Are CFOs the Key to Solving Company Healthcare Costs?

Fast rising healthcare and drug costs combined with the events of the past few years have caused healthcare benefits to be one of the most important factors that potential employees look at before taking a job.

Due to its importance to prospective employees, and the fact that it is extremely difficult to recruit talent even when offering a host of juicy benefits, most companies write off expensive healthcare plans as “uncontrollable”. Even when it adds up to one of the top-three company costs, it is hardly looked over, and yearly increases are paid with hardly a second glance.

In addition, both overall market inflation and specifically the sharp increase in medical costs, has companies expecting high yearly increases for the near future. Self-funded medical plans are looked at as the only mainstream solution, but these are too much of a financial risk for most companies.

All in all, there is a feeling that this oftentimes top- three company expense is untouchable. However, this is not necessarily true.

A 2019 study from the American Medical Association found that an astonishing 25% of total US healthcare spending can be characterized as waste. Before even adding in the competitive market factor, which can save even more, already one quarter of overall costs can be cut down with a little bit of work.

In addition, drug prices have climbed 33% since 2014, further accelerating the price increases of overall healthcare. This is in large part due to Pharmacy Benefit Managers (PBMs), which were created in the 1960’s to be the “middleman” between pharmaceutical companies and big organizations. In reality, they keep prices high and create more waste, but it is already ingrained in the corporate healthcare culture.

With these statistics in mind, it is very possible to lower company healthcare costs significantly. It can even be done without compromising on quality or raising deductible and co-pay costs, which only harms the employee.

The best person to do this very well might be the CFO.

Step 1: Unbundle Complex Healthcare Packages

Per Employee Per Year (PEPY) costs can range from $3,500- $12,000, but plans that are unbundled correctly will always be on the lower end, as they are the most efficient. However, the hard part is finding vendors who work in your best interest. Commissioned brokers are perfectly happy with the high prices- and usually don’t offer unbundled plans- therefore looking elsewhere is critical.

The best answer is fee based healthcare consultants who understand the complex system and will take the time to learn each organization’s individual needs and budget. These consultants are paid based on the value they bring, and therefore create transparency and efficiency. The opposite is true of commissioned brokers who’s best interest is to squeeze the highest payments possible out of each organization.

Step 2: Returning costs to the hands of C-Suite Leadership

Once the price difference comes out, and the understanding that healthcare is very much a controllable cost, then it will no longer be written off once a year as a huge expense with no second thought. This job needs to be done by someone who understands the importance of retaining talent, the company’s finances, and long term goals: Namely, the CFO.

C-suite executives may be left wondering about other rolling expenses. Did anyone know how much the broker was paid per year, or why the price was raised significantly year after year? Are there any other vendors involved in the company’s expenses that the executives don’t know how much they are getting paid or their contribution?

Step 3: Taking Control of Company Finances

CFOs have reported enormous success when breaking down healthcare costs. One such CFO, with over 400 employees, began by simply hiring new healthcare vendors who were committed to the cost and quality of healthcare. In the first year alone, the PEPY cost was lowered from $10,415 to just under $6,800. This 35% decrease saved the company almost $1.5 million in healthcare alone!

There is no doubt that increasing that kind of cash by saving money that was there all along, will increase the importance of the finance department. However, changing the status quo is not a one time deal, rather it’s a mindset.

Although healthcare is as important as ever to employees, this doesn’t mean that the price is set in stone. Just as employees negotiate benefits and healthcare, so too can CFOs use the market to find the right plan for their company. All it takes is the right mindset of challenging the status quo.

This mindset is a part of the overall trend of greater work efficiency that companies are striving for. CFOs are at the heart of this, as their hybrid role of being part of the leadership while also knowing finances and long term goals, puts them in the perfect position to implement changes such as rethinking the company’s healthcare strategy.

Budgeting and forecasting automation plays an important role in realizing company efficiency, as this provides future budgeting scenarios and how they will affect the organization. Funds saved from unbundling healthcare can then be used for other scenarios, and with all of the data and options available, company wide efficiency can be reached with every decision big or small.

While many times a “bundle package” helps save time and money by getting a "better" price and spending less time customizing it, a CFO needs to realize when this is not worth it. Healthcare is the perfect example, as the reorganization will not only help save company funds in the short term, but will also create a mindset change of accounting for costs and forecasting for the future.