Lead Boldly

How choosing the right health care model can impact business revenue

In a world that is constantly and rapidly evolving, businesses must innovate to remain competitive. As unexpected as it may be, health care can play a pivotal role in this process.

Waste in the health care system — a consequence of inefficiencies, unnecessary procedures, etc. — has a considerable impact on the cost of providing health coverage for employees. A study by the Journal of the American Medical Association estimated that in 2019, waste accounted for approximately 25% of total health care spending in the U.S., amounting to $760–$935 billion.

These inefficiencies — such as redundant tests, excessive administrative expenses, and unchecked practices — drive up the overall cost of health care delivery. The inflated costs are then passed on to employers, affecting a company’s profitability. Rising health care costs can lead companies to reduce expenses in other areas to keep pace. Unfortunately, many companies choose to limit other employee-facing expenses, like additional benefits or salary increases.

Rising health care costs: The domino effect

When companies resort to cutting benefits or limiting salary increases because of escalating health care costs, the repercussions can be far-reaching and detrimental. Employee morale is significantly impacted when workers feel undervalued or inadequately compensated. Reduced benefits and stagnating wages erode trust and satisfaction, leading to a disengaged workforce. Disengaged employees are less productive, have higher absenteeism rates, and exhibit diminished loyalty to their employers. Moreover, with the rising cost of health care, businesses may struggle to remain competitive in terms of compensation packages, making it harder to attract top talent.

This erosion of morale and engagement can precipitate increased turnover rates as dissatisfied employees seek better opportunities elsewhere. High turnover not only incurs direct costs associated with recruitment, hiring, and training, but also disrupts operational continuity and diminishes the accumulation of institutional knowledge. The loss of experienced employees can impair team dynamics and slow down project workflows, adding strain to the remaining workforce and further weakening business performance.

Health care’s hefty impact on businesses’ bottom lines

Ultimately, these challenges negatively affect a company’s earnings and profitability. Lower productivity, elevated recruitment and training expenses, and the potential for operational inefficiencies all contribute to higher operational costs. Furthermore, the reputational damage inflicted by poor employee treatment can hinder talent acquisition efforts, making it difficult to attract high-caliber candidates.

Cutting benefits and limiting salary increases may offer short-term financial relief, but the long-term consequences can undermine employee loyalty, productivity, and overall business success. Fortunately, businesses can do something to stem rising health care costs.

Value-based care helps reduce costs

There are two types of payment models often used in health care — value-based and fee-for-service. Most providers offer fee-for-service care, which requires a payment for each health service delivered. This model depends on higher volumes of services to generate profits, often with providers ordering unnecessary tests and procedures. Fee-for-service models are known for increasing businesses’ health care costs, but not always improving outcomes for patients.

The alternative model is value-based care. Here, patients only pay a monthly premium for care, rather than a fee for each service. This model is considered better for businesses because there’s less waste and inefficiency. In fact, if the entire U.S. health care system shifted to value-based care, there could be potential savings of $1 trillion by 2027.¹ The value-based model also focuses more on the health outcomes of patients than fee-for-service care. Kaiser Permanente is an example of a value-based health plan. In this system, the patient, doctor, hospital, employer, and insurance company are all invested in the same thing: keeping the patient well. It’s hard to argue with the results: patients have lower mortality rates from breast cancer (41%), lung cancer (50%), and colorectal cancer (35%); are 33% less likely to experience premature death from heart disease;² and have better ACL reconstruction outcomes.³ Kaiser Permanente is also one of the top 5 nationally in key diabetes care measures.⁴ With care teams working to make sure the patient gets the right care at the right time, while at the same time working to eliminate redundant tests and unnecessary treatments or procedures, they manage to maintain high quality while increasing cost efficiency.

Kaiser Permanente also helps businesses reduce costs by freeing up their doctors from the burden of administrative paperwork. In their integrated system, this responsibility is solely handled by the health plan side of their business. This eliminates overlapping or redundant costs for administration that can drive up health care expenses. When businesses are relieved of these inflated costs, they can improve their profitability.

Health care savings help businesses do more for their workforces

Lower health care costs relieve pressure on expenses, which can free businesses to spend more on employee satisfaction. A workforce that feels valued and rewarded is more engaged and productive, has higher morale, and shows increased loyalty. Absenteeism is lower, as is job turnover. This can help businesses attract and hire top talent — putting them in a better position to grow and thrive.

So, what does all this mean for businesses? Offering value-based care like Kaiser Permanente helps keep health care costs lower. Because this model requires a monthly premium for care versus a fee for each service, it eliminates redundancies and waste, resulting in greater cost savings. This makes selecting an employee health care plan more just than an opportunity to create a healthier workforce — it’s a decision that can contribute to a more profitable business.