Just like most employees, most businesses look for ways to cut expenses during difficult economic times. A common focal point is employee benefits, especially health benefits, since they are often the most costly part of a company's program. Before reducing benefits, employers should consider the likely consequences, any alternatives, and ways to lessen the impact if cuts are unavoidable.
The consequences
If an employer shifts significant costs to employees—through higher deductibles or increased co-pays—employees may delay seeing a physician, skip filling prescriptions, or avoid preventive care. Premium increases can prompt younger, healthier employees to drop coverage, which can leave a plan with a riskier pool of enrollees.
Those choices can raise long-term health plan costs and hurt the company's bottom line through lower morale, reduced productivity, higher disability claims, and increased absenteeism.
What's the alternative?
Instead of shifting costs, focus benefit dollars on programs that improve employee health and prevent illness. Incentives and preventive services can lower overall costs by keeping people healthier and identifying issues early. For guidance on reshaping benefits to emphasize wellness, see Transforming Employee Health Benefits.
- Use incentives to encourage participation in weight-loss and fitness programs, tobacco-cessation classes, and nutrition counseling.
- Use incentives to motivate screenings and early detection activities such as glucose testing, blood pressure checks, cholesterol screening, and completing health risk assessments.
- Provide extensive preventive care coverage.
- Offer an employee assistance program (EAP) that includes resources or referrals for financial counseling, crisis intervention, and stress management during tough economic periods.
If you must
If cost-shifting is the only feasible option, do what you can to soften the impact for employees. Offer choices and tools that help employees manage care and expenses rather than blunt cuts that reduce access.
- Offer voluntary benefits that generally cost the employer little or nothing while giving employees access to group rates and payroll-deduction convenience.
- Offer Flexible Spending Accounts (FSAs) so employees can pay eligible health expenses with pre-tax dollars.
- Offer Consumer-Directed Health Plans (CDHPs), such as a higher-deductible health plan paired with a Health Savings Account (HSA), to combine consumer incentives with tax-advantaged savings.
All of these options require employees to take more responsibility for their health and benefits management. Greater individual engagement—scheduling preventive visits, participating in wellness activities, and budgeting for future expenses—can be one of the best long-term cost-management tools for employers. For more ideas on transforming benefits programs, see Transforming Health Benefits Programs.
If you want to review options and next steps with professional help, talk to an agent.
Frequently Asked Questions
Will raising deductibles always reduce my company's health costs?
Not necessarily; higher cost-sharing can reduce short-term premiums but may increase long-term costs if employees delay care or the plan loses healthier members.
How can wellness programs reduce benefit costs?
Wellness programs can improve health outcomes, reduce chronic disease progression, and lower utilization of expensive services through prevention and early detection.
What are voluntary benefits and why offer them?
Voluntary benefits are employer-offered coverages paid by employees; they provide group pricing and convenient payroll deductions without significant employer cost.
Are FSAs and HSAs interchangeable?
No; FSAs and HSAs have different eligibility rules, contribution limits, and portability, so plan design should match employee needs and plan goals.