The Most Effective Employer Strategies for Cost Containment in Healthcare

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Strategy 1: Implement High-Deductible Health Plans (HDHPs) with Health Savings Accounts

HDHPs offer lower premiums by increasing deductibles – shifting more responsibility to employees.

Employers typically enjoy savings of 9% to 12% on premium costs per employee compared to standard group premiums, according to KFF. This alone can save up to a thousand dollars per employee per year, and about $2,000 per year per worker with a family plan.

HSA assets enjoy a triple tax benefit, unmatched elsewhere in the tax code.

Strategy 2: Embrace Health Sharing

Health sharing plans offer an innovative and much more affordable alternative to traditional group health insurance.

Unlike traditional insurance, these aren’t insurance products. Instead, health share plans are voluntary non-profit associations of health-conscious people who agree to share one another’s healthcare expenses.

In this model, the cost of any individual’s unexpectedly high medical expense is thus shared among thousands of members – spreading the risk, and softening the financial impact on any single individual or household.

Members contribute monthly to a shared pool, which is used to pay members’ eligible medical expenses.

These plans can reduce administrative overhead. And they typically save employers up to 50% compared to conventional insurance.

Advantages of Health Sharing

✔ Freedom of Provider Choice – No restrictive networks; members can see any doctor, hospital, or specialist, including top facilities like Mayo Clinic and Cleveland Clinic.

✔ Faster Access to Care – Avoids long wait times by allowing members to choose providers with shorter appointment availability.

✔ Lower Utilization Costs – Easier access to primary care reduces unnecessary ER and urgent care visits.

✔ Cost Savings – Typically much more affordable than traditional group health insurance.

Disadvantages of Health Sharing

✖ Pre-Existing Condition Limitations – Waiting periods apply before costs related to pre-existing conditions are shared.

✖ Not Always Suitable for All Employees – Those with ongoing medical needs may require a more comprehensive option.

✖ Taxable to Employees – Employer contributions are subject to taxes, unlike traditional health insurance premiums.

Case Study: Health Sharing Cost Savings

For example, a small retail business in Colorado switched to health sharing in 2021.

To ensure compliance, the owner combined a health sharing plan with a Minimum Essential Coverage (MEC) option to comply with ACA requirements.

By educating employees about plan specifics and limitations, the company successfully reduced annual healthcare costs by 40% while maintaining employee satisfaction.

Strategy 3: Promote Preventive Care and Wellness Programs

Preventive care identifies health issues early, reducing long-term costs.

Wellness programs foster a culture of health in the workplace, improving employee well-being and productivity.

Additionally, a healthy, active, and fit workforce is a much less expensive workforce. Why is this important? Because preventable and manageable chronic conditions like diabetes and heart disease account for 90% of the nation’s $4.3 trillion annual healthcare expenditure.

Employers who can reduce smoking, obesity, and a1c levels in the workforce can expect significant long-term savings in both direct and indirect healthcare costs. A quality corporate wellness program, energetically run, is more than worth the investment.

ROI analysis shows that wellness programs deliver substantial savings. For every $1 invested, companies can save up to $3 through reduced healthcare costs and increased productivity.

Strategy 4: Leverage Telemedicine

Telemedicine offers a cost-effective solution for minor or routine healthcare needs.

It reduces in-person visits and emergency room utilization, saving time and money for employees and employers alike. With telemedicine technology (typically an app such as Healow on an employee’s mobile phone, but even that is optional).

A recent Penn Medicine study found that telemedicine reduced group healthcare costs by nearly 25% per doctor visit.

In practice, telemedicine also improves patient experience by reducing appointment wait times and eliminates the need for workers to take a half day or more off work to see a doctor. So there are indirect benefits in addition to the direct cost savings of telehealth benefits.

Tip: To leverage telemedicine, employers should partner with a reputable third-party telemedicine provider and integrate the service seamlessly into existing health plans. Also, invest in a serious employee education effort to help workers understand the benefits of telemedicine and how to use their apps to access care.

Strategy 5: Insulate Yourself From Future Premium Increases With a Level-Funded Health Plan

Level-funded health plans combine the cost predictability of fully insured plans with the flexibility of self-funding.

It’s practical even for relatively small companies. You can easily limit your risk and save 8% to 10% compared to an off-the-shelf traditional group health insurance plan from an outside carrier.

