Top 3 Reasons Why Group Benefits Are So Expensive

Over the past decade, the cost of administering group health benefits has increased by more than 100%, and most businesses are unsure why. Health benefits for employees are typical, and most businesses are unsure of the expense behind payroll. Waxing and waning health costs can significantly affect a business’s bottom line.

Why is it that something that costs so much can get away with being vague for company leaders? There are three primary reasons why group health benefits are so expensive for employers:

The 90/10 Rule of Healthcare Spending

Did you know that the sickest 10% of your employees consume 90% of your healthcare dollars? So it follows that if you want to lower your health care costs meaningfully, you will have to focus on reducing spending among the sickest 10%. This is called risk management. Offering benefits and incentives to encourage your employees to pursue preventive care can help them avoid consuming high-cost care down the road. 

The Hospital Cost Factor

The second reason, the 50%, can also be solved by investing in employee access to preventive care. People paying closer attention to their health early on through preventive care can help them avoid having to go to the hospital in the first place. Preventive health care includes getting physical on time, sticking to medications as prescribed, and committing to a healthy nutrition and fitness lifestyle. It is important to note that most visits to the emergency room could be avoided if people took better care of their health earlier.

Understanding Price Variation in Healthcare

You can receive service in one hospital and then receive the same service in a different hospital and pay a wildly different fee. Why? Costs for care vary greatly from facility to facility, and under the current pricing model you don’t find out how much the service cost until its already been administered. Overall, investing in keeping people healthy and out of the hospital can help you reduce healthcare costs significantly. The savings could be so significant that you could reduce the cost of other health services to be virtually free – including copays for office visits and generic drugs- and eliminate deductibles, coinsurance, and physical therapy costs.

Strategic Solutions for Cost Reduction

It is about creating more intelligent, sustainable health plans for your employees. Using tech, data, and service providers can help you mitigate risk in commercial activities where large private health solutions providers cannot. One option to consider is to move to a captive insurance infrastructure. A captive insurance model is a model in which an insurance company is wholly owned and controlled by its insureds; its primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer’s underwriting profits. Contact your actuarial partners for more information about this model.

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