Large Employers Are Driving a Shift in Health Benefits to Control Costs

At a time of significant rate hikes and financial pressures, large employers are driving the future of the health benefits market. “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,” according to a new report from McKinsey & Co. “Every year, large employers submit about 300 requests for proposal to health insurance carriers, according to our research. They also account for $16 billion to $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 employee benefits in order to attract, care for, and retain top talent. Researchers identified several emerging trends among large employers responding to the current healthcare landscape, including:

• Employers are budgeting for only a fraction of expected cost increases. Large employers cited costs as their number-one concern when designing a benefits package, and costs accounted for two-thirds of the typical employer’s purchasing decision in 2024. Most respondents expect costs per employee to increase by 5 percent to 10 percent annually over the next three years, yet the average firm has budgeted for a 4 percent increase.
• Employers are open to alternative network arrangements in pursuit of cost control.  They have become more willing to explore alternative network arrangements, including reference-based pricing, dynamic copayment plans, virtual-first plans, and narrow networks. These options can result in savings of up to 30 percent, decreased balanced-billing rates, and improved member experience compared with older models of reference-based pricing.
• Novel therapeutics present a challenge.  Among jumbo employers (companies with more than 25,000 employees), the top challenge is managing increased employee interest in and use of novel therapies, such as GLP-1 medications and cell therapies.
• Employers are prepared to scale back solutions that cannot demonstrate a hard return on investment (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.”