Fire your health plan to reduce costs and boost employee health

Self-insured employers are struggling with escalating healthcare costs and declining employee health, and it’s time to take control. CEOs must stop accepting this as the norm fire their health plan, and explore new ways to manage employee health more effectively.

One in three Americans’ medical risks are underwritten by their employers. This makes the self-insured employer segment the largest in the nation. But to date, this sizable group has done nothing to reduce the cost of care, enhance the care experience, or improve health outcomes as they continue to buy services from health plans. As Exhibit 1 illustrates, costs continue to escalate, with the healthcare growth rate nearly 1.5x above nominal inflation. Despite this cost escalation, health outcomes continue to deteriorate, with life expectancy regressing to 2004 levels and a rising prevalence of chronic conditions, including diabetes, hypertension, and obesity.

Exhibit 1: Employers and employees are overpaying for healthcare as results decline

Source: US Bureau of Labor Statistics, HFS Research, 2024

The value proposition of health plans does not align with needs

Health plans’ value proposition is to underwrite medical risk, curate and manage a provider network, and administer benefits. Health plans are underwriting less as more employers underwrite their employees’ medical risks and the government expands Medicare and Medicaid. For example, provider networks have become a commodity that can be rented inexpensively. In compliance with the price transparency rules, the retail prices of care are increasingly becoming public information. Lastly, with the proliferation of AI and other emerging technologies, administering benefits is becoming less expensive. As a result, the value proposition of health plans is rapidly dwindling.

 Despite this paradigm shift, health plans continue to increase administrative fees and plan premiums at rates far beyond the value they deliver—be it the experience, quality of service, or health outcomes. The 10-year compound annual growth rate (CAGR) of healthcare costs for employers is 5.3%, while the average annual US inflation rate over the last 10 years has been 3.9% (see Exhibit 1). It is time to take real and material action when the value (health outcomes, experience) does not reflect costs 135% above nominal inflation. Despite that dilution in value, Mercer estimates that 2025 healthcare costs will increase by 5.8%. That would mark a third consecutive year of a 5% or greater jump in healthcare costs.

Let’s get real about what it will take for employers to fire their health plans

When employers commit to underwriting their employees’ medical risks, they must dictate how they manage that risk for both the enterprise and their employees. A key risk management component is proactively addressing employee health instead of the contemporary approach of waiting to react to sickness and disease. There are several evolving options for taking an alternate approach to buying health and care services. Exhibit 2 presents options that may help employers meet employees’ needs while receiving value for the health and care funding they provide.

Exhibit 2: Pioneers will capture the reward, but that means new paradigms will need to be explored to find the right fit

Source: HFS Research, 2024

Take these five steps to cut the cord with your health insurer and get on a viable path to improve the health value of your employees

The transition from health plan-enabled healthcare services to something different requires enterprise change management efforts. Enterprises must unlearn the muscle memory of how services are purchased and consumed and replace it with a new paradigm. The path to the new paradigm, as explained in Exhibit 3, requires leadership, employee collaboration, and the willingness to experiment.

Exhibit 3: An amateur’s operational guide to health and care nirvana

Source: HFS Research, 2024

1. Purposeful foundation: Understand your employee’ needs, including their families, and balance it with the enterprise’s demands. Despite multiple benefits plans offered to employees in the traditional benefits regime, they are curated one-size-fits-all models driven by a cost equation, i.e., less cost, less benefits, more costs, more benefits.
2. Metrics for success: Define what good looks like by creating a set of metrics to quantify and qualify health and care impact. These metrics must get to what is essential, including behaviors such as activity, nutrition, and wellness physicals. They should be able to provide a view into disease risk, disease management, and state of health.
3. Partnership-enabled solution: Given that health and care delivery is typically not the core expertise of most self-insured employers, looking for partners who can facilitate the right solution is reasonable. While this market is nascent, finding partners will be challenging; however, by conceptualizing the solution based on the needs identified in Step 1, an iterative approach with a couple of partnerships will likely yield the desired outcomes. The best part of this approach is that the employer is piloting to start with and is not married to the partner or the solution beyond the period they choose.
4. Pilot in the real world: Experiment with a couple of pilots that reflect the real world. Solicit volunteers and craft multiple pilot groups of different geographies, demographics, compensation, education, etc. Test different solutions to measure efficacy, health outcomes, and cultural fit. Be bold to enable technology to collect data, conduct analysis, recommend pathways, understand behaviors, and track the costs.
5. Scale for the future: Pilots will bring significant actionable intelligence about what works and what does not. Execute a data-driven approach, deliberately scaling over time.

The Bottom Line: Stop being lazy by paying more while getting less value for your employee’s health. Do the right thing for fiscal and employee health: Fire your health plan and embrace effective alternatives.

Without radical changes, US healthcare will not cost any less tomorrow or see dramatically improved health outcomes. Health plans have no motivation to act differently. Self-insured employers must take charge and find the best way to support employees’ healthcare needs. If firing your healthcare plan for not creating value for the company or your employees sounds drastic, it is vital to reset an industry far too complacent with its current, extremely profitable business model.