Direct Primary Care: An Alternative Way to Curb Health Care Costs

Between 2014 and 2024, group health insurance premiums for family coverage increased by 52%, according to KFF’s Employer Health Benefits 2024 Survey. In the last five years alone, family coverage premiums rose 24%, slightly outpacing inflation (23%) and cutting into the 28% increase in wages. This growth hits the pockets of employees and employers alike.  

The burden of health care costs is not going away anytime soon. Within a decade, private and public health care spending is expected to equal almost one-fifth of the total U.S. economy, according to the Peter G. Peterson Foundation. Because of the high cost of medical care, many workers rely on health coverage obtained through their job. According to the SHRM 2024 Employee Benefits Survey, 88% of employers say health benefits are important, leading every other benefit category.

For employers, health care spending is tied to their bottom line, as employee wellness and productivity go hand in hand. Health-related absenteeism can vary over the course of a year, but at the start of the most recent flu season in October 2024, health-related absenteeism stood at 2.14% of full-time workers in the U.S., according to the Centers for Disease Control and Prevention. The cost to employers when employees are absent stretches across the organization, including lost productivity, more administrative time spent on managing absences, and depending on the industry, added costs to temporarily replace absent workers.

In 2023, per-person health care spending in the U.S. totaled $14,423, and by 2032, it is predicted to reach $21,927, according to the Peter G. Peterson Foundation. With a potential 41% increase in per-person health care spending over the next decade, employers are not only planning for higher expenditures but are also investigating alternative ways of providing health care for employees. In fact, 27% of respondents to the SHRM 2024 Employee Benefits Survey offer a self-insured plan to their employees.

One alternative gaining traction among employers is a combination of a direct primary care (DPC) model and supplementary insurance policies, offering a more flexible and cost-effective approach to employee health care.

Alternative Health Care Models: Direct Primary Care

Typically, employers that offer health care coverage as part of their total rewards partner with insurance brokers to choose plans from a group health insurance provider. These providers collect premiums to cover the cost of care and perform administrative duties such as processing claims and ensuring compliance. When employers can’t offer a plan, employees look to the health insurance exchange created under the Affordable Care Act or pay out of pocket. According to KFF, 51% of companies with fewer than 50 employees offer health care coverage.

Under a DPC model, employers contract directly with primary care providers for employee care and typically engage with insurance brokers for supplementary coverage for specialist and hospital care. Employers can also outsource the burden of different tasks, such as claims processing, to third-party administrators. Depending on the employer’s outlays, federal subsidies are offered in the form of tax advantages for employer-sponsored health plans.  

Considerations for Direct Primary Care

When considering a shift to the DPC model, employers first need to consider the availability of providers in their geographic area. While the number of DPC practices continues to grow, with nearly 2400 providers operating in the U.S., they are not ubiquitous.  

Once availability is established, employers should consider a few key aspects of delivering this kind of care.

1. Covered services: Smaller providers may only be able to offer services related to primary care visits such as vaccinations, well visits, chronic condition management, and visits for acute conditions such as seasonal flu or a sprained joint. Larger providers may include labs, prescriptions, and other services in their scope of work. Establishing the extent of care allows HR leaders to better compare costs to their current health care coverage and outlays.
2. Additional coverage: Even if a provider offers an extensive array of services, some health care needs such as specialist visits and unexpected injuries or illnesses may require additional outlays. Employers with DPC offerings can accommodate these needs with supplementary insurance.
3. Administrative needs: Even larger companies can become burdened by the administrative aspects of DPC and supplementary insurance. Assembling a knowledgeable team or upskilling current HR employees can help, as can third-party administrators who can handle claims and manage outflows.
4. Wellness benefits: Just like with traditional health coverage, employers can offer wellness plans to accompany the DPC benefit model, allowing employees to supplement their health care through wellness. These benefits can include coverage for gym memberships, physical therapy, and more.                      

A DPC model may simplify some aspects of the total benefits strategy, but it also adds new hurdles. With that in mind, why would employers look to this type of health care solution? For some, there is a cost savings. For others, their outlays may remain the same, but employees now have more access to care, and most importantly, they’re using the care offered to them.  

That’s what one employer in St. Louis found when it switched from a traditional health plan to a DPC alternative where employees pay $0 to access care. When Woodard Cleaning and Restoration stepped away from the health insurance companies and PPO networks it was used to, it found transparency in pricing, better access to care for employees, and flexibility to fund other services, such as physical therapy or mental health treatment, when needs arose. Employees are still covered if they want to work with a provider not listed under the plan, with a co-pay and deductible to help offset the cost. While an employer’s line item for health care costs may not shift that much, the bottom line can benefit when employees increase their utilization of the expanded care offered to them.

Building an Alternative Approach to Health Care

With these aspects of delivery in mind, employers looking to establish alternative health care approaches or update existing offerings can follow three steps:

1. Build a survey for employees. A survey can help determine where various needs and wants fall. The results can help employers customize a health care approach that meets employees where they are at. Employers can also compare offerings to industry counterparts with results from the SHRM 2024 Employee Benefits Survey.
2. Ensure compliance with applicable laws and regulations. Employer health care expenditures can come with tax advantages, but it’s important to consult with tax and accounting professionals to ensure compliance with applicable laws and regulations. Professionals can also help your decision-making process when it comes to determining the best approach for your unique needs.
3. Pilot and prepare to modify. When adopting an alternative health care approach, such as the DPC model, employers should consider piloting the initial plan. By planning for review and revision at the start, leaders can prepare for any necessary changes to improve benefits for employees.

As health care costs rise and employees continue to expect coverage from their jobs, employers need to think strategically about their offerings. Alternative approaches, such as DPC, can help employers meet the needs of their workforce while containing costs and customizing coverage.

While these alternatives may not work for every company, their growing prevalence in the health care market brings expanded options that can benefit employees and employers alike as their needs evolve over time.