Perspectives

Repeating the Same Playbook

Why Traditional Health Benefit Strategies Are Failing

Introduction

Employers have long grappled with rising healthcare costs by resorting to familiar strategies – from narrowing provider networks and adopting reference-based pricing to shifting more costs onto employees. However, the definition of insanity (to paraphrase a famous adage) is doing the same thing over and over and expecting different results. This white paper examines why these traditional approaches are unsustainable and ineffective in the long run. We present data showing how health insurance premiums have relentlessly outpaced wages, how employees’ out-of-pocket burdens have skyrocketed, and how employers’ own benefit spending continues to climb. We then contrast the old playbook with new system-rewiring approaches that seek to realign incentives: guaranteed episode-based pricing, transparent bundled care, consumer-aligned benefit design, and market competition driven by quality and cost transparency. The goal is to demonstrate, with credible evidence, that fundamental changes are needed to avert a future where healthcare costs undermine both business viability and workers’ financial well-being.

The Cost Curve that Broke the Wage Curve

Over the past two decades, health care premiums and costs have risen at rates that dwarf economic growth and wage gains. This relentless trend has left both employers and employees financially strained, as more of the economic pie gets consumed by healthcare year after year.

Premiums vs. Wages: Family health insurance premiums have surged roughly 3× faster than wages since 2000, eroding workers’ take-home pay. For example, from 1996 to 2024, the average family premium jumped 339%, while workers’ earnings rose only 126% in that span. This means compensation that might have gone into salary increases is instead paying for health coverage. Even in recent years, when wage growth ticked up amid a tight labor market, premium growth still kept pace or outstripped it. In 2023, the average employer-sponsored family premium rose 7%, outpacing general inflation (5.8%) and slightly exceeding wage growth (5.2%) for the year. Over the 5-year period ending 2023, family premiums climbed 22% – a growth rate on par with inflation and only a few points shy of wage growth (27%). The net effect over time is that health insurance costs are consuming a larger share of payroll. A typical family premium now amounts to over $23,000 per year – a cost burden shared between employers and workers that was barely half that amount two decades ago.

Impact on Workers’ Paychecks: Economists often note that rising employer benefit costs eventually come out of workers’ wages. Indeed, there is evidence that excessive healthcare inflation suppresses wage growth. One analysis warns that if healthcare prices (especially hospital prices) continue on their current trajectory, the average low- or middle-income worker stands to lose nearly $20,000 in potential wages over the next decade because money that could have funded raises will instead go to health insurers and providersfamiliesusa.org. In effect, workers are paying for their expensive health plans with forgone wage increases. This dynamic has contributed to decades of wage stagnation for middle-class Americans. Between 1979 and 2022, after adjusting for inflation, hourly wages rose only about 15%, while economy-wide productivity (and thus the capacity to increase pay) grew 65%familiesusa.orgfamiliesusa.org. Skyrocketing healthcare expenditures are a key reason those productivity gains didn’t translate into commensurate paycheck gains. It’s a vicious cycle: higher premiums lead employers to restrain wages, and in turn workers have less disposable income – a particularly alarming trend for the next generation of workers if nothing changes.

Employer Health Spending Trends: Employers are feeling the strain as well. Providing health benefits now costs employers more per employee than ever, and those costs are rising at their fastest clip in over a decade. Large employers project health benefit spending to jump roughly 8%–9% in 2025 alone if no changes are made. Total health benefit cost per employee routinely rises faster than general inflation, squeezing corporate budgets. Small businesses have been hit especially hard: for firms with under 200 workers, health premiums consume a greater share of payroll compared to larger firms, yet often buy less generous coverage. In 2023, the average employee at a small firm paid 35% of the premium for a family plan out-of-pocket (vs. ~24–25% at a large firm) and faced a higher deductible, meaning small employers shifted more costs to their workers to afford any coverage at all. Many small employers have even dropped coverage entirely. In 2023 only 39% of firms with under 50 employees offered health benefits, down from a majority in the early 2000s – a decline attributed to cost pressures. This erosion of employer coverage is especially concerning for the workforce of tomorrow.

The Rise of Out-of-Pocket Burdens and Medical Debt

One of the defining features of the last 15 years is the steep rise in employee out-of-pocket costs – deductibles, co-pays, and coinsurance – as companies tried to mitigate premium hikes by making employees pay more at point of service. The result has been higher financial strain on workers and their families, to the point that many forgo needed care or incur debt.

Deductibles Have Skyrocketed: In 2023, 90% of workers with employer coverage have an annual deductible to meet before most benefits kick in. The average deductible for single coverage now stands at $1,735 – roughly 53% higher than a decade ago and nearly four times the average deductible in the mid-2000s. For context, back in 2006 the average single deductible was only around $370; today’s $1,700+ deductible represents a major out-of-pocket hurdle for the typical employee. Importantly, these are averages – many workers face far higher deductibles. About one in three covered workers is in a plan with a deductible of at least $2,000 (up from about one in four five years ago), and at small firms, nearly half of employees now face $2,000+ deductibles. High-deductible health plans (HDHPs), often paired with HSAs, have transitioned from a niche offering to a mainstream option: 30% of all insured workers are now enrolled in an HDHP, up from just 4% in 2006. The logic was that higher patient cost-sharing would make individuals more conscious healthcare consumers, reducing utilization of low-value care. In practice, it has often simply shifted costs onto workers without sufficiently addressing the underlying prices of care.

