Health care costs are taking a toll on American businesses, and perhaps yours as well. That's not hyperbole, it's math.
Since 2001, the average annual premium for family health insurance has increased from about $7,100 to nearly $27,000. Single coverage has more than tripled. Starbucks currently pays more in medical bills than it does in coffee beans. Automakers spend more on health care than on steel.
The situation is getting worse. Healthcare spending growth in 2026 is expected to be between 8.5 percent and 9.5 percent, the highest in nearly 15 years, according to multiple employer surveys and carrier strategy reports. Health care costs now impact wage growth, hiring capacity, pricing, and of course profits. For some companies, it completely impacts their ability to invest in growth.
Patti Starr has been watching this unfold for years and helping employers fight back. As president and CEO of the Health Action Council, a nonprofit association of 240 employers, union organizations, and nonprofit organizations working to improve employee health and control costs, she has enough insight to know where the problems really exist and what to do about them.
“While this crisis cannot be solved in one year due to its severity for many people, it is possible to change your mindset and manage health care costs with business discipline while influencing specific impact areas,” she says.
Recently chief executive In an online presentation, she laid out a five-part action plan for employers. There are practical, actionable steps you can take to contain costs and gain some control over what is quickly becoming one of the most threatening items in your bottom line.
blind spot
It starts with focusing on the right things, she says. Most organizations spend a lot of energy on fixed costs such as management fees, stop-loss premiums, brokerage and consultant fees. These will appear neatly in your spreadsheet. It's easy to compare, easy to negotiate, and it feels like they won.
The problem, she says, is that they represent only a small portion of most companies' total health spending. The real money is in variable costs such as insurance claims, service model fees, network access fees, payment integrity fees, medical rebates, and specialty pharmacies. She estimates that approximately 75 to 80 percent of health care spending is variable costs. Most organizations barely touch it.
As a result, “we won on the management fee spreadsheet, but we ended up really losing on the P&L,” Starr says.
5 Strategies to Attack Variable Expenses
Starr says there are five control levers you can access to start solving the problem, each corresponding to a different part of your variable expense spend.
1. Gain visibility and control through data.
“You can't control what you can't see or don't know,” Starr says. For self-insured employers, she argues, anonymized claims data should drive strategy and not show up as a narrative of late renewals. Fully insured employers with more than 100 employees can and should request meaningful reporting from carriers regarding conditions, utilization, treatment site patterns, and locations.
“Leaders need, at a minimum, medical and pharmacy billing, eligibility and location, high biller details, point of care, vendor outcomes, and employee engagement results. They need enough visibility to ask better questions.” From there, Starr says, healthcare needs to move from annual reviews to quarterly operational conversations. Every quarter, find out what's changed. why? What actions are we taking? Who owns it? How do we know if it worked?
2. Manage variable cost factors.
The gap between ER and emergency medicine speaks to that, Starr said. The average ER visit costs about $2,700. The cost of emergency treatment for the same clinical need is approximately $150. Employees end up in the emergency room not because they're reckless, but because the plan design didn't differentiate between settings and no one dictated it. “Managing variable costs means influencing decisions before a claim is created,” she says. This is done through both contract structures and year-round employee training, rather than a once-a-year public enrollment drive.
This includes geography, she says. “Many employers operate as if the national population is one, when in reality there are many local populations. Provider markets make a difference, access is different, and social barriers are different. Even for the same diagnostic category, the average cost allowed by state or region can vary widely.”
3. Direct employees to higher-value care.
Not all providers produce the same results at the same cost. Starr's argument is that if the plan were to treat all providers the same, there would be no reason for employees to make different choices. Quality and cost tiering, service location tiering, reference-based pricing, centers of excellence, and pre-procedure second opinions can all make a difference, but only if employees know about them.
“Will employees be able to know better value choices before they make a claim?” she asks. “If the answer is no, then this plan relies on making high-level healthcare purchasing decisions when people are sick, stressed, or already confused. Build structures where high-value clinical choices are the easiest path for employees.”
4. Treat metabolic and chronic health as economic risks.
“Obesity, diabetes, high blood pressure, and high cholesterol are real indicators that can be measured to yield better outcomes, but they are also indicators of financial risk.” HAC's analysis found that about 26% of member employees have been diagnosed with obesity, and that group accounts for about 46% of total health care costs. Adults with obesity had more than twice the running costs per member than those without obesity. Men with metabolic disorders were more than seven times more likely to experience a catastrophic event than men without metabolic disorders.
“If organizations wait until a stroke, cardiac event, kidney complication, or complex diabetes hospitalization occurs, they are already on the path to costly claims,” Starr says. “The question to ask is: What are we doing to reduce the probability, severity and repeatability of catastrophic claims where early action can make a difference?”
5. Manage your pharmacy like a supply chain.
“Pharmacies have supplier economics, rebates, unit prices, usage patterns, and then there are safety issues,” Starr said. PBM management fees are only the visible part. The real issues, she argues, are around rebate pass-throughs, spread pricing, specialty drug management, biosimilar adoption, generic-first policies, and “polypharmacy.” When employees are taking multiple medications from multiple prescribers across multiple conditions, she says, the medication list itself becomes a risk, as side effects increase, compliance decreases, and ER or intensive care unit visits become inevitable.
“The key question is: Are we buying the safest treatment with the lowest net cost?” she says. “Pharmacies are too large and change too quickly to be managed solely through procurement at contract renewals.”
Governance is a multiplier
Starr argues that none of the five plays would stick without structure. Without governance, each initiative becomes a one-time HR project that doesn't lead to business results.
In practice, she says, this means a quarterly steering committee of finance, human resources, procurement, legal, brokers and consultants working around an agenda built around population health dashboards, vendor scorecards, member experience, and pending decisions. There are also legal aspects for self-insured employers. ERISA requires fiduciaries to act prudently in the interests of plan participants. This means you can document how decisions are made, how vendors are evaluated, and how rates are monitored.
Starr says the annual update should be a reset for one year of active management. This is not the moment when strategy begins.
next 90 days
Starr's biggest advice is to not wait for renewal season to worry about variable costs. There are some things you can do right away to start tackling the problem.
- Obtain data on healthcare spending from brokers/providers.
- Name your top three spend drivers.
- Map where interventions are currently occurring and whether they are working.
- Audit your vendor's financials. How do vendors make money?
- Choose one movement to actually maneuver.
- Establish quarterly governance if you don't have one.
And always keep your goals in mind. What kind of variable costs are you managing? This prevents work from being fragmented into a long list of disparate benefit projects and creates a forced link between action, spending, and outcomes.
If you do all or even some of these things, she says, you can significantly reduce your costs next year.
“Employers are not passengers in the health care system,” Starr said. “You are the purchaser, the fiduciary, the workplace strategist, and the economic activist. Control means managing major business expenditures with discipline.” And it is very doable.
