How to lower healthcare costs

For most employers, healthcare is one of the largest and fastest-growing line items in the budget. U.S. employer healthcare costs have risen steadily for years, and many organizations are absorbing double-digit premium increases with little visibility into what's actually driving spend.

The good news is that healthcare cost reduction doesn't require cutting benefits or shifting more burden onto employees. The right combination of data, benefit design and vendor alignment can reduce total spend while improving the benefits experience for your people.

In this article, we’ll break down how to lower healthcare costs by addressing the key drivers of spend and identifying practical strategies employers can implement today.

Key highlights:

Healthcare costs refer to the total expenditures employers and employees incur for medical services, prescription drugs and insurance coverage, including premiums, deductibles and out-of-pocket expenses.
Specialty drugs, chronic condition mismanagement and opaque pricing structures are among the top drivers of rising employer healthcare spend.
Employers who align benefit design with high-value care and use predictive analytics can meaningfully reduce costs without sacrificing quality.
Rightway's neutral PBM and care navigation solutions give employers the tools and clinical expertise to lower healthcare costs while improving outcomes for their people.

How to lower the cost of healthcare: 5 strategies.

Lowering healthcare costs requires more than renegotiating contracts or raising deductibles. The most effective approaches target the root causes of spend: specialty drug utilization, chronic condition gaps, pricing opacity, benefit misalignment and reactive care patterns.

Here are five strategies that actually work:

1. Take control of specialty drug spend.

Specialty drugs represent about 2% of total prescription volume but 40-50% of pharmacy dispensing revenue, according to the FTC. Without the right controls in place, employers can end up paying significantly more than necessary for some therapies.

Taking control of specialty spend means introducing clinical rigor and pricing discipline into how these drugs are approved, sourced and managed. When done effectively, employers see reduced unnecessary utilization, better adherence to appropriate therapies and meaningful cost savings—without compromising patient outcomes. It also ensures that lower-cost alternatives, including those influenced by generic drug pricing, are consistently evaluated and used when clinically appropriate.

Here’s how to control your specialty drug spending:

Ask how your PBM handles biosimilar and generic substitution, and whether a clinical pharmacist is involved in those decisions
Review your formulary to confirm that lower-cost, clinically equivalent alternatives are available and accessible to members
Request regular reporting on specialty utilization so high-cost outliers are visible and actionable
Work with a PBM that doesn't own specialty pharmacies, which removes the financial incentive to favor high-cost dispensing

2. Strengthen chronic condition management and medication adherence.

Chronic conditions like diabetes, hypertension and asthma are some of the most persistent cost drivers in healthcare. Much of that cost comes not from the conditions themselves, but from poorly managed care and low medication adherence, which lead to complications and avoidable high-cost events.

Strengthening chronic condition management ensures members stay on track with their treatment plans, reducing the likelihood of hospitalizations and disease progression. When employees are supported with the right guidance, education and follow-up, employers see lower total cost of care and improved health outcomes.

Here’s how to strengthen chronic condition management:

Look for solutions with a proactive healthcare strategy that engages at-risk members before conditions worsen
Ensure members have direct access to a clinical team that can answer healthcare questions and address barriers to adherence
Confirm that care coordination happens across prescribers, pharmacists and care navigators rather than in silos
Choose member-facing tools that make it easy to understand medications, costs and next steps without requiring members to navigate on their own

3. Increase transparency in drug pricing and rebate structures.

Most employers don't know what they're actually paying for prescription drugs. Legacy PBMs use spread pricing, retained rebates and complex contract structures that obscure true costs. The result: employers think they're saving money on rebates while their total drug spend continues to climb.

Rebates are paid by drug manufacturers to PBMs in exchange for preferred formulary placement, often for higher-cost brand drugs over lower-cost alternatives. When PBMs retain a portion of those rebates, their financial incentive is to keep expensive drugs on formulary rather than find the lowest-cost option for your members. Transparent drug pricing models eliminate this conflict entirely.

Here’s how to increase pricing transparency:

Ask for full pass-through of rebates with no retained amounts
Request auditable reporting so you can verify what prescriptions actually cost
Ensure formulary decisions are based on clinical evidence and net cost, not rebate value
Work with a PBM that charges one transparent fee with no hidden revenue streams

4. Align benefit design with high-value, cost-effective utilization.

Benefit design shapes how employees use healthcare. When plan design doesn't steer members toward high-value care, such as primary care, preventive services and evidence-based specialists, employees default to the most convenient option, which is often the most expensive. Emergency rooms, out-of-network providers and unnecessary specialist visits add up quickly.