Rising Out-of-Pocket Spending: With bigger deductibles and co-pays, it’s no surprise that out-of-pocket spending per person has climbed. Among people with employer coverage, average out-of-pocket spending (not including premiums) reached roughly $866 per person in 2022. That reflects what individuals pay in a year for medical bills via deductibles, co-pays, and coinsurance. Even during 2014–2018, when overall healthcare utilization was relatively stable, out-of-pocket costs jumped 14.5% for those with job-based insurance. And as HCCI and other claims data show, certain services carry particularly high cost-sharing: for example, an inpatient hospital stay now costs the insured patient over $1,000 out-of-pocket on average (just for the facility portion), and a significant minority of hospitalized patients face >$3,000 in bills even with insurance.

Financial Strain and Medical Debt: The human impact of these cost burdens is stark. Surveys find that roughly half of U.S. adults have difficulty affording healthcare – even among the insured. In a 2025 KFF poll, 36% of adults reported skipping or postponing needed medical care in the past year specifically due to cost barriers. This includes insured workers who delayed doctor visits, lab tests, or treatments because they couldn’t afford the out-of-pocket expenses. Another national survey found 41% of adults – 4 in 10 – are carrying medical debt (from bills they couldn’t pay in full) and over one quarter of adults had a health care bill go to collections in the past two years. These burdens fall heaviest on those with lower incomes, but even middle-class families feel the squeeze: in one poll, 4 in 10 people with employer-sponsored insurance rated their plan’s affordability as “fair” or “poor,” citing premium and cost-sharing concerns. When employees are one medical emergency away from financial crisis, their productivity and well-being at work suffer. Employers ultimately bear the hidden costs – through absenteeism, lower morale, and even higher wages demanded by workers who increasingly factor healthcare expenses into job decisions.

Underutilization of Care: High out-of-pocket requirements also discourage necessary care, defeating the very purpose of health insurance. Several studies document that patients with high deductibles tend to cut back on both low-value and high-value care. For instance, individuals in HDHPs often reduce their use of preventive services and chronic disease management (like diabetes check-ups or hypertension meds) simply to avoid out-of-pocket costs – even when those services would be fully covered after the deductible or are exempt from it. The result can be worse health outcomes and higher long-term costs. As one analysis in the New England Journal of Medicine observed, “the disadvantages of high deductibles and narrow networks” (reduced access, potential worse outcomes) may ultimately prompt purchasers to seek more innovative cost-containment methods.

In summary, the strategy of shifting costs to employees has hit a painful ceiling: families are financially strained, many are foregoing care, and the purported savings from higher cost-sharing are increasingly offset by downstream ill effects (like untreated conditions or employee dissatisfaction). This underscores that simply making workers pay more is not a sustainable solution for healthcare affordability.

Why the Old Playbook Isn’t Bending the Cost Curve

Given the relentless rise in costs, employers have tried a variety of benefit design tactics to control spending. Unfortunately, many of these traditional approaches provide only short-term relief or simply shift costs around, rather than tackling root causes. Below we critique some widely used strategies – narrow provider networks, reference-based pricing, and cost-shifting to workers – and examine why they have not delivered the transformational change needed.

Narrow Networks and “Skinny” Plans: One common strategy has been to limit the network of doctors and hospitals in the health plan, contracting with a smaller circle of providers willing to accept lower fees. In theory, narrow networks give insurers (or employers) more bargaining leverage and steer patients to more cost-effective providers. This approach did yield modest premium savings: research on ACA Marketplace plans, for example, found that plans with narrow hospital and physician networks were roughly 16% cheaper in premiums than otherwise similar broad-network plans. Large employers have also experimented with narrow or tiered networks in their HMO or PPO offerings to cut costs. However, the narrow network strategy has significant limitations. First, it limits employee choice and access, often provoking a backlash. Workers may find their trusted doctors or nearest hospitals are “out-of-network,” facing higher costs or needing to switch providers. In some cases, narrow networks can lead to delays in care or travel burdens if local options are excluded – outcomes that hurt employee satisfaction and, potentially, health. Second, narrow networks’ savings tend to be one-time or short-lived; after the initial discount, underlying price growth resumes as remaining providers gain market power. Healthcare providers have also consolidated market share in many regions, weakening the efficacy of narrow networks. A systematic review in Medical Care Research and Review noted that while narrowing networks can reduce spending, the savings come “primarily by price reductions rather than reduced utilization,” and many employers have been reluctant to adopt very narrow networks out of concern for employee backlash and care disruptions. In short, narrow networks alone haven’t “bent the trend” of cost growth – they achieve a one-time premium reduction but do little to address long-run inflation in health prices, especially in concentrated hospital markets.

