Guide to Gaining Control Over Your Corporate Healthcare Costs

Healthcare costs for large U.S. employers will rise by about six percent in 2020 if they don’t make any cost management adjustments. A six percent increase is roughly the same increase faced by employers each year since 2015 and is lower than the steep increases faced throughout the 2000s. Yet, this increase outpaces general inflation — forcing employers to implement strategies to reduce healthcare costs.

In our Guide to Gaining Control Over Your Corporate Healthcare Costs, we’ll cover key considerations for reducing employer healthcare costs, including:

  • Creating a culture of health
  • Controlling prescription drug costs
  • Implementing an onsite clinic, and
  • Monitoring utilization rates of health programs
Corporate Healthcare Costs
Section 1:

Create a Culture of Health

Employee health impacts an organization’s bottom line. Unhealthy employees drive up corporate healthcare costs because they incur more in medical claims, including doctor visits, surgeries, hospital stays, and prescriptions. On the other hand, healthy employees cost less not only because they need less medical care than sick employees but also because they take less sick time and are more engaged in their work, which increases productivity.

According to the Center for Disease Control and Prevention (CDC), absenteeism costs employers anywhere from $16 to $286 per employee per year. But absenteeism isn’t the only problem. When employees go to work despite being sick, referred to as presenteeism, they can’t function at the same level they usually would. They’re less productive than when they’re healthy, which directly affects an organization’s bottom line. Having a healthy workforce can reduce employer healthcare costs and affect how well employees perform.

Creating a culture grounded in health goes a long way in improving employee health and reducing employer healthcare costs. There are numerous initiatives an employer can undertake to shape health-driven workplace culture. Leadership should engage in these initiatives and model healthy habits to demonstrate that they’re sincere in their efforts to get employees to adopt them.

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Sick time and mental health days

A culture of health starts with encouraging employees to take sick time and mental health days. Encouraging employees to take sick time can seem counterintuitive in efforts to reduce costs, but it reduces presenteeism. When employees come to work ill and don’t take time off to get better, it results in more significant absenteeism down the road.

Reducing presenteeism can prevent future health crises (e.g., urgent care or emergency room visits) that result in expensive medical claims and keep employees away from work for long periods. Encouraging the use of sick time also prevents employees from coming to work sick and spreading their illness to other employees — an unhealthy cycle that’s only solved if employees feel empowered to take time off.

Encouraging the use of sick time goes beyond accommodating physical illnesses. Employers should also encourage employees to take time off for their mental health. Employees don’t perform well when their mental health is suffering. All employees need time away to refresh, regroup, and take care of their minds. Mentally healthy employees can deal with workplace stressors better, improving their effectiveness at work.

Encouraging employees to take days off to care for themselves creates a culture grounded in health and wellness that can ultimately help reduce corporate healthcare costs. Leadership must communicate with employees about why they should use their sick days and reassure them that their managers won’t reprimand them for taking time off.

Encourage healthy habits

Numerous studies demonstrate that weight and health are strongly correlated. Excess weight can increase a person’s risk for heart attack, stroke, sleep apnea, joint pain, arthritis, and diabetes. Employers benefit from helping employees reduce their risk of these diseases because the treatment of them is costly.

Managing weight often requires a combination of improved nutrition and increased physical activity. Employers with onsite cafeterias can offer nutritious options and label these options as such. Some organizations even incentivize the purchase of healthy foods by discounting items like salad, yogurt, and fruit. Organizations can also increase the number of healthy options found in vending machines, and label these more nutritious options, so employees are reminded of them when making a purchase.

Organizations can encourage physical activity by hosting company-wide events and challenges. There are numerous ways an employer can do this, including by:

  • Sponsoring a 5K run/walk corporate team,
  • Facilitating “step” competitions that challenge employees to take more steps in a day than their colleagues,
  • Displaying signage that encourages employees to take the stairs rather than the elevator,
  • And maintaining an onsite gym that’s free of charge to employees.

Employers that equip employees with healthy resources, programs, and incentives are more likely to see employee health improve. With better employee health comes fewer chronic diseases and medical claims, plus an engaged, productive workforce. When employees feel good, they perform better.

Click here for additional ways you can impact employee health through your benefits programs.

Section 2:

Control Prescription Drug Costs

According to the Society for Human Resource Management (SHRM), prescription drugs are “one of the top three most expensive essential health benefits, right alongside ambulatory patient services and hospitalization.” This wasn’t always the case. Prescription drugs were once considered a small piece of the cost of employee health benefits.

