How large employers are driving a shift in health benefits to control costs

At a time of significant rate hikes and financial pressures, large employers, which account for more than $800 billion in healthcare expenditures, are driving the future of the health benefits market, a new study shows.

“Large employers—those with more than 10,000 employees—are often innovators when it comes to benefit offerings, shaping the trends that are later adopted by small and medium-size employers,” reads a recent report from McKinsey & Co. titled Transforming employer health benefits: Large employers’ activist role.

“Every year, large employers submit about 300 requests for proposal to health insurance carriers, according to our research,” it continues. “They also account for $16 billion-$24 billion in potential revenue for healthcare partners, including health insurance plans, healthcare professionals and other healthcare companies.”

Today’s market forces are creating a paradigm shift in how employers deliver health benefits. Companies want to provide best-in-class benefits offerings for their employees to attract, care for and retain top talent. The report also highlights the connection between employee health and economic productivity, as well as the value at stake if employee health is poor.

See also: It’s time for HR to get more from the health insurance industry

5 realities about limiting healthcare costs

Researchers identified five emerging trends among large employers as they respond to the current healthcare landscape:

• Employers are budgeting for only a fraction of expected cost increases. Large employers cited costs as their No. 1 concern when designing a benefits package, and costs accounted for two-thirds of an employer’s purchasing decision in 2024. Most respondents expect costs per employee to increase by 5% to 10% annually over the next three years, yet most typically budget for a 4% increase.
• Employers are interested in alternative insurance design solutions. Among jumbo employers (companies with more than 25,000 employees) that have considered value-based insurance design models, more than 85% expressed a strong interest in innovative models, such as flexible co-payment designs and first-dollar deductible plans.
• Employers are open to alternative network arrangements in an effort to control costs. They have become more willing to explore alternative network arrangements, including reference-based pricing, dynamic co-payment plans, virtual-first plans and narrow networks. These options can result in savings of up to 30%, decreased balanced-billing rates and improved member experience compared with older models of reference-based pricing.
• Novel therapeutics are the biggest challenges when building a benefits package. Jumbo employers cited their top challenge as managing increased employee interest in and use of novel therapies. This includes GLP-1 medications and cell therapies.
• Employers are prepared to scale back solutions that cannot demonstrate a hard ROI or high value to employees. Most large employers require a minimum ROI of 2-to-1 or 3-to-1 for each health management program offering.

“Our survey suggests that in the coming years, employers will seek to create best-in-class benefits programs by choosing healthcare partners that seek opportunities to improve offerings year-round; have a detailed understanding of customers and their business goals; and take an innovative approach to value-driven pricing models,” the report said.

“It’s important for employers to know their options and for healthcare partners to stand out as the most viable partners.”

This article was originally published on BenefitsPRO, a sister site of HR Executive. For more content like this delivered to your inbox, sign up for BenefitsPRO newsletters here.