Reference-Based Pricing (RBP): Another strategy some self-insured employers have explored is reference-based pricing, in which the plan sets a maximum reimbursement (a “reference price”) it will pay for a particular procedure or service. For example, an employer might cap payment for a knee replacement at $30,000 (perhaps based on a median market price or a multiple of Medicare’s rate); employees choosing a provider that charges more must pay the difference. In theory, this creates a consumer incentive to shop for providers at or below the reference price, thereby driving business to lower-cost providers and pressuring expensive providers to lower their charges. Evidence from early adopters did show cost reductions – notably, the CalPERS reference pricing program for surgeries in California saved millions as high-priced hospitals lowered rates to avoid losing patients. Yet RBP has not been widely adopted by employers in practice. A 2019 study in The American Journal of Managed Care found “despite broad employer awareness of its potential for cost savings, very few U.S. employers are including RBP in their health plans”. Why the hesitation? Employers cite multiple barriers: RBP can be complex to design and administer, and it risks saddling employees with catastrophic bills if they inadvertently use an above-reference provider. In other words, without careful member education and robust support tools, RBP could lead to balance billing nightmares for workers – the exact opposite of a positive benefit experience. Additionally, some employers feel RBP doesn’t align with their employee retention goals; they fear a tough-love approach to benefits could hurt morale or competitiveness in attracting talent. The few large employers that have tried RBP have had to invest heavily in year-round employee education and decision support to make it viable. While RBP can theoretically lower prices for select “shoppable” services (like elective surgeries or imaging), it is not a panacea for broad healthcare inflation – and its imprudent implementation could simply shift unpredictable costs to patients, undermining financial protection. This helps explain why RBP remains relatively niche.

Cost Shifting to Employees: Perhaps the most prevalent (and easiest) tactic has been for employers to shift more costs onto workers through higher premium contributions, deductibles, and co-pays – essentially asking employees to “have more skin in the game.” As detailed earlier, employee cost-sharing has indeed soared: workers’ share of family premiums held around 25%–30% on average (and higher in small firms), and deductibles more than doubled over the 2006–2023 period. Initially, these moves were seen as a way to temper utilization and give employees a stake in controlling costs. And to an extent, they did slow premium growth – but largely by reducing people’s use of care, not by making the care itself more efficient or affordable. We now have mounting evidence that excessive cost sharing causes employees to delay or skip necessary care (as 36% admit they have done due to cost), which can lead to worse health outcomes and higher long-term costs (e.g., preventable hospitalizations). Meanwhile, the root cost drivers – high unit prices for hospital care, specialist services, and drugs – remain unchecked by this strategy. An uninsured or under-insured patient has no leverage to negotiate a lower price; they simply face a larger bill. Thus, cost shifting has proved to be a one-time lever that cannot be pulled indefinitely. We are reaching a breaking point where employees cannot absorb additional costs without serious consequences (medical debt, stress, reduced healthcare utilization). As the National Academy of Medicine noted, it remains to be seen whether the downsides of high deductibles and narrow networks will prompt purchasers to seek more effective strategies – but it’s increasingly clear that continually raising deductibles is not a viable long-term cost control plan. It treats the symptom (health plan expense) by passing the buck, rather than treating the disease (high underlying medical prices and inefficiencies).

A Note on Wellness Programs and Utilization Management: Some employers have also tried wellness incentives, disease management, and stricter prior authorizations to rein in costs. While promoting employee wellness is beneficial for health, the track record of wellness programs in producing substantial cost savings is mixed (many evaluations show minimal ROI once program costs are accounted for). Aggressive utilization management or claims denial strategies, on the other hand, can backfire by delaying care or frustrating providers and patients – and they tackle overuse, not unit price or productivity problems in healthcare delivery. In short, these measures have not delivered the magnitude of cost relief needed.

The Bottom Line

Despite decades of using these traditional tools, healthcare costs keep climbing at unsustainable rates. Employer premiums continue to rise faster than wages, family out-of-pocket costs are at record highs, and U.S. health expenditures now consume 18% of GDP (far more than other advanced nations). Repeating the same approaches – squeezing provider networks, raising deductibles, tweaking co-pays – while hoping for a different outcome is futile. It’s clear that a more fundamental change is needed in how we purchase and pay for care. As we’ll discuss next, forward-thinking employers are beginning to adopt “system-rewiring” approaches that address the actual drivers of cost (price, inefficiency, and lack of competition) rather than just shuffling costs around the system.

Rewiring the System: New Approaches for Sustainable Benefits

If incremental tweaks have failed to solve the problem, what will? A growing movement among innovative employers is to “rewire” the health benefits system – altering incentives and payment structures to reward value (high-quality care at reasonable cost) instead of volume or market clout. The following approaches aim to align the interests of employers, employees, and providers in achieving better value. We will explore four interrelated strategies and present evidence of their promise:

• Guaranteed Episode-Based Pricing
• Transparent, Bundled Care
• Consumer-Aligned Benefit Design
• Market Competition via Quality & Cost Transparency

Together, these approaches represent a shift from the old paradigm (reactively managing cost by restriction and cost-shifting) to a new paradigm (proactively engineering a marketplace where providers compete on value and employees are empowered to get the best care at the best price).

