Employers today are spending astronomical sums on health insurance—often more than necessary. What many don’t realize is that by adopting a more aggressive, strategic approach to purchasing health insurance, they could unlock savings—savings that could be redirected into their employees’ 401(k) plans, improving both employee financial well-being and long-term retirement security.
Let’s break it down: an employer spending $10 million annually on health insurance could save up to 20%—or $2 million to start —by switching to a smarter, more hands-on purchasing strategy. Instead of allowing this money to disappear into insurance premiums, what if this $2 million was invested into employees’ retirement accounts? The impact could be profound.
The Problem: Rising Health Insurance Costs Are Eating Away at Employer and Employee Resources
Health insurance premiums have been rising year after year, with many companies seeing double-digit percentage increases. Employers, often caught in the routine of working with brokers who aren’t incentivized to find real savings, accept these increases as a necessary cost of doing business. The result? Companies spend sizable sums of money on plans that don’t serve their best interests, while employees often see their benefits shrink or their out-of-pocket expenses grow.
But here’s the good news: by taking a more proactive, strategic approach to health insurance purchasing, employers can dramatically reduce these costs—often by as much as 20%. That’s $2 million of savings for a company spending $10 million a year on health insurance. And instead of letting those savings sit idle, companies could reinvest them in ways that tangibly benefit their employees.
The Opportunity: Reinvesting Health Insurance Savings Into 401(k) Contributions
Imagine what $2 million could do if invested into employees’ retirement plans, such as profit-sharing contributions to 401(k)s. The difference this could make in employees’ financial futures is staggering.
Let’s break down the potential impact using common retirement saving scenarios, assuming a 7% annual rate of return on investments:
• A 25-year-old employee who receives an additional $5,000 in 401(k) contributions today could see that amount grow to over $76,000 by the time they reach age 65.
• A 35-year-old employee receiving the same $5,000 could have $40,000 by age 65.
• A 45-year-old employee receiving $5,000 would have around $21,000 by age 65.
• Even a 55-year-old employee would benefit, with their $5,000 growing to over $10,000 in 10 years.
These are just the results for a single year of contributions. Now imagine the cumulative effect of making these additional contributions year after year.
The Win-Win: Healthier Employees, Healthier Retirement Savings
Not only would redirecting these savings improve employees’ retirement outcomes, but it would also enhance their overall financial well-being, reducing stress and increasing job satisfaction. Instead of battling rising healthcare costs, employers could offer a tangible financial benefit—significant contributions to employees’ retirement accounts.
This approach aligns with the broader trend of employers recognizing that health and financial wellness go hand in hand. By lightening the burden of health insurance costs and boosting retirement contributions, companies can improve employee retention, attract top talent, and foster a culture of well-being.
The Solution: A Smarter Health Insurance Purchasing Strategy
So how do companies unlock these savings? It starts with abandoning the traditional, passive approach to health insurance purchasing. Too many employers rely on brokers whose incentives are misaligned with the company’s goals. Instead, employers should adopt a more aggressive strategy that includes:
• Exploring partial self-funding: A method that allows companies to control healthcare spending and avoid the markup built into fully insured plans.
• Auditing current plans for waste: Identifying unnecessary costs, such as overpriced prescription drugs or underutilized services.
• Partnering with health insurance experts: Who specialize in reducing costs and driving better outcomes for employees.
• Investing more in primary care.
Conclusion: A Paradigm Shift That Pays Dividends
Employers can no longer afford to ignore the impact of skyrocketing health insurance costs. By adopting a more aggressive, business-focused approach to purchasing health insurance, companies can save millions of dollars and redirect those savings into employee retirement plans. For a company spending $10 million annually, a 20% savings equates to $2 million—enough to make a significant difference in employees’ 401(k) balances.
In doing so, employers create a win-win situation: they reduce healthcare costs while helping their employees achieve greater financial security in retirement. The result? Healthier employees, healthier retirement accounts, and a stronger company overall.
It’s time for CEOs and their leadership teams to start asking the right questions about their health insurance strategy and take control of this vital area of their business. The future well-being of both their employees and their company’s bottom line depends on it.
