In our conversations with employers and business coalitions, the idea of healthcare costs becoming unsustainable regularly arises. That's usually followed by talk about the government needing to step in. However, something that almost never comes up in these conversations is talk of employers reducing healthcare benefits offerings to employees.

Healthcare cost increases are nothing new. In fact, this type of “unsustainable” talk has been prevalent among benefits leaders since the 1990s and 2000s. But despite these claims, costs have continued to rise, and most employers continue to offer benefits to their full-time employees (FTEs).

The truth is that there probably is a breaking point, but it’s hard to pinpoint when exactly that will be. And it will also vary by employer. Employers feel compelled to provide benefits to their employees because healthcare has long been an assumed benefit in the United States. Moreover, if employers decided not to offer healthcare benefits, current and prospective employees would look to companies that do offer benefits instead.

Despite being able to sustain rising healthcare spend thus far, increased healthcare costs may have come at the expense of other things, such as employee compensation, professional development, and other ways to invest in employees. Employers continue to make it work by cutting costs in other areas.

According to most benefits surveys, cost is by far the number one employer healthcare priority. But it’s not that simple. Cost is only half of the equation. The other half is avoiding disruption, which consists of employee palatability and administrative burden. These two key factors complicate employers’ efforts to rein in spend. Therefore, the most important ratio for employers when considering change is cost savings to palatability to administrative burden.

Most cost-containment initiatives struggle to gain traction because they don’t save enough money, per member per month (PMPM), to convince employers the disruption is worth the savings. Or the initiatives are just too disruptive to consider.

While employer benefits leaders talk a lot about reining in spending, their actions seem to be largely motivated by a fear of upsetting current/future employees. Making changes to plan design and benefits is inherently risky, but also necessary given the current state of our healthcare ecosystem. It’s a decision that employers seem to be particularly risk-averse about, especially in a job market with existing staffing challenges.

Healthcare benefits usually fall to the human resources department for most companies, but HR staff aren’t necessarily experts in health insurance. And HR departments have a lot of responsibilities besides selecting and administering benefits. HR staff note that their role is to avoid disruption and keep employees happy rather than keep costs in check. It’s also their job to ensure that their benefits are competitive enough to attract and retain employees.

Healthcare benefits are crucial to keeping employees happy. Especially in a competitive talent acquisition market, being aggressive on costs by cutting back on benefits is not an option. Benefits leaders figure the consequences from average cost increases are generally less than what might happen as a result of a risky decision to lower costs.

Moreover, HR departments don’t hear much from other department executives — at least not until the end of the benefits selection process. While the chief human resources officer (CHRO) prioritizes employee palatability and recruitment, the chief financial officer (CFO) has a responsibility to keep costs in check. Typically, CFOs intervene only in large-scale decisions, even though employers could benefit from more executive collaboration in health plan benefits conversations. CFOs should get involved in benefits decisions early on to balance the conversation on cost savings versus employee palatability and increased admin burden, and thus taper healthcare spend.

Researching and selecting which benefits to offer employees, and then implementing and administering those benefits, is a time-consuming process. HR staff must gather data and rates across different carriers to compare them. HR staff also need to figure out what benefits their competitors are offering in order to remain an attractive place to work. Although HR staff often have help from benefits brokers and consultants, administering benefits is still a heavy lift for HR leaders. And they don’t have the bandwidth to take on more responsibility, making it hard to pursue complex cost-saving strategies.

Employers certainly have a lot to gain from lowering healthcare spend, but they can’t do so alone. Here are the reasons we heard from benefits leaders, employers, and other stakeholders on why they can’t drive change on their own.

Employers lean heavily on their benefits brokers/consultants to make complex healthcare benefits decisions. Brokers/consultants play the role of expert advisor and healthcare intermediary for busy employers. Since employers don’t have the bandwidth or expertise to do this on their own, they trust their brokers/consultants to help them understand how the healthcare system works.

Employers tend to select products recommended by brokers/consultants. Benefits brokers and consultants are supposed to serve employers’ best interests, but too often conflicts of interest get in the way. Brokers/consultants are often paid bonuses and commissions from plans, PBMs, and vendors to sell their products to employers. An example of this misaligned compensation is that brokers/consultants are paid a percentage of premiums/claims or a flat per-member-per-month (PMPM) arrangement by the health plan. Brokers/consultants might be motivated to serve their bottom line rather than the employers’ interest in improving affordability and outcomes.

Benefits brokers/consultants want to keep their employer clients happy, so they’re unlikely to make any benefit recommendations that could be seen as disruptive. Brokers/consultants often receive a retention fee annually and aren’t necessarily rewarded for driving down costs. In fact, depending on their financial arrangement with a health plan, it may even hurt their financial compensation if they drive down costs for their employer clients. Additionally, if a broker/consultant recommends an innovative strategy that doesn’t work, it will reflect poorly on them and could cost them business. Brokers/consultants don’t have an incentive to rock the boat, instead opting to recommend the “safer” options that don’t rein in spend.

Employers face an uphill battle to manage costs, especially as their bargaining power decreases to large-scale health plans and health systems’ consolidation. Some employers are actively trying to reduce healthcare spend, but even large employers are struggling to make progress. As a potential solution, employers may join business coalitions, combining their negotiating power to drive change together. However, even these group purchasing efforts have not yet yielded much change for employers. These groups face barriers like competing priorities, as they must reach consensus between independent organizations. Moreover, their efforts are self-imposed cost control measures, making them less durable than legal measures.

Employers are increasingly seeking out help from partners to pursue cost-saving solutions. Since healthcare benefits are so complex, employers almost always select the products recommended by the broker/consultant. And to get in front of an employer, most organizations must go through a broker/consultant first. Therefore, brokers and consultants are crucial partners in the effort to drive down healthcare costs. Employers are also looking to external partners for support. For example, self-funded employers are contracting directly with providers or working through vendors like Carrum Health to establish Centers of Excellence (COEs) themselves. Ultimately, employers acknowledge that they can’t pursue this effort alone, no matter how much they want to see it happen.