This independent assessment can save employers billions on healthcare

As rising costs ignite frustration across the nation, a little-known aspect of our employee benefits purchasing system offers an opportunity to save billions on health care. This solution doesn't require Congressional intervention; instead, it invites us to reexamine existing frameworks to reduce expenses and improve access for millions of Americans.

U.S. employers pay a staggering $1.2 trillion on healthcare benefits each year, with about $300B (25%) wasted. According to a new report from Mercer, they face a nearly 6% rise in health insurance costs, and that will make 2025 the third consecutive year in which employer healthcare costs rise by more than 5%. 

While many employers accept that healthcare prices will always increase, we reject that notion. If employers paid more attention to how they purchase healthcare, they could save billions each year — while providing better care for employees.

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Let's start at the top, right where the benefits are purchased. Benefits firms are relatively unknown players outside the benefits industry, but the health plans they recommend dictate where 164 million Americans receive care and how much it costs. 

Since there are so many insurers in the market, analyzing these vendors requires a high degree of skill and experience, and this is why so many employers rely on benefits firms to help them with the vetting and purchasing process. 

Although there are several types of benefits firms in the market, 81% of U.S. employers use benefits brokers to help them understand which insurance products and healthcare services to buy. Unbeknownst to most employers, benefits brokers are generally not incentivized to help employers get the most value for their money. This is because brokers get paid by the same insurers with whom they are tasked with vetting. Since this compensation is typically paid in the form of commissions and/or bonuses, brokers actually make more money when costs go up — not down.

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In other words, 81% of employers unknowingly expect a fox to guard their hen house, and this is why some leading ERISA attorneys consider the use of brokers for consulting and procurement illegal. Making matters worse, the finance and HR teams, who ultimately decide which products and services are purchased, often have little or no training on benefits. 

(Note: In the small group market (2-50 employees), most states do not allow commissions or fees to be carved out of insurance products, and therefore, benefits firms are generally not able to control their financial alignment with these employers.)

Given these dynamics, is it any wonder healthcare has become a top-three expense, of which 25% is wasted? No, it is not.

Recognizing the vital role that benefits firms play and the misaligned incentives that brokers have with employers, obtaining an independent "second opinion" from certified experts can save U.S. employers, employees, and communities a lot of money on healthcare each year. 

Since financial alignment is essential for controlling healthcare costs, a growing number of "fee-based" benefits firms have emerged in the marketplace. 

These fee-based firms do not accept compensation such as commissions or bonuses from vendors associated with health plans, which allows them to offer the unbiased advice needed to help employers maximize their return on healthcare investments.

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Seeing that a quarter of what the average employer currently spends on healthcare is wasted, we recommend hiring a fee-based benefits firm to independently evaluate your current program so that you can identify opportunities for improvement.

Your current benefits broker may dismiss the idea of obtaining an independent assessment, so be ready to remind them that plan fiduciaries — meaning you and other executives at your company — are personally responsible for meeting the legal and ethical requirements mandated by federal law.

It's worth noting that on January 1, 2022, the federal government's Consolidated Appropriation Act of 2021 was enacted. Aiming to protect employers by increasing transparency and accountability, the CAA requires benefits brokers to disclose all forms of compensation to employers, which should clarify who has a conflict of interest. 

With health insurance benefit costs rising at steeper rates, employers should do more by reevaluating the role of benefits brokers and exploring alternative options. They can then make more informed decisions that enable them to fulfill their fiduciary responsibility and maximize the return on their benefits investments.