How Companies Can Reduce Employer Healthcare Costs 

Employees expect healthcare to be part of their benefits package but offering it at a sustainable cost can be challenging. In this guide, we'll look at how companies can reduce healthcare costs while protecting both employee well-being and the organization’s bottom line.

With workplace expectations changing quickly, technology evolving, and competition for talent intensifying, many businesses are upgrading their benefits packages, particularly healthcare. Higher costs, a stronger demand for personalized options, and a renewed emphasis on employee well-being are prompting employers to take a fresh look at their benefits strategy.

Cutting healthcare costs can seem complicated, but it's essential for maintaining a financially healthy business and keeping employees happy.

Providing healthcare benefits and managing the associated costs is crucial to staying competitive in attracting and retaining employees, as well as maintaining their productivity. As high as 88% of employers rank health-related benefits as extremely important, just ahead of retirement plans and savings and leave (both at 81%), according to the Society for Human Resource Management's 2025 Employee Benefits Survey.

When it comes to reducing healthcare costs, where do you begin? In 2024, the average total annual premium for employer-sponsored healthcare premiums was $25,572, according to the Kaiser Family Foundation. On average, workers paid $6,296 of that amount — a significant cost that can still be a financial burden for many.

As an employer, you want to offer your employees the best possible healthcare benefits at a cost you can afford. Understanding how health insurance premiums are calculated, costs that are under your control, and ways to reduce employer healthcare costs can help you select a healthcare plan that is the best fit for your business.

Who Sets Group Health Insurance Premiums & How Are They Calculated?

Each state has its own set of regulations for group health insurance, making where you do business one of the most important factors affecting your premiums. Insurance carriers calculate premiums based on applicable regulations, along with your group's age, whether the employee is insuring an individual or a family, and tobacco use to calculate the premiums you pay for different plan types. Under the Affordable Care Act (ACA), an individual's health, medical history, or gender cannot affect their premium.

When searching for a health plan for employees, small businesses can benefit from the Small Business Health Options Program (also known as SHOP). This program provides qualified smaller companies with options to offer employees quality health and dental care plans. Participation in SHOP is required to qualify for the small-business healthcare tax credit, which can equal up to 50% of their healthcare costs. Managed online, the SHOP marketplace is a resource that offers several healthcare plan choices by state. If a business qualifies, it can enroll and administer the programs online.

Which Healthcare Costs Are Under Your Control

Research from the Kaiser Family Foundation shows that in 2024, the average total premium for employer-sponsored single coverage was $9,131 for small firms and $8,884 for large firms — including both employer and employee contributions.

Multiply this amount by your number of employees, and you can see how even a small cost-control measure can make a big difference to your budget. Some of the important factors affecting costs are under your control as an employer, and carriers often structure their plan offerings around them.

Here is a look at some of them:

1. Carrier: Identifying the best insurance carrier for your business is a key component in managing costs. Your plan premiums may be higher or lower depending on your choice of insurance carrier. Also consider the location of the carrier and your employee population, as regional differences can impact network availability, pricing, and overall plan effectiveness.
2. Deductible: Plans with high deductibles typically feature lower premium amounts and vice versa. You can choose which plan or range of plans provides the best balance of coverage and affordability.
3. Copay: Offering a plan with a higher copay amount may help to reduce plan premiums. Lower copays for participants usually translate into higher premiums.
4. Prescription: Coverage for prescriptions may be offered separately from your company's main health insurance plan, or not at all. In most cases, the more your prescription coverage pays for generic to highly specialized name-brand medications, the higher the premium amount.

8 Ways To Reduce Employer Healthcare Costs

Healthcare costs can be challenging to manage, which is why it's essential to take time to research additional options early in the year. It is also important to understand what your employees truly value. Lisa Reyes, Talent Enablement Partner at Paychex, highlights the importance of employee feedback, “An employer could eliminate cost when they find out a benefit they are offering/paying for is not wanted or utilized. There is also an opportunity to find out what is important across generations among employees.”

Here are some ideas for reducing healthcare costs and maximizing the dollars spent.

1. Shift to Plans With Higher Deductibles and Health Savings Accounts (HSAs)

Requiring employees to be responsible for contributing more to their health insurance is one of the more common employer strategies for reducing healthcare costs. Be aware, however, that employees are financially burdened and typically have little room to absorb more monthly expenses.

Shifting to plans with higher deductibles while also offering the tax and retirement benefits of an HSA can help everyone stretch their dollars. In fact, 61% of employers now offer a health savings account (HSA), which allows employees to cover out-of-pocket medical expenses while also providing tax advantages and the potential to build long-term savings for retirement. Reyes emphasizes the importance of employee education, noting that “it will be crucial to provide education surrounding this, as oftentimes employees don't participate in it and understand the long-term benefits.”

