Healthcare costs are garnering more executive attention than ever before, due in large part to the uncontrollable growth in health-benefit costs. According to studies, such costs have become the fastest-growing factor in a company’s overall expenses. In fact, in many companies, employee benefits now represent the third-largest expense.

Businesses have already adopted a number of ways to attempt control. Healthcare costs have been shifted to employees, disease management and wellness programs have been introduced, the use of generic prescription drugs has been encouraged, and multi-year agreements to minimize premium increases have been negotiated. Yet cost control remains unattainable.

However, it is possible to rein in costs by pursuing a strategic, comprehensive health benefit redesign. The key word here is “redesign.” Most companies’ health benefit offerings tend to be disjointed and may not address the right benefit composition or sufficient incentives, if any. A complete redesign begins by tackling the underlying costs of health benefits, rather than simply increasing the amount employees pay toward their benefits. By focusing on the factors that drive up costs, companies can strike a balance between controlling expenses and maintaining employee satisfaction.

To do so, management must understand where healthcare expenses are going and why, what benefits employees really want, and determine the real value employees place on their healthcare benefits. Only then can your company begin to prioritize and reengineer for savings.

Step 1: Begin your research at a managerial level

It’s crucial to start by understanding what you actually spend today, and will spend tomorrow, for healthcare benefits. Plotting out current expenditures requires first bringing together managers from departments like finance, human resources, and purchasing. It then becomes their task to compile comprehensive health-benefit cost information about each department or business unit. Only with thorough information can you begin to paint an accurate and complete picture of your company’s healthcare expenditures. This includes compiling detailed information on employee needs, consumption patterns, impact on productivity, the availability and quality of local payers and providers, attitudes of local union representatives if applicable, and a mindfulness of ever-changing state regulations.

Step 2: Ask employees what they want, then prioritize

Compiling information on employee perceptions is a daunting task, especially given how diverse workforces can be. Multiple locations or offices, age variances, union or management, front-line or office workers—all factors can influence employees’ perspectives about their health benefits. Collecting information can best be accomplished through employee interviews, focus groups, and surveys. The results will reveal perceptions employees have about their benefits, determine how your health plan stacks up against your competitors’, and will allow you to ultimately identify categories of healthcare users.

This is a vital and necessary exercise. Until you learn what employees perceive as most valuable and what factors vary by the demographics of your employee base you can’t prioritize health benefits or truly manage your long-term, health-benefit costs.

Step 3: Apply your newly discovered information to create centralized management

Use this newfound information to develop an organizational structure that centralizes healthcare-benefit decisions—a requirement for efficiency—while still allowing for practical and local choices and responsibilities. Following this more strategic, integrated approach can significantly reduce your health-benefit spending.

Fulfilling this step requires a commitment by your management team to track and report on usage, expenses, and savings. It also means designating a team that will take ownership of healthcare benefits and costs across the company. By creating this centralized organizational structure, you’ll enable your company to source health care on a more global scale and clamp down on benefit cost increases.

Step 4: Get employees involved

Managerial involvement is only half the equation. As consumers, employees need a vested interest in their healthcare benefits, requiring them to understand the cost of the services they consume. Several techniques can aid in this effort. For starters, educate employees on what health benefits cost your company by including such information on pay stubs, summaries, and explanation of benefits. Also, provide incentives that encourage the judicious use of benefits.

Many employers now offer a fixed contribution to health benefits, and in doing so they find that employees choose lower-cost plans voluntarily. This puts the employee at risk for costs beyond that point and encourages employees to become savvy consumers of medical services. Allowing employees to pay directly for services via a Medical Savings Account or Personal Health Account also instills cost sensitivity and lowers administrative costs. 

Achieving control

By understanding your workforce, integrating cost-containment methods, and encouraging employee involvement, your organization can keep health-benefit costs in check long after exhausting cost-shifting and benefit reduction solutions. Strategically redesigning health benefits can prevent those costs from negatively impacting profits and your company’s ability to recruit top-notch employees.