Guaranteed Episode-Based Pricing (Bundled Payments)

One of the most impactful reforms is moving away from fragmented, fee-for-service payments toward episode-based bundled payments. In a bundled payment, a provider (or set of providers) offers a guaranteed price for an entire episode of care – for example, a fixed price for all services related to a knee replacement surgery, or a maternity care bundle covering prenatal, delivery, and postnatal care. This model holds providers accountable for the total cost and quality of care for that episode, discouraging unnecessary services and complications. For employers, it introduces price certainty and transparency: rather than a series of separate bills from hospital, surgeon, anesthesiologist, etc., the employer pays one negotiated bundle price.

Evidence of Savings: Bundled payment programs have demonstrated real cost savings while maintaining or improving quality. A notable example comes from the RAND Corporation’s study of a direct employer-provider bundled payment program for surgery. Employers in the program negotiated a single package price with selected “center of excellence” providers for certain surgeries (e.g. joint replacement, spinal fusion), covering the procedure and all related care for 30 days after surgery – and importantly, waived cost-sharing for patients who agreed to use these providers. The results were impressive: average episode costs for the surgeries dropped by $4,229 (a 10.7% reduction) after implementation of bundled pricing. Employers captured about 85% of the savings, reducing their spending per surgery by roughly $3,582 (9.5% lower), while patients saw their out-of-pocket costs decrease by $498 on average – a 28% reduction in what they paid. In other words, bundled payments can be a win-win: the employer pays less and the employee pays less, by eliminating waste and excessive pricing in the care episode.

Medicare’s experiments with bundled payments (e.g., the Orthopedic Bundled Payment for Care Improvement initiative) have similarly shown reductions in costs for joint replacements without harming outcomes. But the RAND study is particularly notable as it involved a commercial population under age 65 – proving that bundled pricing can work in the employer-sponsored insurance context, not just in Medicare. Employers like Walmart, Lowe’s, and PepsiCo that have implemented bundled payment contracts with top hospitals (often through direct contracting or specialized vendors) have reported significant savings and better outcomes for complex procedures such as heart surgery, spine surgery, and transplants.

Quality Assurance and Guarantees: Under episode-based arrangements, providers often include warranties or guarantees of quality. For example, if a patient has a complication or readmission within the bundle period (say 30 or 90 days), the provider covers the additional costs as part of the fixed price. This creates a powerful incentive to “get it right the first time.” Some hospital systems now advertise warranties on certain surgeries for bundled-payment employers, effectively standing behind their quality. Early data suggests bundled payment programs can reduce complication rates and readmissions. In the RAND-covered employer program, patients going to the bundled-payment providers had fewer complications and lower out-of-pocket costs than similar patients who went elsewhere. And Walmart’s direct bundled payment program (through its Centers of Excellence network) found that employees who underwent spine surgery at a bundled-price COE hospital had 95% lower risk of readmission and spent 14% fewer days in the hospital compared to those who had surgery at a non-COE facility. For joint replacements, Walmart’s data showed a 15% lower cost per case and 70% lower readmission rate at COE hospitals versus community hospitals. These outcomes stem from top-tier providers following best practices – exactly the kind of quality that bundled contracts encourage and reward.

Predictable Budgeting: For employers, guaranteed episode prices make health spending more predictable. Rather than fearing a $100,000 bill if a cardiac patient bounces back with complications, the employer knows the upfront package price (and the provider bears the risk of any complications). This can mitigate the shock of high-cost claims that self-insured employers dread. Over time, broad adoption of episode-based payments could also blunt the year-over-year inflation in unit prices, because providers compete on the bundled price.

Scaling Challenges: While promising, episode-based pricing is not yet widespread across all types of care. It works best for well-defined episodes (discrete surgeries, maternity episodes, etc.) and less easily for managing chronic diseases or complex multi-condition patients. However, even in chronic care, models like capitated primary care or condition-specific bundles (e.g. oncology care bundles) are being piloted. Employers can start by targeting “shoppable” episodes – procedures where costs vary widely and quality can be measured – and negotiate bundled deals for those. Already, we see coalitions of employers leveraging bundled pricing for things like orthopedic surgeries, bariatric surgery, and fertility treatments with favorable results. As more data emerges, episode-based pricing could extend to a larger share of health spending. The key is that it directly attacks the problem of excessive provider prices and fragmented, volume-driven care, instead aligning payment with value delivered.

Transparent, Bundled Care and Centers of Excellence

Hand-in-hand with episode pricing is the concept of transparent, bundled care delivered through high-quality providers, often branded as “Centers of Excellence” (COEs) for certain conditions or procedures. This approach combines price transparency, quality transparency, and care bundling to reset the market.

In a transparent bundled care model, the employer identifies providers or centers that offer a combination of high-quality outcomes and competitive, fixed pricing for a given treatment. The employer then contracts directly with these providers (or through a vendor network) and makes the bundle price transparent to patients: for example, an employee might be told, “Hospital X will do your knee replacement for $25,000 all-in, with no additional bills, and we (the employer plan) will cover it 100% with no deductible because it’s a preferred Center of Excellence.” By contrast, going to a non-COE hospital might carry uncertainty (charges could be $40k, $60k, who knows) and the normal cost-sharing would apply.

