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How Much Do Healthcare Expenses Really Cost U.S. Companies?

Healthcare and the costs are a thorny issue, to say the least. Stories of once-successful companies that watched as their healthcare premiums rose by 25% in just a couple of years are common. Not only has legislation such as the Patient Protection and Affordable Care Act (PPACA) been enacted to try to curb healthcare costs, but countless wellness programs have sprouted up with the same aim for U.S. companies.

According to one poll commissioned by Castlight Health, approximately 90% of CFOs surveyed agreed that they would be able to invest more in their businesses if their company’s healthcare costs were lower. If that’s an accurate picture, high healthcare costs are hurting U.S. companies and their growth.

But how much do these expenses cost U.S. companies? What causes them, and where do we see their impact?

Premiums

Collectively, U.S. companies provide healthcare coverage to about 170 million Americans (employees and their families) as part of benefits packages. This often includes paying all or part of healthcare premiums. Which means that these companies have bore the brunt of healthcare costs spiraling out of control.

How out of control are they? Premiums for most workers have risen well over 100% from where they were in 2008, less than a decade ago. (For perspective, $1000 invested in the S&P in 2008 would have grown about 63% in the same time period—and that includes reinvesting any dividends.) Not only do premiums increase over time, but many increase as employees use the healthcare system. This has led to hundreds of billions of dollars spent on healthcare each year by U.S. businesses.

Why are costs so high?

The reasons healthcare costs are so high in the U.S. are varied, and not all experts agree on the root causes. But there are some likely candidates:

  • Our aging population
  • The ballooning price tag of specialists
  • Out-of-control and largely deregulated drug pricing
  • The increasing cost of medical and pharmaceutical research
  • Uncertainty about the future insurance market
  • Regional differences in pricing

Possible ways to contain the costs

There is no magic bullet for reining in healthcare costs, short of outright refusing any sort of healthcare benefit. That is unwise, given that healthcare benefits are a prime way for companies to attract and retain talent. So what other options are there?

  1. Explore plans with higher deductibles and HSAs. Higher deductibles help keep premiums down, plus Health Savings Accounts (HSAs) provide employees with a tax break for money they save and spend toward their health expenses.
  2. Consider implementing a wellness program. A meta-study out of Cornell University examined 42 independent studies of the effectiveness of wellness programs and found that such programs can reduce healthcare expenditures and absenteeism costs by 25% to 30%, all within an average of 3.6 years. That means lower premiums and a more productive and happy workforce.
  3. Educate employees about healthcare costs. Sometimes employees simply don’t know what behaviors are driving costs, and which can save. For example, workers might overuse the emergency room as opposed to using urgent care centers, or consulting with their family doctor. Or they might not know they can refuse tests that seem unnecessary. A little employee education can go a long way toward keeping costs down.

Review your current cost sharing. Benchmark your program against other employers to see how your cost sharing measures stack up. Employer interest in benefits benchmark data has grown over the past decade as the cost of providing healthcare benefits continue to rise. Benchmarking can help you stay competitive.

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