Employer Health Costs: Amid Continual Increases the Cost of Doing Nothing is Too High

It costs employers and their workforce less to be healthy than to be sick. And when members are actively utilizing their healthcare benefits it saves money. But just how much money is the question that keeps chief financial officers up at night. As the CFO of a self-funded organization, and a leader of a company operating in this space, I look with both eyes at the healthcare cost issues affecting employers. It’s clear to me we’re at a now-or-never moment. 

CFOs will recognize the dollar signs: employers are paying more for healthcare per employee than ever before – often in the range of $15,000 annually per worker – as healthcare costs continue to outpace inflation, now predicted to rise by 9% in 2026. This is on top of significant increases over the past few years. Doing nothing is not an option. Breaking it down further: when asked which cost factors most worried CFOs, high-cost claims and obesity management drugs were top choices. 

Three years ago, I was in a fully insured world. I looked at healthcare costs on a quarterly basis and reviewed the plan design options and associated increases to ensure alignment with our profitability goals on an annual basis. Today, in the self-insured world, it’s very different. As with the other CFOs, rapidly rising claims and the unpredictability of specialty drugs are the new wildcards that have me looking monthly – and, at times even more frequently – gauging how the large claims and drug costs are trending. If there’s $1 million of overage versus plan on healthcare costs, my team must find a solution to offset this increase elsewhere, which means less investment in another part of our business. Every line item is scrutinized. It’s like having a variable interest rate on a mortgage, and that’s a pervasive uncertainty that impacts every other part of the business.

There are several prevailing trends that must be mitigated:

• Large claimants represent just 1.2% of insured members but comprise about a third of healthcare spending. Their care journeys can also be nonlinear, leading to more claims and costs along the way. Rare disease patients, for example, experience an average of three wrong diagnoses before they get the right one.
• GLP-1s were the top drug by spending in 2023, at $71 billion, and growing. By the next decade – or sooner as more oral GLP-1 pills are developed and approved  – they could become a $150 billion industry.
• Other more common medical areas where a single large claim can throw off your entire budget for the year include NICU and cancer – complicated, expensive situations. They can happen in any population, and quickly, with a diagnosis followed by high-dollar claims, all in a single year.
• We can also expect drug costs to rise further as a new pipeline of specialty therapies – typically billed as medical claims – is expected to be FDA-approved in the near term. 

The math is frightening. Given the fiercely-held interests of pharmaceutical companies and pharmacy benefits managers, it’s unlikely that medication prices will decline. That leaves companies with one dominant tool to calm the crisis: cost containment through more engaged care and condition management. Cost containment refers to the strategies and initiatives aimed at reducing health expenses while maintaining or improving the quality of care. An actuarial study from Wakely Consulting Group that Personify Health commissioned found that containment along with care and condition management yielded 23% overall savings, equating to $762.96 PEPY. Among claimants above $100,000, the study saw 14% savings. It’s clear that it pays to have your members engaged, in this case at percentages that would offset the overall rising healthcare costs. The way for employers to reverse the trend is to engage the member at the right time and help them navigate their healthcare journey to achieve the desired outcome in a more cost-effective manner.

Separately, AI-enabled fraud, waste, and abuse (FWA) detection can help by flagging claims for further review. Billions are already wasted on unused and misused benefits. Money is being left on the table by traditional methods for FWA identification based on rules and high​-​dollar thresholds. AI-powered methods are effective in overcoming this costly issue. 

I’ve often heard talk that employers should look to control healthcare costs through financial levers such as dynamic copay models, but these are short-term fixes that have little impact on the risk pool or long-term liabilities. Instead, employers should focus on improving the health risk of a population through increased engagement and managing how people get care that’s cost-and outcome-optimized. These are long-term risk reducers rooted in member behavior change that will last.

Employees, on average, miss about 6 days of work due to health-related issues and half of employees often avoid seeking medical care because of out-of-pocket costs, according to recent research from MetLife. These are red flags and can affect productivity and costs. A CFO’s first actions should be clear: get familiar with the conditions and situations that are driving higher claims for your company and find opportunities to proactively support and manage them. Concurrently, guide members toward preventive care, especially when that support is tailored to their needs.

Advances in AI technology are making predictive and preventive care a true reality, and are reducing fraudulent medical billing. Of course, no one can predict every healthcare trend or emergency, especially in uncertain economic times, but executives who think ahead and ask the right questions – monthly – can make a real difference in healthcare costs. When they understand their members and use that knowledge to shape their benefits strategy, CFOs can help lead their companies away from crippling healthcare crises to more affordable long-term health outcomes.

Author bio:

As CFO for Personify Health, Scott Charles is continuing his track record of creating and realizing value for the company, leveraging over 25 years of financial experience in both public and private sectors. He has served in CFO and finance leadership roles at Cytel, Aralez Pharmaceuticals, Ikaria, Inc., and Reliant Pharmaceuticals, and began his career as a manager at Arthur Andersen, LLP. Scott is a certified public accountant and is a graduate of Bucknell University.

Photo: Laurence Monneret, Getty Images