By encouraging members to use the most effective, lowest-cost options—such as increased primary care utilization—employers can reduce unnecessary spend while improving the overall care experience.

Here's how to align your benefits with utilization:

Give employees one place to access their benefits so they're not navigating multiple systems on their own
Connect members with real clinicians who can guide them to the right care before they default to the most expensive option
Proactively reach out to members who aren't using their benefits rather than waiting for them to ask
Work with a partner who integrates with your existing benefits ecosystem and drives better utilization of what you already offer

5. Leverage predictive data and analytics to prevent high-cost events.

The most expensive healthcare events, including hospitalizations, ER visits and surgical complications, are often predictable. Members with unmanaged chronic conditions, lapsed medications or unaddressed behavioral health needs are at elevated risk for high-cost acute events. Employers who can identify these members early and intervene proactively can prevent a significant portion of avoidable spend.

Predictive analytics tools use claims data, pharmacy fill history and clinical risk factors to flag at-risk members before a crisis occurs. When paired with proactive outreach from clinical care teams, this approach improves outcomes and avoids expensive interventions.

Here’s how to properly leverage predictive analytics:

Look for a partner who uses claims and pharmacy data to identify at-risk members and closes care gaps before they become acute events
Confirm that risk stratification leads to real outreach from nurses, pharmacists or health guides, not just a report
Ask how your partner proactively engages members who aren't using their benefits or have lapsed on medications
Choose a partner who tracks outcomes so you can see what cost avoidance the program is actually generating

Understanding the importance of healthcare cost reduction.

Healthcare cost reduction isn't just about protecting the budget. It's about building a benefits program that works for your organization and your people over the long term. Employers who take a strategic approach to managing costs are better positioned to attract talent, retain employees and sustain competitive benefits packages without sacrificing quality. Here's why it matters across five dimensions.

Protect operating margins amid rising healthcare costs.

Employer healthcare spending has grown faster than inflation for more than a decade, according to One Digital. For mid-size and large organizations, that translates into millions of dollars in annual spend competing directly with investment in growth, compensation and operations.

Staying current on healthcare trends helps finance and HR leaders anticipate cost drivers before they hit the budget. Organizations that proactively manage pharmacy spend, chronic condition risk and benefit utilization consistently outperform those that take a reactive approach.

Monitor year-over-year cost trends by category: pharmacy, inpatient, outpatient and behavioral health
Identify the top 10–20 cost drivers in your plan and build targeted interventions
Set annual cost reduction targets with accountability metrics tied to vendor contracts
Review plan performance quarterly, not just at renewal

Maintain competitive and sustainable benefits packages.

Benefits are one of the most visible ways employers attract and retain talent. Offering better healthcare benefits is no longer optional. It is a baseline expectation in a competitive labor market.

At the same time, rising costs make it difficult to sustain generous coverage. Employers who focus on smarter cost management—not cost shifting—can maintain strong offerings without increasing cost sharing for employees. This balance is critical to building trust and long-term retention.

Evaluate benefits vendors on outcomes, not just costs
Communicate benefits clearly so employees understand and use what's available to them
Offer care navigation support to reduce friction and improve utilization of existing benefits
Review your benefits ecosystem annually to eliminate redundancy and optimize spend

Reduce productivity loss tied to chronic conditions.

Chronic conditions are a major driver of rising healthcare costs. In fact, 90% of healthcare costs in the US are tied to chronic conditions, according to the CDC. Employees managing poorly controlled diabetes, hypertension or depression have more sick days, reduced performance and higher overall utilization within the health system.

Employers who invest in chronic condition support—medication adherence programs, care coordination and proactive outreach—see measurable improvements in both health outcomes and workforce productivity.

Identify your highest-prevalence chronic conditions using claims data
Implement targeted programs for diabetes, hypertension and musculoskeletal conditions
Ensure employees have easy access to clinical support for medication questions and care coordination
Engage employees proactively—don't wait for them to ask for help

Improve cost predictability and budget stability.

Unpredictable healthcare costs make financial planning difficult. A single catastrophic claim or an unexpected spike in specialty drug utilization can blow a budget that looked reasonable at the start of the year. Employers who build cost predictability into their benefit design and vendor contracts are better positioned to plan and invest with confidence.

