Employers Showing ‘Growing Appetite for Disruptive’ Benefits Solutions

As healthcare costs continue to rise by double-digit percentages, total rewards professionals are looking for innovative ways to shake up their benefits strategies.

According to a new report from consulting firm WTW, 90% of surveyed U.S. employers cited the general rise in benefits costs as the top issue influencing their related strategies, up from 67% in 2023. Other top concerns include competition for talent (52%), expectations for an enhanced employee experience (43%), cost of living (39%) and rising mental health issues (32%).

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As a result of these needs and trends, employers are taking action. The WTW report showed 63% of survey respondents plan to reallocate or rebalance their spend on benefits in the next three years — up from only 8% admitting to such planning last year. This data aligns with findings from management consultancy McKinsey & Co., which outlined that two-thirds of polled respondents plan to switch insurance carriers within the next four years in an effort to reduce costs and improve the employee experience.

“Employers are facing once-in-a-generation pressures in delivering employee health benefits,” said Aditya Gupta, a partner at McKinsey focused on healthcare and benefits trends. “All these pressures are leading to a growing appetite for disruptive solutions.”

According to Gupta, nearly one-third of employers anticipate budget increases of less than 5%, versus the 9% to 10% increases in healthcare costs forecast by industry analysts. Based on this, he said, 85% of employers are interested in exploring innovative benefit models such as dynamic copayment plans or reference-based pricing.

Optimizing Benefit Returns

“Employers must be keen evaluators right now to determine what programs are yielding returns to their workforces and their business,” said Courtney Stubblefield, the managing director of health and benefits at WTW.

Such organizations should recognize the role benefits — health insurance and otherwise — play in competing for talent, she said.

Toward this reflection, assessment and eventual action, Stubblefield said employers need timely and accurate insights to understand employee needs and preferences to then quickly reduce or eliminate offerings that don’t make the comparative cut.

“The drive to improve the employee experience through benefits is strong, with nearly 90% of employers desiring enhancements, through aspects like real-time nudges at key life moments, integrated navigation across benefits and personalized capabilities around an individual’s pressure points,” she said.

Focusing on Long-Term Results

Similar drivers shape employee benefits around the world, including improving employee experience through personalized technology to, for instance, address mental health and its connection with financial well-being, Stubblefield said. Rising healthcare costs and utilization, though, has unique significance and impact in the U.S. given the country’s prominent model of employer-sponsored healthcare coverage, she added.

“U.S. employers or employers with U.S. workforces are at a critical juncture with health and pharmacy costs,” Stubblefield said.

Employers understand cutting or reducing healthcare benefits to cut costs would have, at best, only short-term benefits, stated professional services firm Marsh McLennan in a recent research report. The long-term risks of cutting or reducing benefits include worsened organizational health, lowered employee morale and a diminished competitive-hiring edge.

So, benefits experts see organizations targeting specific areas for change — including pharmaceutical spending, the single-largest driver of health benefit costs.

Recent investigations, including one by the New York Times, revealed pharmacy benefit managers (PBMs) drive up drug costs through complex markup processes and anti-competitive pricing tactics, leading many employers to shop around.

Employers also are turning to biosimilars, Marsh McLennan found. Biosimilars are particularly disruptive for high-cost specialty drugs and cancer medications, which are among the principal drivers of employer healthcare spending. However, the firm, in its findings, advised employers to actively promote biosimilar adoption and ensure robust coverage of biosimilars when reevaluating or renegotiating their PBM contracts.

Additional innovative options to consider from Marsh McLennan and McKinsey include:

• High-performance networks (HPNs), which can cut costs by up to 15%.
• Self-insurance, which may save employers 8% to 10%.
• Reference-based pricing, which can save employers 20% to 30% annually.
• Alternative health plans, which offer transparent and dynamic copays that encourage the use of high-quality but less expensive services and put member engagement at the center with high-touch digital experiences.

Assessing the Situation and Options

Employers want transparency and proof of impact for their healthcare spending, said Chris McCarthy, a senior vice president at Alliant Insurance Services, a brokerage and consulting firm.

“The key for any total rewards executive in today’s environment is to understand your data — know what is driving your costs and know the value each of your solutions brings,” McCarthy said.

Key questions to ask include:

• Is the program delivering savings?
• Are employees showing engagement?
• What is the experience when they do engage?

Create your own key performance indicators (KPIs) that align with your organization’s benefits philosophy, McCarthy said. And, remember to keep it simple.

“Simplicity is an increasingly important trend in both communications and benefit offerings,” he said. “[Benefits offerings] with a simple and effective user experience have the most success.”

Consider an assistance plan that allows employees to determine how they interact with it (e.g., call or text) or a solution that drives claims savings while having no participant impact.

Leading companies also are prioritizing specific services, added Tony Alberico, a senior vice president at Marsh McLennan. He shared employers are:

• Expanding mental health benefits, resources, network options and manager training.
• Focusing on family-friendly benefits, including expanded leave, caregiving support and fertility benefits.
• Investing in targeted solutions to reduce costs and improve employee health around various chronic conditions.
• Investing in financial well-being resources, such as student loan assistance and financial coaching.

“‘Necessity as the mother of invention’ is alive and well due to the unsustainable healthcare cost environment,” Stubblefield said. “Healthcare and benefits delivery are also in a transformative moment due to artificial intelligence and new levels of program and data integration. Employers must build their benefit strategy to meet their current business needs but also position themselves with the right partners for future innovations.”

Editor’s Note: Additional Content

For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:

• Employee Benefits
• Employee Experience
• Finance and Budgeting
• Total Rewards
• Workforce Engagement