to health benefits affordability. We recommend tracking claims data over time to identify trends, including claims associated with specific high-cost conditions, medications and treatments.
Understanding trend lines enables you to adjust your plan structure and puts you in a stronger negotiation position with carriers on high-use providers or treatments. It can also help determine whether preventive benefits — such as cancer screening and blood pressure checks — are successful in lowering longer-term costs through early intervention (while also clearly leading to better outcomes).
Knowing how employees use their healthcare plan (over- and under-utilization) is also critical to the data mix. It will help you answer the following questions:
- Are employees aware of all benefits available under the plan?
- Are incentives driving cost-effective choices, like using urgent care over ER visits?
The answer to these questions may flag the need for more data. For example, for benefits with low utilization, you should understand if low usage is tied to a lack of awareness, satisfaction or need before taking action.
While rising healthcare costs are largely out of the employer's control, data can help you anticipate and respond to the changing healthcare landscape. Industry consultants, for instance, track market trend data to identify emerging high-cost drugs or treatments, such as gene therapy, and their release schedules.
Our advice is to review claims and market trends at least quarterly. This frequency should allow you to proactively adjust your strategy and respond to the latest healthcare developments. A consultant can help interpret the data to improve plan design, for example, by predicting the probability of claim outcomes based on your organization's demographic risk.
Smaller organizations may struggle to access such data, limiting their ability to make informed decisions. In these cases, employers can work with their benefits consultant to access claims data and associated analytical insights. By benchmarking data against claims trends within similar segments, organizations can better identify where they may be overspending or underperforming.
Consider data alongside cost-containment strategies
Opportunities for a cost-management strategy will vary based on the organization's resources, negotiating power and employee demographics. Regardless, data is an integral consideration with each of the following:
Plan design
Consider the age and health of your workforce and whether the work environment increases health and safety risks, e.g., higher incidents of accidents or disease. Emphasizing preventive benefits makes more sense with a young and healthy workforce than with an aging population with high instances of chronic disease. Plan design options include advanced primary care benefits, episode-based plans and integrated benefits.
Organizational size may limit plan complexity and customization. Smaller groups typically lack the resources required to manage complex plans. Still, larger organizations don't necessarily have a strategic advantage. While small employers may have fewer options and less flexibility than their larger counterparts, a more defined workforce enables organizations to offer a simpler, more cost-effective package that should suit most workers.
Where possible, leverage customizable features like incentives and ease of use to align with employee needs and interests. Fewer, more impactful and well-utilized benefits may be the best strategy for small business owners.
Voluntary benefits that align with employee needs and interests can add value without incurring additional costs. For example, hospital indemnity, critical illness and accident insurance can provide low-cost options.
Funding
Companies that self-fund employee plans (only paying out for claims and administrative expenses) have more flexibility and cost control but incur more risk.
- Fully funded plans, favored by small employers, benefit from fixed payments and lower financial risk.
- Level-funded plans — hybrid plans that combine a fixed monthly premium with shared risk with an insurer — have become increasingly popular among small- to mid-sized companies.
Another employer-funded cost-saving strategy is reimbursing employees for qualified medical expenses through a Health Reimbursement Arrangement (HRA), which leverages employee pre-tax dollars. The two most common HRAs are Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) for employers with less than 50 employees and the relatively new (and more flexible) Individual Coverage HRA (ICHRA ), which can be offered by any size employer and paired with group health insurance. We see a growing use of ICHRAs, particularly for larger employers.
Small firms can secure more attractive rates by pooling their risk. The larger the pool, the more predictable and stable premiums will be. Options may include healthcare insurance trusts, Multiple Employer Welfare Arrangements (MEWAs) and captive insurance, where a single firm or group of employers creates a risk retention vehicle to underwrite and manage healthcare risk.
All plan funding strategies have pros and cons, regulations, administrative requirements and potential risks that you must carefully consider before choosing.
Carrier alliances
Before selecting a carrier, level- and fully funded employers should negotiate for some access to claims data. As discussed, the insights provided by such data are essential for identifying organization-specific healthcare cost drivers and developing cost-management strategies.
Vendor and carrier tools
The value of the global HR technology market is set to reach $40.5 million in 2025 and more than double by 2033, reflecting the array of HR technology point solutions (integrated and standalone) designed to support employers.2
While the price of some tools makes them cost prohibitive for smaller organizations, others have become more affordable. In addition to coverage, some carriers offer tools and advice, including educating employers on making cost-effective decisions when choosing a provider. Others cooperate with standalone providers. Given the competitive nature of this sector, it's worth the time to conduct a request for proposal (RFP) to identify a provider aligned with your budget and strategy.
Employee engagement and education
Educating employees on optimizing their plan's value is key to increasing benefits use, which drives employee satisfaction, attraction and retention. Again, consider your workforce profile (high- or low-tech, on-site or remote, etc.) when designing communication strategies and determining which channels to use. Use surveys or focus groups to gather feedback to adjust your strategy.
Large organizations with more diverse populations may need multiple communication strategies to reach employees where they are. Track which approaches are most effective to guide future strategies.
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Small employer's more homogenous population may allow them to offer a narrower and more cost-effective plan that suits a significant percentage of the majority.
Matt Van Dyke, Small Business market leader, Great Lakes
How Gallagher can help
A data-driven approach is essential to identifying key cost drivers of healthcare. Gallagher advisors will help you develop the data requests and frequency to ensure the data support the insights you need. With well-grounded data insights and an understanding of employees' health and wellbeing needs and interests, you can create a customized, cost-effective healthcare plan.
Organization size inevitably impacts plan design, funding and features. Third-party expertise can help you identify organization-specific challenges and strategies to address those challenges and support core organizational objectives, including attracting and retaining an engaged, productive and healthy workforce.
Our expert consultants have experience working with employers of all sizes and sectors to identify creative solutions to counter rising costs.