Benefits of Bundled COE Care: This strategy eliminates surprise billing and price opacity for the employee. Everything is known upfront – a stark departure from the typical healthcare experience where patients rarely know the total cost until after the fact. It also taps into top-tier quality, which can prevent costly complications. Walmart’s COE program, for instance, covers travel and treatment at renowned institutions (like Mayo Clinic, Cleveland Clinic, Geisinger, etc.) for complex care. The rationale is that these centers perform high volumes of these procedures with superior outcomes, which ultimately saves money by avoiding mistakes and unnecessary interventions. As described earlier, Walmart has saved money by preventing misdiagnoses and unnecessary surgeries: in one well-publicized case, an employee was told locally he needed spine surgery, but a second opinion at a COE revealed the issue was Parkinson’s disease – avoiding an unnecessary $30,000 surgery and getting the employee proper treatment. Across thousands of such referrals, those avoided surgeries and improved outcomes add up to significant savings and better employee health.

Other large firms have replicated this model. Lowe’s, for example, sends employees to COEs for heart surgeries and reports lower complication rates and lower overall costs. A study in Harvard Business Review noted that more than half of Walmart employees who were evaluated for spine surgery at COEs were told they didn’t need surgery after all – an indicator of how much inappropriate or non-optimal care can be avoided by steering patients to thorough, high-quality providers. When surgery is warranted, the outcomes at COEs are better (as noted, far lower readmissions and faster return to work). For joint replacements, Walmart actually found that the cost per case was ~15% lower at COE hospitals than at community hospitals, even before considering the reduction in complications. This shows that high quality can indeed coincide with lower cost when care is delivered efficiently. It’s a powerful rebuttal to the assumption that “you get what you pay for” (i.e., higher price means better care) – in reality, some of the highest-quality centers operate at lower cost per outcome, and transparency plus bundling lets employers harness that value.

Market Effect of Transparency: A broader benefit of transparent bundled arrangements is the competitive pressure it creates. When providers know that employers are comparing them on outcomes and total episode price, it spurs improvement. Consider that historically, hospitals have charged private insurers wildly varying prices – research by RAND has found employers and private plans pay, on average, 2.5× what Medicare pays for the same hospital services, and in some states, employers pay 300%+ of Medicare rates while in others closer to 150%. Such variation largely reflects differing market power rather than differences in quality. Shining a light on these price disparities (through mandated price transparency data and studies like RAND) is giving employers leverage to question and push back. For instance, an employer might use RAND hospital price data to negotiate with a local hospital that’s charging 350% of Medicare, armed with the knowledge that a comparable hospital in a similar market charges half that. Transparency is a necessary tool to enable reference pricing, direct contracting, and other value-based purchasing.

It’s important to note that transparency alone doesn’t lower prices – employers must act on the information. As RAND’s researchers put it, wide price variation “suggests that employers have opportunities to redesign their health plans to better align hospital prices with the value of care provided… however, price transparency alone will not lead to changes if employers do not or cannot act upon price information.” In other words, data is empowering, but only if used. The bundled COE approach is one direct way to use it: identify the high-value providers (high quality, lower cost) and steer patients there with incentives and full transparency.

Challenges and Solutions: Implementing transparent bundled care does require effort. Employers need to partner with third-party administrators or innovative vendors that can administer these arrangements (handle bundled claims, monitor quality, coordinate travel, etc.). Employee communications must clearly explain the options and incentives (e.g., “If you choose a COE for your surgery, your deductible and co-pays are waived, and we’ll cover travel for you and a companion”). Some employees may be hesitant to travel for care or to switch providers; successful programs often include a nurse concierge or patient navigator to support them through the process. Over time, as these programs become more common, local providers may feel pressure to match the value proposition of COEs, thereby uplifting the standard of care even for those who stay local.

In summary, transparent bundled care flips the script: instead of employees wandering in a fog of hospital bills and network tricks, they are offered a clear, quality-assured pathway at a known price. It directly addresses both price (by pre-negotiating it) and quality (by concentrating volume at better providers), which is why it’s a cornerstone of reengineering health benefits.

Consumer-Aligned Benefit Design

A critical piece of the puzzle is redesigning health plan benefits to align with consumer interests and health outcomes, rather than against them. Traditional benefit design often puts patients at odds with their own healthcare needs – e.g., high cost-sharing discouraging necessary care. Consumer-aligned benefit design means structuring cost-sharing and coverage in ways that motivate and enable employees to get the right care at the right price.

Principles of Consumer Alignment: In a consumer-aligned plan, high-value care is made easy and affordable, while low-value or wasteful care might have more hurdles or costs. This concept is sometimes called Value-Based Insurance Design (VBID). For example, a plan might eliminate co-pays for insulin and asthma inhalers to promote adherence for chronic conditions (clearly high-value use of care), or provide free primary care visits and generic drugs – investing in prevention to avoid expensive complications. Simultaneously, the plan may require step therapy or prior approval for certain high-cost drugs or procedures that have cheaper alternatives or questionable necessity (to disincentivize low-value choices). The idea is not simply cost-shifting, but smart cost-sharing: patients pay less out-of-pocket when they use providers and services that deliver better value.