The increases in prescription drug costs are driven mostly by the use of brand name drugs and the rising cost of specialty drugs, which are used to treat complex and chronic conditions. AARP’s Rx Price Watch report found that retail prices for 97 of the most commonly used specialty drugs increased by an average of 7 percent in 2017, which is three times the rate of inflation. The average annual cost for one of these specialty medications? $78,781.

Prescription drugs are a critical factor when considering how companies can reduce healthcare costs. There are numerous prescription drug initiatives an organization can implement when developing strategies to reduce healthcare costs.

Understand your current costs

Reining in prescription drug costs starts with analyzing your current drug benefit plan. Reviewing how many drug classifications your benefit plan can give you a sense of how much your pharmacy benefit manager (PBM) profits off your employees’ use of drugs. PBMs with many different drug classifications often make significant money off of the higher-tiered drugs. Look for a benefit plan that has fewer drug classifications.

It’s also important to understand where your employees are filling their prescriptions. If you have many employees filling prescriptions at hospitals, but not a lot of in-patient medical claims, this suggests your employees are going to hospitals to get their medications when they don’t need to. The cost to fill prescriptions at hospitals is much higher than at most pharmacies. Identifying a trend like this can help you pinpoint areas in which you can give employees cost-saving tips that will also reduce the organization’s healthcare costs.

Encourage the use of generics

Most expensive brand name medications have generic equivalents that are essentially the same and cost less. Benefit plans that encourage the use of generics are critical to cost consistency and predictability for employers. Employees will also spend less out-of-pocket for generic drugs.

Prescription drug step therapy is an effective way to transition employees from expensive brand name medications to less costly generics.  With these programs, PBMs pair a pharmacist to an employee to help them make the switch. Transitioning employees from brand name medications to generic drugs helps organizations control corporate healthcare costs while also saving employees money.

The benefit of lower-cost medications goes beyond the financial implications. Generic drugs are also more accessible to employees because of their lower price point. When cost is less of a barrier, employees are more likely to adhere to their prescription regimens, which helps them manage chronic conditions and prevent an expensive medical crisis.

Offer discount drug programs

Employers can further control prescription drug costs by offering employees cost-effective drug programs. Discount drug card programs encourage employees to fill their prescriptions through participating pharmacies that have discounted drug rates. Mail-order drug services also allow employees to access lower-cost prescription drugs, especially for long-term drug therapies. Considering ways to get medications discounted is an effective strategy for reducing healthcare costs.

Section 3:

Implement an Onsite Clinic

An increasing number of employers are looking to onsite clinics as an innovative approach to controlling corporate healthcare costs. The National Association of Worksite Health Centers conducted surveys in 2014 and 2018 to gauge how many employers offered onsite clinics. In 2018 they found that 33% of U.S. employers with 5,000 or more employees provided onsite clinics in 2017 — up from 24% in 2012. While only 16% of organizations with 500-4,999 employees provided an onsite clinic in 2017, 8% said they planned to add one by 2019.

Employers are turning to onsite and near-site clinics as a strategy to reduce healthcare costs because of the numerous benefits they provide. Onsite clinics improve employee access to healthcare, reduce the overall cost of care, and are a unique competitive advantage for employers.

Want to know what’s involved in implementing an onsite clinic? Download the checklist here.

Improved access to care

People often put off seeking healthcare when it’s inconvenient for them to visit the doctor. Onsite clinics improve access to care by placing clinics directly at the workplace. Onsite clinics break down two critical barriers to receiving care: having to travel to get to a clinic and having to take several hours off work to see the doctor.

With improved access to care, employees are more likely to go to the doctor for preventive care, management of chronic disease, and acute illnesses. Regularly seeking care helps prevent future diseases or health crises that result from a lack of managing chronic disease. Health prevention and maintenance reduces the risk of costly adverse events, like hospitalizations, that drive corporate healthcare costs up and keep employees away from work for extended periods.

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Reduced cost of care

Onsite clinics are cost-effective because they favor primary care, which reduces expensive specialty referrals and claims. Reducing these claims is a significant cost saving, especially considering nearly 52% of healthcare providers say they make unnecessary specialty referrals. Onsite clinics also allow employees to receive care without submitting claims to the health insurance provider, which helps stabilize health insurance rates.

Onsite clinics can also offer standard laboratory services, which reduces the cost associated with sending labs to expensive laboratory providers. Some onsite clinics can even dispense generic medications without pricey retail markups. Having an onsite pharmacy cuts out dispensing fees and reduces the actual price of the drugs because they’re being purchased directly from a distributor.

The cost-effectiveness of onsite clinics means employers can often cover the full cost of care for their employees, breaking down the employees’ financial barriers to accessing care. Employees are more likely to seek care when they need it when they aren’t held back by financial limitations.

