Large increases in healthcare costs can make it difficult for employers to balance budgets and offer attractive employee benefits. Several strategies can help employers cope.

USI’s report found that many employers are frustrated by rising costs and their inability to control them. However, many respondents agreed they can change health care costs to a moderate extent at their own companies.

Behavioral Changes

As US employer health care costs continue to rise, they are increasingly looking for innovative ways to help reduce those costs. In particular, many are exploring the use of behavior change to encourage healthier lifestyles and improve overall health outcomes.

Behavioral science research has revealed that two general paradigms for changing behaviors exist. One focuses on changing high-order cognitions, such as beliefs and attitudes, to influence deliberate responses. The other focuses on altering the context or environment to trigger spontaneous responses. In recent years, a new field of applied behavioral economics has developed that applies these principles to healthcare settings.

Employers can encourage healthy behaviors by changing their internal levers of out-of-pocket spending, such as deductibles and copays, and by encouraging preventative health services. They can also encourage healthy behaviors by lowering the cost of unhealthy ones by leveraging price signals through taxation and subsidies (already used in other public policy settings) or introducing a tiered health savings account as part of their health benefits plan.

During the COVID-19 pandemic, employers faced unique challenges such as masking requirements, remote work, quarantines, and assuring worker safety in public interactions. As a result, many employers enhanced their wellness and employee assistance programs by adding or expanding resources such as telemedicine, hotlines, and online counseling services. Some even went so far as to waive or lower cost-sharing for mental health and substance abuse services.

Defined Contribution Plans

Defined Contribution plans are a popular option for employers who want to offer their employees flexible benefits choices. In a defined contribution plan, contributions made to individual accounts by employers and employees are invested in financial assets, such as stocks and mutual funds.

The investment returns (positive or negative) are credited to the individual’s account. These funds may be used to provide retirement income. Examples include profit-sharing pension plans, 401(k) plans, and the Thrift Savings Plan available to Federal and uniformed service personnel.

During the study period, when employers were grappling with managed care costs, many reported that they were concerned about how the changes might affect their ability to attract and retain employees in a tight labor market. They focused on preserving the perceived value of health benefits in the workforce by limiting benefit reductions, enhancing employee satisfaction with managed care, and encouraging health plan participation.

These strategies can be expensive and may increase employer costs over time. For these reasons, there may be better solutions for some companies. However, this approach may be a good fit for some employers’ company culture and business needs. It may also be an effective strategy for managing healthcare cost increases in the future. The key is to get professional help designing the right options for your company.

High-Deductible Plans

Many employers are turning to high-deductible plans as healthcare costs continue to rise. These types of plans offer lower-than-usual monthly premiums in exchange for a higher annual deductible, and they are often combined with health savings accounts or other tax-advantaged savings vehicles. These plans can be attractive for some employees, especially those with chronic health conditions or significant healthcare needs.

The idea behind these plans is that by requiring employees to “put their own money on the line” before receiving any benefits, they will think more carefully about whether a procedure or medication is necessary. One big reason is that requiring employees to pay for healthcare out of pocket is expensive and can create a barrier to care.

This can lead to people putting off medical procedures until they are necessary, which ultimately leads to worsening health outcomes and more costly healthcare for everyone down the road. The good news is that current evidence indicates these plans are associated with lower overall healthcare costs, but more research is needed to understand why and how they work.

Alternative Payment Models

The healthcare system is moving away from fee-for-service payment toward value-based models. A growing share of payers now offer quality-linked payments, and more providers than ever are participating in these arrangements. Nevertheless, the widespread adoption of advanced alternative payment models that rely on risk-bearing contracts and practice transformation remains challenging. A combination of administrative complexity, the allure of traditional fee-for-service, and the absence of a clear vision have delayed broad-scale participation in these models.

The next decade requires a renewed focus on alternative payment models to reduce costs and improve quality. To do so, CMS and CMMI must articulate a strategic vision for the future of our nation’s healthcare system and a publicly available path to executing that vision. They must dramatically simplify the current APM landscape to engage late-adopting providers and accelerate their movement from upside-only shared savings arrangements into advanced, population-based APMs.

Further, they must ensure that the design of APMs addresses health disparities and enables physicians to continue serving patients from communities with high social risk factors. Too often, these models are implemented without a full understanding of the impact on underserved populations. Carefully studying the lessons learned from successful and underperforming APMs should inform design decisions that put health equity front and center.