Tiered Networks & Centers of Excellence Incentives: One straightforward approach is tiering providers by value. For instance, an employer plan could designate preferred “Tier 1” providers (those with superior quality metrics and lower total cost) – visits to Tier 1 doctors or hospitals might have lower co-pays and deductibles for the patient, whereas Tier 3 (lower-value or overly costly providers) might involve higher cost-share. This differential steering nudges consumers toward high-value options without denying any choice. The COE programs we discussed embody consumer alignment: employees are enticed to use the COE via $0 cost-sharing and covered travel, aligning the benefit design (free care at the best place) with the desired consumer behavior (choose the high-value provider). The earlier RAND study highlighted this by waiving all cost-sharing for employees who went to the selected bundle providers – effectively paying 100% of the bill for the employee – and yet the employer still saved nearly 10%, because the underlying price was so much lower. That is a powerful alignment of incentives: the patient prefers the option where they pay nothing and get great care, and the employer prefers it too because the total expense is lower than if the patient went elsewhere. Everyone wins, except perhaps the high-priced providers who lose business (which is exactly the market pressure we want).

Reducing Barriers to Primary and Mental Health Care: Consumer-aligned design also means removing financial barriers to foundational health services. Many forward-looking employers now offer free or low-cost telemedicine, $0 teletherapy or EAP counseling sessions, and no-cost preventive care beyond the ACA-mandated minimums. The rationale is that encouraging primary care and mental health care access can avert costly crises (ER visits, hospitalizations) later. Some firms have even opened onsite or near-site clinics where employees can get primary care with no co-pay – again aligning the benefit (easy access) with the goal (catch problems early, manage chronic issues, reduce specialist/hospital utilization). Early data from such initiatives often show improved control of chronic conditions and high satisfaction, with potential savings in downstream claims.

Protecting Patients from Catastrophic Costs: Another aspect of consumer alignment is ensuring that employees aren’t bankrupted by medical needs. High-deductible plans should be paired with generous contributions to HSAs or HRAs (health reimbursement arrangements) so that, in practice, employees have the funds to cover those deductibles. Some employers implement an “accelerated deductible” or direct reimbursement if an employee hits a certain threshold, to cap their out-of-pocket exposure. These design features acknowledge that while some cost-sharing can deter frivolous care, no one is a savvy shopper when faced with a true medical emergency or a cancer diagnosis – so the plan should shield people from ruinous costs in those scenarios.

Engaging and Educating Consumers: A truly consumer-aligned design also invests in decision support and health literacy. Price transparency tools, provider quality scorecards, and live concierge support help employees navigate their options. For instance, some plans offer a service where a patient considering a surgery can speak to a “health coach” or care navigator who explains the costs at different facilities and the evidence-based treatment options. If the patient chooses a higher-value option, sometimes they receive a financial reward or shared savings (e.g., the plan might send them a $500 check as a thank-you for choosing a cost-effective provider, effectively splitting the savings). These creative incentives treat patients as partners in cost control rather than adversaries. Early experiments with such models have shown that consumers will choose higher-value options when the incentives and information are clearly presented. One case study found that giving employees a upfront cash incentive to use an MRI at a high-quality, lower-cost imaging center (instead of a hospital) resulted in large shifts to the lower-cost provider – yielding net savings even after paying the reward.

In essence, consumer-aligned benefit design replaces the blunt instrument of across-the-board high cost-sharing with a more nuanced approach: lower the financial barriers for the care you want people to get (like managing their diabetes, getting cancer screenings, using top-rated surgical centers) and introduce thoughtful constraints or incentives around care that is overused or overpriced. This improves employees’ healthcare experience and financial security while targeting cost drivers more intelligently.

Driving Market Competition through Transparency and Quality

Finally, a long-term solution to unsustainable healthcare costs is to inject real market competition into a sector that has historically lacked it. This means leveraging price transparency and quality transparency to empower payers (employers and patients) to shop, and pushing for competition on value among providers and drug manufacturers.

Price Transparency Momentum: In the past few years, federal rules have pulled back the curtain on hospital and insurer pricing. Hospitals are now required to post their actual negotiated rates for services, and insurers must disclose detailed cost data as well. While compliance has been imperfect, we now have more visibility than ever into the astonishing price variation for the same care. For example, one hospital might charge $20,000 for a routine childbirth and another nearby might charge $50,000 for the same case – differences unexplained by quality. With RAND’s latest hospital price analysis showing private plans paying an average 254% of Medicare rates (up from 224% just two years prior), employers have concrete evidence of how much they are overpaying relative to a benchmark. Some states (e.g., Colorado, Montana) have already used this kind of data to set affordability targets or reference rates for their public employee plans, saving taxpayer dollars. Employers in the private sector are increasingly using collaborative purchasing or negotiating directly armed with transparent price data.

