3 Critical Mistakes Employers Make with Their Health Plans (And How to Fix Them)

If you think your health plan is working just fine, you might want to take a closer look. Hidden fees, misaligned incentives, and a lack of transparency could be draining your company's resources, and putting your employees at a disadvantage.

Healthcare in the U.S. is a $5 trillion industry, and employers are footing a significant part of the bill. With the rise of new regulations and oversight, employers can no longer afford to take a passive approach to their health plans. Ignoring the warning signs can lead to wasted money, unhappy employees, and even legal trouble.

Here are three of the most common mistakes employers make when it comes to their health plans, and how to fix them.

1. Trusting the System Without Questioning It

Many employers assume their insurance carriers, brokers, and third-party administrators (TPAs) have their best interests at heart. The reality? These entities are businesses with their own profit-driven agendas, and they don’t always align with what’s best for your organization or your employees.

Insurance carriers are required to prioritize shareholder value, which often means higher premiums, hidden fees, and misaligned incentives that benefit them. Not you. Employers who blindly trust their brokers or carriers without asking tough questions could be overpaying for services they don’t need and missing opportunities for better, more cost-effective solutions.

The Fix:

• Conduct regular, in-depth audits of your healthcare expenses and plan performance.
• Demand complete transparency from your brokers and administrators—ask how they are being compensated and if they have any financial incentives tied to their recommendations.
• Seek alternative solutions such as direct contracting with providers or working with fiduciary advisors who are legally bound to act in your best interest.

Key Question to Ask:

Are the people managing our plan acting in the best interest of our employees or their own bottom line?

2. Overlooking the True Costs of Pharmacy Benefits

Prescription drug costs are one of the biggest drivers of rising healthcare expenses, and pharmacy benefit managers (PBMs) are at the center of it all. Many employers believe they’re getting a good deal because their PBM offers rebates, but those rebates are often just "fool's gold," masking inflated drug prices.

PBMs act as middlemen, adding layers of costs between the drug manufacturer and the patient. They often steer plan members toward higher-cost medications that bring in bigger rebates while cheaper, equally effective alternatives go unnoticed.

The Fix:

• Partner with a fiduciary PBM that offers 100% pass-through pricing and full transparency.
• Implement a formulary that prioritizes cost-effective medications without sacrificing quality.
• Educate employees on prescription options and costs, empowering them to make smarter choices.

Key Question to Ask:

Are we getting true cost savings, or are we caught in a rebate shell game?

3. Failing to Treat Healthcare Like a Business Expense

Think about it. If your company were spending millions on any other operational cost, you'd have a rigorous review process in place. But when it comes to healthcare, many employers accept rising costs as an inevitability and avoid digging into the details.

Healthcare expenses deserve the same level of scrutiny as any other major business investment. The truth is, most companies can reduce their costs by 10-20% without cutting benefits, simply by taking a more active, informed role in plan management.

The Fix:

• Treat your health plan as a profit center by identifying areas of overspending and inefficiency.
• Benchmark your healthcare spend against industry standards to ensure you’re not overpaying.
• Work with advisors who challenge the status quo and bring innovative solutions to the table.

Key Question to Ask:

Are we approaching our healthcare spending with the same rigor as other business costs?

Why This Matters Now More Than Ever

With new healthcare regulations and growing scrutiny around employer-sponsored health plans, companies can no longer afford to take a "set it and forget it" approach. The Consolidated Appropriations Act (CAA) has introduced new requirements for employers to ensure their plans are both cost-effective and compliant.

Employers who fail to take action could find themselves facing not just higher costs, but potential legal liability if they’re found to be neglecting their fiduciary responsibilities.

Your health plan is one of your most significant expenses, and one of your most valuable tools for attracting and retaining top talent. By questioning assumptions, demanding transparency, and taking a proactive approach, you can cut costs while ensuring your employees get the care they deserve.

So, where do you start?

Take a hard look at your current plan, ask the tough questions, and make sure to get expert advice from those who are willing to challenge the status quo.

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