Strategic Cost Control: A 5-Step Guide to Optimizing Healthcare Spend

Managing healthcare costs in today’s environment means navigating a genuinely complex set of forces. Medical cost trend is projected to grow by 9%, and pharmacy trend is climbing even faster – up 11% or more – driven by specialty drugs and rising utilization. Also in the mix are high-cost claims that create unique challenges for every organization. 

Alongside the complexity, employers have more opportunities than ever to adjust strategies and manage spending. The question becomes, “What makes sense for our organization and our employees?” To find your answer, take these five steps to gain more insight and control over your workforce health spending. 

 

1. Track your healthcare cost drivers closely.

Understanding what's driving your healthcare spend sounds straightforward. But it’s a picture that can get more complicated the closer you look. Carrier reports, TPA summaries, and claims data have the insights you need when you know where to look.  

Specialty medications, which now account for more than half of total prescription spending but only 2% of the drugs sold, are a good place to dig in. Something as specific as the mix of brand-name biologics versus clinically equivalent biosimilars on your formulary can represent significant savings. 

Review your reports regularly – not just at renewal – with a trusted benefits advisor who can help translate what the data means, identify potential concerns, and suggest cost-saving actions based on your plan and population. 

 

2. Evaluate your funding model.

Your healthcare plan’s funding model is one of the most consequential decisions in your benefits strategy – and one that's worth revisiting regularly as your organization evolves. Fully insured, level-funded, captive, and self-funded arrangements each come with different tradeoffs around risk, transparency, and flexibility. What was the right fit three years ago may not be the right fit today. 

Fully insured arrangements offer simplicity and predictability, but they also limit transparency and remove the potential upside when the plan performs well. Alternate funding models can unlock greater claims visibility, allow for pharmacy and stop-loss carve-outs, and open up significant savings opportunities. 

For employers with alternate funding arrangements, talk with your advisor about what's possible within that structure to gain deeper visibility and greater savings. For those in fully insured plans, modeling what a move to level-funding or self-funding might look like is an exercise worth running, even if the answer is to stay the course. 

When selecting a funding option, the most important factor is allowing the model enough time to deliver its full value. Typically, it’s at least a three-to-five-year commitment to see a meaningful impact.  

 

3. Get ahead of high-cost claims.

With increasing specialty drug utilization driving prescription cost growth, pharmacy costs are a good place to start when looking to control costs. Self-funded plans offer some innovative options. For example, carving out pharmacy from the primary plan enables employers to work with a PBM independently, build a formulary that reflects specific population needs, and optimize rebates and pricing in ways that aren't available in a bundled arrangement. Requiring generic or biosimilar substitution where clinically appropriate and putting prior authorization protocols around high-cost drug classes like GLP-1s can produce meaningful savings without limiting access to care. 

Beyond pharmacy, point solutions are worth exploring as a way to address high-cost claims, regardless of funding model. Targeted programs for high-cost conditions like musculoskeletal issues, oncology, and high-risk pregnancies can help employees get better outcomes while reducing downstream costs.  

In addition, site-of-care strategies, like steering members toward lower-cost settings for infusions or imaging, can be another effective cost-control strategy, depending on your plan and employee population.  

 

4. Factor workforce culture into cost-control decisions.

Of all the line items in a benefits budget, healthcare coverage is the one employees feel most directly – and most personally. A formulary change that looks straightforward on paper may feel very different to an employee managing a chronic condition. A shift in contribution structure or deductibles affects take-home pay in ways that can influence morale, retention, and how employees perceive their employer. 

A company’s benefits program reflects the organization's culture and values. What’s offered and how it’s communicated signal caring and commitment. The impact on workforce perceptions and overall talent strategies is a key factor to consider when evaluating cost-control strategies. 

Once decisions are made, clear communication matters. Helping employees understand what's changing, why, and what it means for them goes a long way toward maintaining trust – especially for changes that affect something as personal as medications or provider access. 

 

5. Build a year-round governance process.

Healthcare costs are constantly fluctuating. Adopting an ongoing approach to managing them pays off. Monthly or bi-monthly data reviews, depending on your funding model, keep trends visible and allow time to make adjustments. Plus, tracking metrics like per-member-per-month costs, utilization patterns, and pharmacy spend against benchmarks gives you and your advisor a shared, current picture of where things stand. 

A strong advisor relationship extends beyond the renewal cycle. Start by aligning around a multi-year benefits strategy that reflects where your organization is headed. Then, establish a regular cadence of check-ins to review the latest data, model plan changes, and explore new solutions as they emerge.

This article includes input from Megan Becker, Vice President of Growth in Atlanta, Georgia. From her tenured experience advising employers on benefits strategy, Megan brings a practical perspective to aligning healthcare cost control with long-term workforce and financial goals.