Quality Transparency: Equally important is making healthcare quality (outcomes, safety, patient satisfaction) transparent. Organizations like The Leapfrog Group, CMS star ratings, and various registries now publish hospital safety scores, surgical complication rates, etc. When combined with price data, this reveals the high-value providers – those with above-average outcomes and below-average costs. Steering employees to these providers forces others to either improve or lose business. It’s the basic premise of market competition, which has been largely missing in healthcare due to opacity and the historical inertia of “open choice” PPO plans where all providers get paid top dollar regardless of performance.

Employers Banding Together: Increasingly, employers recognize they can’t individually tame regional healthcare monopolies – collective action is key. Business coalitions in various regions are forming health purchasing alliances. By aggregating lives, they can negotiate better or even contract directly. Some have pursued reference-based contracting at a larger scale, essentially saying “we’ll pay hospital X 200% of Medicare, take it or leave it.” Not all providers agree, but when a coalition has a sizeable patient population, it has leverage. On a national level, large companies are collaborating to demand more accountability. For instance, the Health Transformation Alliance (HTA) or the Business Group on Health have initiatives to push for site-of-care steerage (e.g., outpatient vs inpatient), pharmacy value, and transparent networks.

Policy Levers and Competitive Markets: Employers also support policy changes to increase competition – such as stricter antitrust enforcement on hospital mergers (to prevent one system from dominating a market and hiking prices), or site-neutral payment policies (so that a basic clinic visit isn’t billed at quadruple rates just because a hospital bought the clinic). With transparent prices, it also becomes feasible to implement reference pricing at scale (beyond individual employers). For example, California’s state employee plan (CalPERS) demonstrated that setting a reference price for surgeries and lab tests caused the highest-priced providers to lower their fees into line with the reference. Now, with more robust data, private employer coalitions can set similar reference points for their contracting.

On the quality side, employers are increasingly tying reimbursement or center-of-excellence designation to outcomes. Some are using metrics like surgical success rates, infection rates, or even functional improvements post-surgery as criteria for preferred providers. If providers want to command higher prices, they will need to demonstrate higher quality – otherwise they risk exclusion from these high-value networks or tier 1 statuses. Over time, this dynamic can raise the overall standard of care.

Consumer Tools: Competition only works if the end consumer (patients/employees) can make informed choices. Thus, another aspect is giving employees easy-to-use tools: apps or websites where they can compare provider prices and quality for common services. Many insurance carriers now offer cost estimator tools, but usage has been low. Employers are boosting engagement by integrating such tools with plan design (for instance, requiring a call with a nurse navigator before certain high-cost procedures, during which cost/quality options are discussed). As younger, tech-savvy generations enter the workforce, demand for such comparison shopping may grow – but it must be coupled with incentives (as discussed in consumer-aligned design) to truly change behavior.

Early Signs of Success: We are already seeing places where increased transparency and competition yield results. In states like Montana, the state employee health plan moved to reference pricing for hospital services at roughly 234% of Medicare rates – many hospitals accepted this, and the plan’s cost trend flattened dramatically, saving millions and even allowing the plan to reduce employee premiums in some years. Another example: prescription drug price transparency (from CMS’s dashboards) has emboldened large purchasers to demand justification for high prices and to prefer biosimilars and generics, creating market pressure that has led to slower growth in drug spending in some categories. The emergence of alternate purchasing channels – like the Mark Cuban Cost Plus Pharmacy for generics or employer pharmacy coalitions – is injecting competition where the traditional PBM model obfuscated prices.

Intergenerational Impact: If we succeed in creating a more competitive, value-driven healthcare market, the benefits will accrue not just to current workers and companies but to future generations as well. Slower healthcare cost growth means more room for wage increases and other investments. It also means less burden on younger workers who in coming decades would otherwise be paying ever-higher premiums to subsidize an aging population’s health costs. Conversely, failing to fix the system will push an untenable burden onto our children and grandchildren: they would face stagnant wages, unaffordable care, or even a collapse of employer-based insurance as it becomes too costly to sustain. Thus, pursuing transparency and competition is about long-term economic sustainability.

The Stakes: Workforce, Business Competitiveness, and Generational Equity

The current path of ever-rising healthcare costs is unsustainable – full stop. For employers, it threatens profitability, innovation, and global competitiveness. For employees, it threatens financial security, health outcomes, and even career choices (as benefit considerations lock people into jobs or deter entrepreneurship). And for the broader economy, it diverts resources from productive uses into a healthcare system that does not consistently deliver commensurate value.

Burden on Today’s Workforce: We already see how healthcare costs are eroding the resilience of the American workforce. High premiums and deductibles function like a regressive tax, hitting lower-wage workers hardest (since a $2,000 deductible is a much bigger share of income for someone earning $30k than for someone at $130k). Workers are increasingly voicing that healthcare affordability is one of their top concerns. In surveys, over 60% of adults say they are worried about affording unexpected medical bills or the cost of care if they get sick. This anxiety can translate into employee stress and distraction on the job. Medical bills are a leading cause of personal bankruptcy and credit problems. Additionally, when employees skip care or delay treatments (as millions do), their chronic conditions worsen – leading to absenteeism, reduced productivity, or even preventable disability that takes them out of the workforce. For employers, these hidden costs (sick days, lost productivity, higher disability claims) come on top of the direct insurance costs. In short, expensive healthcare is making the workforce less healthy and less productive, creating a vicious circle.

