Employer costs for workers‘ healthcare benefits are projected to rise 11.1% in 2027, prompting a shift in focus toward financial management of these expenses according to Tim Stawicki, senior managing director of health and benefits at the global insurance broker and consulting firm WTW.
Finance Takes the Lead on Costs
Stawicki noted that finance is “leaning in more and helping to manage healthcare costs,” a role that historically hasn’t been a primary focus for finance chiefs. He suggested that collaboration between finance and human resources departments can lead to better options for managing these expenses.
The challenge lies in balancing cost control with the needs of employees and the competitive market. Companies are attempting to redesign healthcare plans for 2027 or 2028 to be leaner while still retaining top talent.
Stawicki explained that it is not a simple cost exercise because employees and their families are involved in the decision. The goal is to find a configuration where the company’s financial burden is reduced without alienating the workforce.
Moreover, the timeline for redesigning healthcare plans varies depending on the size of the employer. Larger employers have likely already finalized their plans for 2027, while midmarket companies are currently in the process of making strategic decisions about their healthcare plans. This timing is key, as employers need to consider their pricing and strategy before implementing changes through open enrollment.
The Legal Framework of Coverage
The Affordable Care Act, passed in 2010, established a requirement for businesses with 50 or more employees to provide a certain level of coverage. Stawicki noted that many employers were already offering full health insurance before the mandate to remain competitive.
Employers must provide a plan that meets a minimum value standard. This standard requires a 60% actuarial value, meaning the plan must cover 60% of total healthcare costs, with the remaining 40% potentially falling to the employee through deductibles, copays, or coinsurance.
Plans typically offered by employers are closer to 80% or 85% actuarial value, making a 60% plan feel quite lean. Such a plan might feature a deductible around $5,000, a significant increase for most workers.
It’s worth noting that the minimum value plan is a critical benchmark for employers, as it determines the level of coverage required to avoid financial penalties. By understanding the specifics of this standard, employers can better work through the complexities of healthcare planning and ensure compliance with regulatory requirements.
Consequences of Non-Compliance
Penalties for failing to provide at least the minimum health insurance vary. Stawicki described the penalty as indexing around $3,500 per employee per year. This fee would have no intrinsic value and represents an additional cost on top of the actual healthcare expenditure.
Healthcare costs are generally substantial, often ranging between $15,000 and $20,000 per employee. Because the penalty is significantly lower than these direct costs, employers might technically save money by paying the penalty rather than providing coverage, though the strategic value of offering health benefits to the workforce remains.
Strategies for Plan Redesign
Stawicki observed that many employers are focusing on changes that minimize impact on employees. Strategies include evaluating vendor partners, investigating fraud, waste, and abuse, and paying claims most effectively.
Another common approach involves using alternative plan designs to steer members toward lower-cost or higher-quality providers. Employers are also looking at restricting eligibility to reduce total spending.
Restricting eligibility often takes the form of spousal surcharges, where a working spouse is charged extra to take their own employer’s benefits. Waiting periods are another tool; while some employers offer coverage immediately, others use waiting periods of up to 90 days, which can have a meaningful financial impact in industries with high turnover.
Where Control Lies
CFOs should understand where they have control over healthcare spend and where they do not. Employers generally select an insurance company to administer benefits, but the insurance company negotiates rates and reimbursement with providers. Individual employers usually have little influence over these contracts.
Employers do have control over which vendors they work with and can influence the utilization of their network. This distinction is critical for finance leaders attempting to work through the complex trends of 2027 and 2028 healthcare planning.
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