Transparent PBM contracts with guaranteed savings and proactive utilization management all contribute to a more stable cost profile. When you know what you're paying and why, you can make better decisions.

Ask for a dollar-for-dollar savings guarantee from your PBM so you know exactly what you're getting before you sign
Require auditable reporting that shows actual vs. projected spend in real time, not just at renewal
Choose a care navigation solution that proactively reaches out to at-risk members before problems escalate to reduce unexpected costs

Strengthen employee financial well-being and engagement.

Healthcare costs aren’t just an employer problem. Out-of-pocket costs, surprise bills and confusing benefit structures create financial stress that impacts employee engagement, retention and productivity.

Providing employees with access to a care navigation solution helps them make more informed, cost-effective decisions. Instead of navigating the system alone, employees have support at every step through health guides who understand their benefits, help them find the right care and resolve billing issues on their behalf.

Give employees one place to access their benefits, understand what's covered and get answers without navigating multiple systems on their own
Connect members with real clinicians and health guides who can resolve billing issues, decode confusing bills and handle the time-consuming tasks employees shouldn't have to deal with
Make sure employees can reach a real person who knows their benefits inside and out, not a call center or automated tool

Start lowering healthcare costs with Rightway.

Rightway offers an aligned PBM model and clinical care navigation to lower costs across pharmacy and healthcare benefits. Our PBM is fully aligned with employers, removing hidden incentives and ensuring every decision is made to get your people the prescriptions they need at the lowest possible costs. Our care navigation solution takes a clinical-first approach, proactively guiding members to the right care at the best cost.

Here’s what employers get with Rightway’s healthcare benefits approach:

A fully transparent PBM model with no spread pricing or retained rebates
Pharmacist-led guidance to ensure clinically appropriate, cost-effective medications
Clinical care navigation that helps members make smarter healthcare decisions
Proactive outreach to reduce gaps in care and prevent high-cost events
Real-time data and reporting to track savings and outcomes

Book a demo today and learn how to lower healthcare costs with Rightway’s neutral PBM and care navigation solutions.

Frequently asked questions.

What are healthcare costs?

Healthcare costs refer to the total amount spent on health-related services, products and administration by employers, employees, insurers and government programs. For employers, this includes premiums paid toward employee health insurance plan coverage, contributions to HSAs or FSAs and the cost of self-insured claims. For employees, it includes deductibles, copays, coinsurance and any out-of-pocket expenses for medical care not covered by their plan.

Healthcare costs span everything from routine preventive visits to complex specialty treatments, prescription drugs, mental health services and emergency care. Understanding what drives those costs is the first step toward managing them more effectively.

What are the main drivers of healthcare costs for employers?

The biggest drivers of the cost of healthcare are pharmacy spend—especially specialty drugs—along with chronic condition mismanagement and inefficient utilization of care. Prescription drug costs continue to rise faster than other areas of spend, and without proper oversight, employers can overpay due to pricing complexity, rebate structures and lack of alignment from their pharmacy benefits manager.

Many of these costs are preventable. Employers that take a proactive approach—focusing on pharmacy management, improving medication adherence and guiding members to appropriate, cost-effective care—can avoid costly complications and reduce unnecessary spend while improving overall outcomes.

What is the Protecting Health Care and Lowering Costs Act?

The Protecting Health Care and Lowering Costs Act is federal legislation introduced in the United States aimed at reducing prescription drug prices and increasing transparency across the healthcare system. The act targets practices that inflate drug costs, including certain PBM pricing arrangements and rebate structures that critics argue prioritize manufacturer payments over patient savings.

It seeks to ensure that patients and plan sponsors benefit from negotiated discounts and that care, including prescription drug coverage, is more affordable and accessible across the country. While the legislation continues to move through the legislative process, it reflects growing bipartisan concern about the role of intermediaries in driving up the cost of care in the United States.

How can the right PBM solution help employers lower healthcare costs?

A pharmacy benefits manager plays a central role in determining what your employees pay for prescriptions and what your plan pays. The right PBM aligns its incentives with yours: finding the lowest net cost for every prescription, passing through all rebates and providing clinical support that helps protect employees' health and their wallets.

Traditional PBM models often retain a portion of rebates and use spread pricing, which means their revenue grows when drug costs rise, not when they fall. When the PBM's financial model is built around transparency and accountability rather than hidden revenue streams, the result is lower total drug spend, better health outcomes and a benefits program that actually delivers on its promise.