Drag on Business and Innovation: U.S. businesses now collectively spend over $1.3 trillion annually on employee health benefits, an expenditure that has doubled in the past two decades and far outpaces inflation. For employers, every dollar diverted to healthcare is a dollar not invested in hiring, R&D, new equipment, or market expansion. High health costs also price American products and services higher in global markets (where foreign competitors don’t bear the same level of healthcare cost in their pricing structure). Some economists estimate that the excess cost of U.S. healthcare, relative to other nations, acts like a significant “input cost” disadvantage for American firms – effectively a competitive handicap. Small businesses, in particular, struggle: many simply cannot afford to offer robust benefits, hampering their ability to attract talent. Those that do offer coverage often operate on razor-thin margins due to premium expenses. We are reaching a point where continuing the status quo could result in fewer employers offering coverage at all, destabilizing the employer-sponsored insurance system that covers 153 million Americans.

Intergenerational Equity: If we project current trends forward, the picture for the next generation is grim. The Millennial and Gen Z cohorts could face even higher out-of-pocket burdens, or they might be forced into cheap, narrow health plans with large gaps in coverage as employers and individuals alike try to cut costs. Alternatively, more healthcare costs could shift onto taxpayers (through expanded public programs or subsidies) – which ultimately still means younger workers paying via taxes for a bloated system. The federal government projects total health expenditures will reach $21,000+ per person by 2032 (up from around $13,000 today). That kind of growth will either come out of workers’ wages, higher consumer prices, or government debt (which future generations must pay). None of those outcomes is desirable.

There’s also a fairness issue: younger, healthier people currently subsidize older, sicker people in insurance pools – which is fine as long as it’s in balance. But if costs drive more young people to opt out of coverage (because it’s too expensive) or employers to drop family coverage (leaving kids uninsured), the risk pool worsens and costs rise further for those remaining – a dangerous spiral. Thus, solving healthcare cost growth is crucial to not saddle our children with a dysfunctional system they cannot afford. It’s often noted that we are the first generation in U.S. history whose children could be less financially secure than their parents, and runaway healthcare costs are a big part of that equation.

A Call to Action: For all these reasons, employers must take a leadership role in pushing for and adopting new approaches. Simply tweaking co-pays or hoping that vendors manage things better is not enough. It’s time to demand more from the healthcare system – price moderation, accountability for quality, and innovation in delivery – and the strategies outlined above are ways to do that. Employers are not powerless: as the payers for a huge portion of U.S. healthcare, they have leverage if they wield it collectively and wisely. By implementing reforms like bundled payments, high-value networks, and consumer-aligned benefits, employers can create a market dynamic that rewards efficiency and excellence. This, in turn, will bend the cost curve over time, benefiting not just their bottom lines but employees and society at large.

Conclusion

Employers have been stuck on a treadmill of rising healthcare costs, trying the same familiar tactics year after year with diminishing returns. The data make it clear that doubling down on the old playbook is a dead end. Premiums have far outpaced wage growth over the long run, employees are shouldering more costs than ever (often to the detriment of their health and finances), and conventional cost-control measures haven’t fixed the underlying problem. As a result, we risk driving our workforce into financial distress and our businesses into a competitive disadvantage – a trajectory that is as economically unsound as it is morally concerning.

But there is a better path. By embracing system-rewiring approaches – paying for value (not volume) via bundled prices, insisting on price and quality transparency, redesigning benefits to put the patient’s interests at the center, and leveraging competition to rein in prices – employers can help transform the healthcare market. These approaches are not easy; they require change management, new partnerships, and sometimes up-front investment. Yet the evidence shows they can yield substantial dividends: 10-30% cost reductions in targeted areas, improved health outcomes, and enhanced employee satisfaction with their benefits. In many ways, it is about restoring common sense to healthcare purchasing: paying a fair price for excellent care, instead of an inflated price for uncertain quality.

The stakes could not be higher. Healthcare spending is projected to continue climbing sharply if we carry on with business as usual, threatening workers’ incomes and companies’ viability. Conversely, bending the cost curve could free up resources for wage growth, business expansion, and broader coverage. It is no exaggeration to say that the long-term prosperity of both American businesses and workers hinges on getting healthcare costs under control.

For employers reading this, the call to action is clear: stop expecting different results from the same old methods. Instead, lead the way in breaking the cycle. Pilot a bundled payment program for your highest-cost procedures. Join a coalition to transparently benchmark your provider prices and negotiate better value. Redesign your plan to eliminate perverse incentives and reward quality. Educate and empower your employees with the information and support to make smart healthcare decisions. And share what you learn with peers – because we are all in this together.

If enough employers take up this mantle, the cumulative effect will be transformative. We will no longer be simply shifting costs and cutting corners; we will be reducing costs and improving care. That is the sustainable, virtuous cycle we desperately need. Anything less is simply not an option – we owe it to our employees, our businesses, and the generations to come to pursue a new direction.