Plus, when employees can get generic medications onsite, it not only reduces the cost of drugs for the employer and the employee, but it also enables employees to better adhere to their medication instructions. Medication adherence helps employees manage their chronic conditions, further reducing the risk of costly adverse events.

Calculating the ROI of an onsite clinic

Implementing an onsite clinic requires an upfront cost, so the role it plays in reducing employer healthcare costs is not always clear. Here’s a step-by-step approach to calculating the ROI for your organization:

  1. Take the overall projected value of the clinic services, using standard CPT rates and the average cost of services
  2. Add the medication savings discovered by cutting out the costs of dispensing medications and ordering directly from a distributor
  3. Add the potential saving of having the ability to treat your employees in-house and keeping the referral rate to specialists below the 33% industry average
  4. By adding these numbers, you now have the overall value of your onsite clinic. Now subtract the actual clinic costs for all operations and supplies. This resulting number is the onsite clinic’s ROI

Consider the example below. All values provided are for demonstration purposes only.

Value of Onsite Clinic Services (Ex: $500,000 annually)


Generic Medication Savings (Ex: $100,000 annually)


Deferred Specialist Savings (Ex: The average referral rate in primary care is about 33%, but an onsite clinic’s referral rate can be as low as 5%. Estimate 1,000 annual visits with the average specialty visit costing $400. This saves the client $60,000 on referrals annually.)


Total Clinical Value = $660,000

Clinic Costs = $380,000

Total Clinical Value $660,000 – Clinic Costs $380,000 = $280,000 ROI

Learn more about calculating the ROI of an onsite clinic here.

Business benefits beyond direct health costs

Onsite clinics also amplify efforts to create a culture of health. Increased utilization of primary care and access to labs and medications can improve the overall health and wellness of employees. When employees are healthy, they miss less work and are less likely to show up to work sick, performing at a lower capacity. Healthier employees can engage in their job more effectively, which increases their productivity.

Onsite clinics can also improve recruitment and retention efforts. Having easy access to low- or no-cost health care is a differentiating benefit. Employees are increasingly attracted to organizations that prioritize employee health and well-being. Providing access to high-quality primary care demonstrates that you care and are committed to your employees. When employees are satisfied with the benefits you offer, they’re also more likely to recommend you as a place to work.

Improved productivity, recruitment, and retention all have financial business benefits not often considered when evaluating how to control corporate healthcare costs.

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Section 4:

Monitor Your Health Program Utilization Rates

Organizations should monitor their health programs for utilization when working to reduce employer healthcare costs. Doing so helps organizations pinpoint what initiatives are performing well and which need to be improved or cut. (Don’t have a wellness program? Here’s why you need one.)

Organizations that do this effectively aggregate all of their benefits data, including from their health plan, pharmacy benefit manager, wellness vendor(s), and onsite clinic, and routinely evaluate it. Some data points you might benefit from digging into, include:

  • Specialist referral rates. One study found that about one in three (33%) patients under 65 years old in the United States is referred to a specialist by a primary care provider. If your specialty care referral rates exceed this average, it may be time to explore how primary care can better meet employees’ needs.
  • Lab costs. If you’re incurring a lot of medical claims for labs, you may be able to cut costs by partnering with a low-cost lab provider or offering an onsite clinic with standard lab services.
  • Generic vs. brand vs. specialty medication usage. Organizations should keep tabs on whether employees are taking generic, brand, or specialty medications. This insight helps organizations determine whether prescription drug step therapy programs are working to move people from brand name drugs to generic, or whether organizations need to dedicate more resources to educating employees on the benefits of generic medications.
  • Wellness program participation. Track how many employees are participating in the wellness challenges and programs offered to employees. If the programs have low utilization rates, it may be time to rethink how the programs are introduced to employees, or offer extra incentives to get them involved. Make sure you aren’t making any of these wellness program mistakes.
  • No shows for onsite appointments. If your organization implements an onsite clinic, it should review data about no-show appointments. The average no-show appointment rate is roughly 18%. If your clinic has a higher no-show rate than this, it’s time to explore ways to improve it.

Monitoring health program utilization gives organizations the data they need to inform where there is more opportunity to cut costs or improve existing programs.

Organizations looking to control corporate healthcare costs should start by creating a culture grounded in health and wellness. Giving employees the resources necessary to seek care when they need it and integrate healthy habits into their workday will result in healthier employees that can more effectively prevent disease and manage chronic conditions. When employees are proactive in their healthcare management, they experience fewer adverse health events. Implementing an onsite clinic elevates cost savings efforts by providing low-cost, accessible healthcare to employees.