Healthcare Expenses are Damaging the Financial Health of Employees & Employers

by | Jul 14, 2022 | Financial Wellness

Next to wages, healthcare is an employers second largest business expense. Healthcare is also an employee’s second most important sought-after perk of taking the job – after compensation. As the cost of healthcare continues to rise, employers consistently look to, and implement creative plan designs. For example, in response to the rising cost of healthcare, employers have looked to implement holistic wellness programs that engage workers and provide solutions across a range of wellbeing areas, including financial health. Others have turned to High Deductible Health Plans (HDHPs) to bring affordability to basic healthcare coverage. Is any of it helping?

According to the Glassdoor survey, 80% of employees prefer additional benefits over a pay increase. In a recent study conducted by the Society for Human Resource Management (SHRM), 61% of employees claimed benefits boosted their job satisfaction. Benefits enable employees to enjoy personal activities, build security for health, and save money for future goals which can boost workplace morale, engagement, and productivity.**

Following a PayPal employee survey in 2018, the company learned that though it paid wages at or above market rates, many of its entry level employees struggled financially due to the cost of healthcare insurance premiums. PayPal lowered the cost of healthcare benefits by nearly 60% for employees facing high-cost burdens. Since making these (and other) changes, PayPal has seen several positive indicators of impact, a boost in morale and retention and also an increase in enrollment in benefits and upgrades of healthcare plans. ***

In a recent Centivo survey of employees with employer-sponsored health insurance nearly three in five (59%) of survey respondents say they had to make financial sacrifices due to significant medical expenses over the past two years. Alarmingly, one in ten report a significant medical expense has even caused them and their families to skip meals/go hungry.*

“…High deductibles are often paired with low premiums that ‘make budgets work’ but are also a financial gamble that far too many workers are losing. It’s appalling that we’re seeing people who are insured through their employers withdraw money from their retirement accounts and even go hungry due to medical bills.” Ashok Subramanian, CEO, Centivo, said in the release.*

Chart Sources: Multiple employee surveys from Glassdoor, SHRM and Centivo all reveal American employees are suffering financially to afford employer sponsored healthcare for their families. Some have to choose between food on the table and health coverage.

Why the Cost of Healthcare Skyrocketed?

Healthcare spending is increasing around the world, but the U.S. is the worst performer. The U.S. accounts for more than 40% of all global health spending. But why?

Many Americans don’t have much of a choice when it comes to their health insurance. More than 54% get insurance through their employer and this lack of choice limits competition, which can drive prices higher. Americans pay more per healthcare transaction than any other nation. And the performance of our healthcare in the U.S. is significantly lower than most other high- income countries. We rank dead last.

What Can Employers Do to Help?

Employers should vary employer contributions to premium based on income level. Under this approach, lower wage employees pay less compared to higher wage employees through a tiered, and ultimately more financially fair, structure – one that has the added benefit of being cost neutral to the employer.

Employers can typically save 25% to 35% in insurance cost the first year by switching to a referenced based pricing (RBP) model that will also being cost savings to employees. Reference-based pricing in healthcare is a model that pays claims based on an established benchmark rather than a carrier- determined fee. This means employers’ health care costs are set based on a percentage of Medicare/Medicaid reimbursement rates typically – not arbitrary markups from big name carriers. RBP provides for more transparency in pricing and claims. RBP is used in self-funded plans, where employers pay for their own claims instead of paying a carrier a fixed fee for handling their claims. Overall RBP is more affordable for small companies and employees than fully funded plans. Want to learn more and find out if RBP is a good fit for your company? Reach out to one of or Premier Workforce Solutions.