A stunning 85 percent of CFOs and CHROs participating in a survey conducted by Chief Executive Group say rising healthcare costs are putting significant pressure on their companies’ bottom lines, adding a non-negligible burden to the mounting expenditures they have spent the past five years trying to reduce.
“The ongoing high-single, low-double digit increases create an untenable trend that is nearly impossible to address,” says the CFO of a small life sciences company, echoing many others.
“[We] experienced a 25 percent plus increase this year even with adjustments to the plan,” adds another CFO respondent.
While only 20 percent of the 200-plus executives surveyed cite cost-cutting as a top organizational priority this year, 48 percent acknowledge that they are still under pressure to reduce the financial strain caused by healthcare benefits programs.
It’s not surprising. Half of all respondents say healthcare costs are one of the largest SG&A expenses, and 99 percent say it is their responsibility as finance and people chiefs to ensure that the employer’s healthcare spending is well-managed.
The growing demand from employees for broader and cheaper healthcare benefits adds to the pressure. Three-quarters of CHROs participating in our survey say their workforce is expressing a desire for better coverage—and 80 percent of both CHROs and CFOs polled say balancing rising healthcare costs with the benefits expansion employees seek is a constant battle.
“We provide best-in-class healthcare benefits to our employees, and we still have employees who complain that we don’t do enough for them. They want everything covered—premiums, deductibles, etc.,” adds a CFO out of Wisconsin.
Says the CFO of a California-based sole proprietorship, “Our employees want higher and more expensive benefits but are unionized and expect the organization to pay.”
While it’s safe to say all executives want lower healthcare costs, not all see it as an area for cost-cutting. “[Our CEO] sees the value in benefits for employee wellness, happiness and low turnover,” says the CFO of a wholesale-distribution company in Texas. “Our employees are one of our core pillars; we do not spare healthcare and benefits costs.”
A Broken System
Participants say navigating this tug-of-war between managing costs and fulfilling employee needs has long been a challenge for U.S. organizations, but the solutions lay beyond the control of any one organization.
“The U.S. healthcare system is broken,” says the CFO of a large industrial manufacturer. “We must have a completely new design without the influence of special interest groups and consultants…we must stop consolidation, have more competition and accountability.”
He’s far from alone in pointing the finger at the healthcare sector.
“Providers are backed up…our employees struggle to see doctors and specialists when needed… In other cases, doctors are not taking insurance, putting a huge burden on our employees,” says a public company CFO in the transportation sector.
“The Affordable Care Act has been anything but,” adds the CFO of a real estate firm. “The cost curve has been nothing but up. There needs to be the ability for SMBs to aggregate for benefits.”
A CHRO recommends employers push for healthcare reform, particularly in pharmacy benefits. “Many CHROs are unaware of the practices employed by pharmacy benefit managers (PBMs) that contribute to rising healthcare costs,” the CHRO of a PE-backed life sciences company says. “By implementing reforms that mandate transparent processes, employers can achieve greater control over healthcare expenses, making them more manageable.”
Exploring Solutions
Some are taking matters into their own hands—a trend Roundstone, a partner in this research, believes is catching on.
“I often wonder if our broker is doing all they can to lower our costs. We’ve taken fixed increase, bid offers from our current carrier, and now we are going to market this year,” says the CFO of an Illinois-based company.
“We are implementing a new initiative through whole person health to try and reduce our employee usage to try and negotiate to reduce our annual spend,” says a financial services CHRO.
Self-funded health insurance plans are one course of action that employers are considering. “We switched to self-insurance with stop-loss in 2024,” says the CFO of a consumer manufacturing company. “We have renewed to continue in 2025 and expect to increase our cost savings from being fully insured.”
Slightly more than one-third of survey respondents (37 percent) report being self-funded, though only one in five say their plan includes a stop-loss and is provided through a captive.
The Power of Data
Our survey found that almost all companies review, at least annually, a series of metrics to help them assess and monitor the cost and value of their healthcare plans, with the overall cost to the organization as the most common measure used.
CHROs and CFOs, however, say there are additional metrics that would be valuable, such as detailed employee health utilization and claims data and national or industry benchmark comparisons.
According to Roundstone, PEPY (or the cost of healthcare per employee per year) is a key metric to consider in this assessment. Yet, according to our survey, of those who use PEPY (73 percent of respondents), a full third don’t know their number.
“PEPY is a gold standard,” said Michael Schroeder, president and founder of Roundstone. “[It] simplifies the accurate tracking of your plan’s performance against the rest of the plans out there. Is your company spending more or less than the rest of the country or your industry on healthcare?”
Unfortunately, Schroeder says, the healthcare system has “conditioned businesses to only use themselves as a benchmark, leaving companies to think about only their track record and focusing on, ‘Can our increase next year be better than our last increase?'” That approach, he says, will not give companies the visibility or control they need to determine how well their plan can perform.
However, we found significant hurdles when we asked CHROs and CFOs about the obstacles preventing them from implementing changes such as these to their healthcare offerings. Interestingly, for CHROs, the top concern is budgetary constraints—more so than their CFO peers. They rate those constraints a 3.8 on a scale of 1 to 5, where 1 is “Not a Challenge,” and 5 is “Significant Obstacle.”
Meanwhile, CFOs say their top concern lies with implementation complexity, rating it a 3.1 out of 5 on our challenge scale—though not far from budget constraints, which they rate a 3 out of 5.