2. Improve Employee Education About Healthcare

Employees can be given opportunities to reduce their healthcare costs, and, in turn, their employer's healthcare costs, but they need to be informed consumers to take advantage of those opportunities. It's up to you, the employer, to provide accessible, helpful information that educates and empowers employees to take full advantage of their benefits.

Companies can host employee seminars to teach employees about their health plans and how to reduce their costs, whether that's using urgent care centers instead of emergency rooms when appropriate or understanding how to read their medical bills and review for errors. More tools are also becoming available to enable employees to compare the costs of care more effectively. Regular education and information dissemination may also be needed to connect employees to other employer-sponsored health benefits.

3. Offer Telehealth to Lower Employee Medical Visit Costs

Visiting the doctor can be a time-consuming and challenging experience. With advancements in video conferencing technology, including computers, smartphones, and tablets, telehealth has become an increasingly accepted alternative to traditional healthcare delivery methods. Not only is telehealth convenient, but it's one way to help mitigate healthcare costs for you and your employees. Its efficiency makes it less expensive and a more affordable option than an office visit.

4. Create Wellness Programs Incentives That Reduce Insurance Claims

Wellness programs can increase employees' awareness of their health, encouraging them to make better choices and adopt healthier behaviors. Such efforts may lead to a lower number of claims and higher levels of productivity, along with employees who feel physically and mentally healthier and thus more engaged with their work. Smoking cessation programs, fitness class discounts, diabetes management, biometric screenings, stress reduction, and even organized activities sponsored by the business can encourage healthier behaviors.

5. Support Work/Life Balance and Flexible Work Options

According to the 2023 Paychex Pulse of HR Survey, HR leaders are focusing on improving the work experience for employees in every setting — whether they're on-site, remote, or working in a hybrid arrangement. At the center of these efforts is digital HR, which utilizes technology to automate and streamline tasks, allowing teams to focus on higher-value work. Leaders are also investing in training, skill development, and enhanced communication between managers and employees to keep teams connected and engaged.

When HR leaders build a workplace that helps employees feel supported, connected, and equipped to manage their responsibilities, it can ease the stress and burnout that often lead to higher healthcare expenses. The result can include improved physical and mental well-being for employees and lower long-term costs for the organization. Offering low-cost options, such as flexible schedules, reduced summer absenteeism initiatives, and employee resource groups (ERGs), can further strengthen company culture while improving overall well-being. Additionally, providing access to Employee Assistance Programs (EAPs) can offer confidential support for personal and work-related challenges, helping employees navigate stress more effectively.

6. Consider Healthcare Assistance Programs

Offering additional healthcare benefits may seem like an odd strategy for how companies can reduce healthcare costs. But providing assistance services can help manage healthcare costs in the long term. Research the cost of an outside or supplemental healthcare assistance service, or ask your insurance provider if they have any offerings. Hotlines and other forms of communication, such as texting, chats, or video conferencing staffed by nurses, coaches, or other licensed, experienced personnel, can help employees with basic health issues, specialist referrals, or even insurance questions. Programs that manage asthma, diabetes, chronic pain, obesity, addiction, and other chronic diseases are another area that can benefit your workers and may reduce employer healthcare costs over the long haul.

7. Review Deductibles and Co-Pays

Companies looking to reduce healthcare costs may consider changing current deductibles or employee co-pays. For employees who rarely visit the doctor outside of preventative screenings, paying more per visit may be preferable to an increased healthcare premium amount subtracted from their bi-weekly paycheck. Understanding how your workforce uses health plans can help you choose a plan that works well for everyone. Deductibles and other forms of cost-sharing, especially for individuals or families with low-income levels, could take up a large portion of a worker's paycheck. Conversely, you want to help make sure your employees understand their options so they can be prepared in the event of a medical emergency.

8. Negotiate With Insurers

Negotiating directly with insurance carriers can be a powerful way to keep healthcare costs in check. Strong, ongoing relationships with insurers can lead to lower premiums, broader coverage, and plan designs that better fit your workforce.

Before renewal, review your claims data and employee demographics so you can make a strong case for better terms. You might also compare offers from other carriers or bundle benefits like medical, dental, and vision to gain more bargaining power and lower costs. Even modest changes to your plan or carrier arrangements can result in meaningful savings while maintaining quality care.

Select the Right Healthcare Plan for Your Business's Needs

Selecting a group health insurance plan plays a key role in balancing costs with employee satisfaction. With so many plan types and carriers to choose from, it can be difficult to pinpoint the best match. Reviewing multiple options increases the likelihood of finding coverage that aligns with both your budget and your team's needs.