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Small Business Employee Benefits and HR Blog

With Rising Healthcare Costs, Employers Seek Cost Effective Alternatives

August 26, 2014
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With healthcare costs on the rise, employers are seeking a more cost-efficient manner of providing employees with healthcare benefits. The HR Policy Association and the American Health Policy Institute recently published a report based on interviews with chief human resources officers at large corporations about their thoughts on employee healthcare. According to the report, many of these HR officers are in search of an alternative way to provide employee healthcare benefits.

During in-depth interviews, chief human resource officers (CHROs) were asked about their perspective on the current U.S. healthcare system, the impact of the Affordable Care Act (ACA) on employer-provided health insurance, and the alternative healthcare benefits strategies they are considering.

Rising Costs Concern Chief Human Resources Officers

The main concern of the CHROs interviewed was the cost of healthcare benefits in America. According to the report, employers spend more than $578.6 billion annually on healthcare for their employees, their employees’ dependents and retirees.

Specifically, these CHROs were concerned with the cost of healthcare benefits in America relative to the rest of the first-world countries. Healthcare costs in the U.S. are almost twice as high as in other first-world countries with costly healthcare.national_health_expenditures

Chart: American Health Policy

As such, only 50 percent of pollees agreed when faced with the statement, “My company will continue to offer healthcare coverage for the foreseeable future regardless of what most other large employers do."

An astounding ninety percent of CHROs reported that healthcare benefit costs at their company are increasing by five percent or more. Costs will remain the same for five percent and decrease for the remaining companies.cost_increases

Chart: American Health Policy

The rising costs of healthcare for these companies can be attributed, at least partially, to the rising costs of medical care. According to the report, the costs of medical care have risen at almost twice the rate of inflation since 1993.

Alternative Strategies for Controlling Healthcare Costs

Many of these CHROs are seeking alternative ways to control healthcare benefit costs for their companies. Some of the new cost-saving healthcare benefits strategies include:

When asked about providing healthcare benefits for active employees over the next ten years, less than half (46 percent) of CHROs reported that they will continue to offer an employment-based health benefit plan. As for the rest of those polled, 36 percent reported considering switching to a defined contribution strategy, six percent were considering discontinuing healthcare benefits altogether, and 12 percent were not sure.

Another strategy in mitigating the cost of healthcare benefits mentioned in the report is switching employees to the public exchanges (Marketplaces). In fact, 23 percent of CHROs reported that they are considering enrolling their employees in the Marketplace, ten percent have already started directing their part time employees to the Marketplace, and two percent have already started directing their full-time employees to the Marketplace.

The CHROs who were interviewed were asked which of the provisions should be retained if Congress began considering amending the ACA. Guaranteed issue health care was the most desirable trait of the ACA according to the interview responses.Affordable_Care_Act

Chart: American Health Policy

With the appeal of offering employees access to the Marketplace, many employers are transitioning to health insurance allowances (aka “pure defined contribution health benefits”) because this strategy offers predictable costs to the employer, while giving employees access to quality health insurance.

By providing their employees with an allowance to spend on individual health insurance, employees are able to access more comprehensive, less expensive healthcare that fits their individual needs.

Health insurance allowances reduce the cost and time associated with traditional health insurance, while still providing a health benefit for retaining and recruiting top employees.

Access the full report from the American Health Policy here.

How do you plan on cutting your health benefit spending in 2015? Leave a comment below.

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