Why Better Healthcare Access Can Also Reduce Employer Payroll Costs
For many employees, having health insurance does not necessarily mean having easy access to healthcare.
High deductibles, appointment delays, copays, prescription costs, and limited access to mental health services can all create friction. Employees may have coverage on paper, but still delay routine care because using that coverage is too expensive, too inconvenient, or too time-consuming.
For employers, that creates a second problem. Delayed care can contribute to absenteeism, productivity issues, more expensive downstream claims, and dissatisfaction with benefits that already represent one of the largest components of total compensation. It can also prompt employers to look for ways to improve access while reducing payroll costs.
Improve access without replacing the health plan
Some employers are adding supplemental healthcare benefits that sit alongside the existing medical plan rather than replacing it.
Depending on the specific program design, these benefits can include access to:
- Virtual primary care
- Virtual urgent care
- Mental health services
- Prescription medications
- Ongoing support for common health conditions
The objective is straightforward: make everyday healthcare easier for employees and their families to use.
A benefit that removes barriers such as copays, deductibles, travel time, appointment delays, or pharmacy costs can materially improve how employees experience their healthcare.
Better access and lower employer cost can coexist
The less obvious part of the equation is that a properly structured supplemental healthcare benefit may also reduce employer payroll-tax expense.
Certain employer-sponsored health benefit arrangements can be structured under existing provisions of the Internal Revenue Code to provide qualifying healthcare benefits on a tax-advantaged basis.
When properly designed and administered, that can create two financial effects:
- employees may realize an improvement in take-home pay, and
- employers may reduce certain payroll-tax costs.
The specific result varies based on employee wages, participation, elections, state treatment, plan design, and other factors. An approximate planning benchmark is $640 per participating employee annually in employer FICA savings, but actual savings must be modeled for each employer rather than assumed.
For self-insured employers, there may be an additional financial benefit. When employees use lower-cost virtual primary care, urgent care, mental health services, and prescription support instead of more expensive care settings, the employer may also reduce medical claims expense. The actual impact depends on utilization and plan experience, but it creates another potential source of savings beyond payroll taxes.
The economics can apply across many types of employers, but they may be particularly relevant in the public sector.
Why this matters for municipalities
Public-sector employers face an especially difficult benefits equation.
Cities and other municipalities are being asked to:
- Control operating costs
- Retain experienced employees
- Remain competitive in recruiting
- Manage healthcare inflation
- Protect employees from continually rising deductibles and contributions
- Maintain service levels without placing additional pressure on taxpayers
Those objectives often conflict.
Reducing benefits can lower cost but hurt retention. Increasing employer contributions can help employees but worsen budget pressure. Raising employee contributions may preserve the plan but reduce perceived compensation.
A supplemental healthcare strategy can create a different conversation.
Instead of asking only:
How much more will healthcare cost us next year?
Municipal leaders can also ask:
Are there ways to improve healthcare access for employees while reducing another operating expense at the same time?
That is a materially different financial equation.
The existing health plan does not have to change
One of the most important points is that this strategy supplements existing medical coverage rather than replacing it, providing easier access to routine and ongoing healthcare while the traditional health plan remains in place for broader medical coverage.
That can be especially valuable for organizations with high-deductible health plans, where employees may be reluctant to seek routine care because they expect to pay a significant portion of the cost themselves.
Improving access at the front end of the healthcare system can make an existing benefit package more usable without requiring the employer to change insurance carriers.
A better question for employers
The traditional healthcare discussion usually focuses on one variable: cost.
Premiums went up. Deductibles went up. Employer contributions went up.
But employers have another option: evaluate whether they can simultaneously improve employee access to healthcare and reduce an existing operating cost.
Those two objectives do not necessarily have to compete.
Better access for employees and lower healthcare and workforce costs for the employer can be part of the same strategy.
For municipalities and other employers facing continued pressure on both workforce costs and employee benefits, that makes the model worth evaluating.
Want to see how this strategy works in practice?
Learn more about our Healthcare Savings & Benefits Strategy, including how employers can improve employee access to care while reducing certain workforce costs.