How Level-Funded Plans Work

With a level-funded plan, you gain financial predictability, potential savings, and protection against large, unexpected claims—helping you manage healthcare costs effectively for your business.

LEARN MORE: Advanced Large Group Health Insurance Strategies

Strategy 6: Manage Pharmacy Costs

Prescription drugs account for a significant portion of healthcare spending.

For larger employers, this avenue is especially effective, as they can leverage substantial purchasing power to negotiate drug prices. Large self-insured groups don’t pay the full retail price for their plan members’ prescription drugs.

In practice, large, well-run group plans negotiate with pharmacy benefits managers and often receive significant rebates on member drug purchases. These rebates, in turn, can help offset the cost of the plan.

Nevertheless, even smaller employers can manage these costs through strategies such as encouraging the use of generic drugs and incorporating tiered pricing.

Case Study: A County Health Plan Saves $1.4 Million/Year By Renegotiating Drug Benefits

Lehigh County, Pennsylvania discovered it had been overpaying for their employees’ prescription drugs by nearly $1.4 million per year.

Their new comptroller discovered that they had failed to negotiate the best available deal with the County’s pharmacy benefits manager. They went back to their pharmacy benefits vendor and renegotiated the contract, saving millions of dollars since 2019.

Additionally, a Commonwealth Fund study analyzed drug utilization data from 15 self-insured plan sponsors. The findings indicated that by reducing the use of high-cost, low-value drugs through improved formulary management, plan sponsors could achieve annual savings ranging from 3% to 24% of their overall pharmacy spending.

Strategy 7: Offer Direct Primary Care

Direct primary care, or DPC, is an increasingly popular subscription-based model for providing affordable access to primary care doctors.

This model eliminates insurance companies from the equation. Instead, employees (or your plan) pays a flat monthly subscription.

In return, plan members receive as many appointments as necessary to treat their primary care medical issues. There is no additional cost for the visit. No deductibles, no copays, no coinsurance to worry about.

Offering direct primary care has multiple advantages:

Strategy 8: Offer Employee-Paid Voluntary Benefits

Voluntary benefits are a way employers can provide employees with a range of valued benefits, sweetening the compensation package––at little or no cost to the employer.

Offering a range of voluntary benefits can also help employers save on healthcare costs, reduce tax liabilities, and improve employee satisfaction.

Cost Savings with Voluntary Benefits

A well-designed voluntary benefits program can help employees transition from lower-cost employers to high-deductible health plans (HDHPs) with lower premiums.

Employees can mitigate the financial burden of higher deductibles by selecting voluntary benefits like hospital indemnity, emergency coverage, or critical illness policies.

These policies provide employees with direct cash payouts to cover unexpected medical expenses, reducing the risk of delayed care and improving overall health outcomes.

Additionally, offering voluntary benefits through a Section 125 Cafeteria Plan allows employees to pay premiums on a pre-tax basis. This reduces taxable income for employees and lowers payroll taxes for employers, creating additional cost savings.

Improved Cost Control with Higher Deductible Plans

Transitioning from a traditional health plan with a $1,500 deductible to an HDHP with a $3,000 deductible can lower premium costs by 15% to 20%.

By pairing this shift with voluntary benefits, employees still feel protected against unexpected expenses, while employers reap the financial advantages of reduced premiums.

Strategy 9: Empower Employees With Health Reimbursement Arrangements

A Health Reimbursement Arrangement (HRA) is a tax-advantaged benefit employers can offer to reimburse employees for qualified medical expenses, such as health insurance premiums, copays, and prescriptions.

Importantly, there are different types of HRAs. However, the HRA generally allows employers to reimburse workers with tax-free dollars for eligible medical expenses, typically including individual and family health insurance premiums.

Additionally, these funds are not taxable to employees, and unused amounts can often roll over, depending on plan design.

How HRAs Help in Cost Containment of Healthcare

Health Reimbursement Arrangements help employers reduce costs in several ways:

Learn More: Why Smart Employers Are Dropping Group Health for ICHRA and DPC

Strategy 10: Offer a Health Savings + MEC Option Alongside A Level-Funded Plan

Compared to HDHPs and health sharing plans, this is a less well-known option.

However, it can be tremendously effective for some businesses—especially those with relatively healthy workforces.

In this model, an applicable large employer (one with 50 full-timers or more) would create a level-funded health plan, typically with a stop-loss policy to limit risk.

They would then offer all employees a choice:

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