7 Ways to Reduce Employer Healthcare Costs Without Cutting Coverage
CFOs are under more pressure than ever to reduce healthcare spending, without compromising the benefits needed to recruit and retain top talent. Fortunately, slashing coverage isn’t the only path forward.
Below are seven proven strategies to help finance leaders reduce group health plan costs without pushing expenses onto employees. These tactics focus on structural improvements, smarter vendor relationships, and transparent benchmarking, areas where real savings are hiding in plain sight.
1. Benchmark Your Group Health Plan Against Similar Employers
Why internal year-over-year comparisons fall short
Too many companies rely solely on internal renewal comparisons. But a 5% rate increase may look “normal” only because you haven’t seen what peers are paying for similar coverage.
How benchmarking uncovers administrative inefficiencies
When you compare your plan’s cost structure to similar employers in your region or industry, you can quickly identify overcharges, excessive admin fees, or benefit designs that aren’t delivering ROI.
Leveraging peer data to renegotiate rates and fees
Armed with benchmarking data, you can go back to your broker or carrier and renegotiate. Rate caps, commission reductions, and plan adjustments become much easier to secure when you have evidence of what the market is offering.
2. Eliminate Embedded Broker and Consultant Fees
Understand how broker compensation affects total costs
Most brokers are paid on commission, directly from your plan premium. That means they get paid more when your costs go up, not down.
Audit for hidden commissions, overrides, and bonus tiers
Many brokers receive bonus tiers and overrides based on total volume with certain carriers. These payments aren’t always disclosed, and they may influence plan recommendations in ways that don’t serve your best interest.
Consider fee-for-service or transparent consulting models
Working with a fee-based advisor, rather than a commission-based broker, aligns incentives with your company’s goals. You pay for the work, not the markup.
3. Reevaluate Your Plan Funding Structure
Fully insured vs. level-funded vs. self-insured
Each structure has its tradeoffs. Fully insured plans offer predictability, but often at a premium. Self-insured plans provide more flexibility and potential savings, but they carry more risk.
When it makes sense to consider level-funding
For mid-market companies, level-funded plans offer a middle ground. You pay a fixed monthly amount but retain upside if claims are lower than expected.
Building stop-loss strategies into the cost model
If you’re considering a self-insured or level-funded plan, make sure you build in strong stop-loss protection. This limits downside risk and stabilizes budgeting over time.
4. Optimize Pharmacy Benefit Management (PBM) Contracts
Review spread pricing, rebate transparency, and formulary control
PBMs often make money on the spread between what they pay for drugs and what they charge you. Understand how your current arrangement works, and whether you’re getting your share of manufacturer rebates.
Consider carving out pharmacy from your medical plan
In some cases, separating pharmacy benefits from the medical carrier opens up access to better PBM contracts and pricing.
Watch for markups in specialty and mail-order meds
Specialty drugs drive a disproportionate share of pharmacy costs. Look closely at pricing, utilization, and vendor incentives in this category.
5. Conduct a Dependent Eligibility Audit
Why dependent audits often deliver fast ROI
Ineligible dependents can add thousands in unnecessary claims risk. A dependent audit identifies people who shouldn’t be covered, and removes them.
How to manage communication and compliance
Audits should be clearly communicated, time-bound, and compliant with federal guidelines. Partnering with a third-party vendor can help ensure a smooth rollout.
Average savings per ineligible dependent removed
Industry averages suggest savings of $3,000 to $5,000 per ineligible dependent removed. Multiply that across your census, and the numbers add up quickly.
6. Offer Tiered or Narrow Network Plan Options
Provide access to high-value, low-cost provider networks
These plans steer employees toward providers who deliver better outcomes at lower costs, without eliminating access altogether.
Use steerage incentives for non-emergent care
Incentives like lower copays or gift cards can guide employees toward urgent care instead of the ER, or toward in-network providers for imaging and labs.
Communicate clearly to avoid confusion and frustration
The success of these plans depends on clear communication. Confused employees don’t engage with cost-saving options, they get frustrated.
7. Use Claims Data to Inform Plan Design Changes
Identify high-cost claim trends before renewal
Waiting for your carrier to show you renewal numbers is reactive. Analyze your claims data throughout the year to spot costly trends and get ahead of them.
Flag avoidable ER visits, imaging, and specialty use
Are employees overusing the ER for non-emergent issues? Are certain imaging centers charging five times more than others? Claims data tells the story.
Adjust plan design to encourage cost-effective behavior
Once you spot patterns, tweak plan design to nudge employees toward better choices, without reducing benefits.
Conclusion: Strategic Cost Control Starts With Transparency
Why shifting costs to employees is a short-term fix
Raising deductibles and increasing employee contributions might lower costs now, but it damages morale and recruitment long term.
Real savings come from smarter structures, not less coverage
You don’t need to cut benefits to cut costs. You need visibility, strategy, and better vendor alignment.
Independent benchmarking is the CFO’s best starting point
Independent, data-backed benchmarking uncovers inefficiencies your broker won’t point out. It’s the fastest way to find real savings without compromising the value of your benefits.
Ready to Rethink Your Healthcare Spend?
If your current broker isn’t showing you how to reduce costs without cutting coverage, it’s time to bring in a second set of eyes. At PolicySmart, we don’t sell insurance, we fix what’s broken. Our team specializes in uncovering inefficiencies, benchmarking your plans against the market, and giving you real strategies to lower costs without shifting the burden to your employees.
Contact us to get started.