Why Increasing Virtual Care is Key to Decreasing Healthcare Costs

Updated on March 22, 2023

U.S. employers’ second-largest expense after payroll is group health insurance. And the already astronomical cost of healthcare is only going up. 

According to Aon, the average amount that U.S. employers pay for employee health plans is expected to rise 6.5% in 2023, to more than $13,800 per employee. While some employers pass healthcare cost increases onto their employees by increasing their share of premium and out-of-pocket contributions, others know that doing so only makes it harder to attract and retain top talent. 

So how can employers combat rising healthcare costs to preserve the value of their benefits package?

One answer is by leveraging virtual care options. When employers offer a suite of virtual healthcare and wellness solutions to employees — especially in conjunction with a self- or level-funded health plan — they can save money on healthcare in both the short and long term.

The state of virtual care adoption

Virtual care, or telehealth, refers to the range of methods used for remote communication between provider and patient. Telemedicine, or the remote delivery of curative care, falls under the virtual care umbrella. 

But virtual care is so much more than seeing a doctor via telemedicine when you’re sick. It also includes the remote delivery of routine care — for instance, mental healthcare, chronic condition management, health and nutrition coaching, and maternity care. By some definitions, it also encompasses the remote distribution of health education resources.

Virtual care utilization initially skyrocketed as a result of pandemic-related lockdowns in 2020. While it dipped somewhat when COVID restrictions eased, it has remained far higher than pre-pandemic levels. According to the J.D. Power 2022 U.S. Telehealth Satisfaction Study, 67% of patients had used telehealth in the past year, compared to 37% in 2019.  

Virtual care’s staying power is likely attributable to people realizing how convenient it is. According to McKinsey, 60% of patients find virtual visits more convenient than in-person ones. Of those who use telehealth, 55% prefer virtual visits over in-person ones for primary care, and 45% prefer virtual visits for mental healthcare, according to a 2022 survey conducted by Carenet Health. 

Most recently, a study conducted by Rock Health revealed that telemedicine has reached 80% adoption, with eight out of every ten survey respondents having used telemedicine at some point in their lives. This is up from 72% in 2021, suggesting that widespread telemedicine use is becoming the rule rather than the exception. 

Virtual care options encourage care utilization, creating healthier employees 

Virtual care allows patients to receive care from the comfort of their home, eliminating the commutes and long wait times generally involved with in-person appointments. A virtual visit may take fifteen or twenty minutes total, while an in-person visit could take multiple hours including driving time. 

It also tends to be cheaper on a per-episode basis than in-person care: According to a 2017 study, the average cost of a telehealth visit is $79, compared to $146 for an in-person visit and $1,734 for a visit to the emergency department (ED). 

Finally, virtual options remove the barriers to in-person care many Americans face: In 2022, the average wait time for an in-person physician appointment was 26 days, whereas many telehealth providers allow patients to schedule same-day appointments. And for those who live in healthcare provider deserts, have physical limitations that make travel difficult, or have inflexible schedules during regular office hours, virtual solutions make care more accessible.

The relative convenience, accessibility, and affordability of telehealth compared to in-person visits can encourage employees to take better care of themselves. Studies have shown telehealth boosts the likelihood of patients showing up for their appointments and seeking care at all. In one survey, 16% of respondents said they would have done nothing had they not been able to book a telemedicine visit. And according to an NIH study, no-show rates for in-office appointments are 36% vs. 7.5% for telehealth visits.

Access to virtual preventive care can also be a powerful tool for chronic condition management and disease prevention. It is estimated that only 8% of American adults receive all the clinical preventive health services recommended for them, such as screenings, check-ups, and vaccines. While not all of these services can be accomplished virtually, telehealth keeps patients actively and consistently engaged with their care as opposed to letting it slide between in-office visits.

Healthier employees are more engaged and less absent

What does all of this mean for employers? It means that when employees are sick, having access to telemedicine may make them more likely to see a doctor in a timely fashion (or at all), helping them to recover and get back to work more quickly. 

And when they are well, access to virtual preventive care may make them more likely to prioritize their health and stay well. This is good news for employers — studies suggest that healthy employees are more productive at work.

Employers spend $575 billion on poor employee health annually — including $151 billion on sick days and $211 billion on impaired performance due to chronic health conditions. And according to a 2022 Gallup report, employees who are not engaged or who are actively disengaged cost the world $7.8 trillion in lost productivity, which is 11% of global GDP.

Kelly McDevitt, president of the Integrated Benefits Institute, said that “employers who primarily focus on the cost of healthcare expenses and don’t include the cost of lost productivity… should look closely at these results.” In other words, employers should keep the cost of poor health in mind when building their benefits package. 

For some, this may mean a greater upfront investment in virtual care partners and/or a robust health insurance plan that includes a suite of virtual care options. When employees utilize the virtual care options available to them, employers can reap the financial rewards of their improved health and reduced absenteeism.

Healthier employees need less costly care long-term 

The financial benefits of offering virtual care are amplified when employers choose a self- or level-funded health insurance plan. With these alternative funding models, employers make monthly payments into a claims fund, which pays out claims for the healthcare services employees actually utilize. If there are unused funds at the end of the policy, some or all of them are returned to the employer, depending on the health plan. 

This is in stark contrast to the more widely known fully-funded health insurance model, in which employers pay a fixed monthly premium to the insurance carrier every month. Whether or not employees use their health insurance coverage that month is irrelevant in this arrangement. Further, insurance companies use community rating to determine the rates of fully-funded plans for small groups (generally businesses with 50 or fewer employees). Since community rates are driven by the average costs in their community “pool,” a small group’s own efforts to reduce its claims cost won’t yield lower premiums the following year.

With self- and level-funded plans, employers are more incentivized to help their employees get and stay healthy. Because the fewer healthcare claims their employees incur, the more the employer can receive as a refund or rebate in the short term — and the less their plan administrator will require in their claims fund in the long term. 

In the short term, offering virtual care options and encouraging employees to utilize them may mean they choose a low-cost telemedicine visit over a $1700 ED visit when they are ill and need an antibiotics prescription, for instance. Both employee and employer benefit financially from that decision.

And those cost-effective decisions add up. They help the employer realize a lower claims cost in the current year (delivering a bigger potential rebate/refund), and they may decrease the amount they’re required to deposit in next year’s claims fund.

In the even longer term, offering virtual care may mean that employees are managing chronic conditions more effectively, detecting illnesses sooner, using things like virtual health coaching to make healthy lifestyle changes, keeping their minds healthy with routine virtual therapy, keeping their bodies healthy with routine digital physical therapy, and more. All of this reduces the likelihood that they’ll incur costly claims — such as major surgeries and long hospital stays — down the line, allowing the employer to self-insure more cheaply in years to come.  

While partnering with telehealth providers represents an expense to employers, it is a worthwhile investment. Employers who don’t want to source and contract with virtual care companies directly should choose a health insurer that curates a suite of virtual care partnerships for them. Some health plans make their virtual care partners free to use for plan members, further encouraging utilization. 

Will Young at Sana Benefits
Will Young

I am the co-founder and CEO of Sana, an Austin-based healthcare company that provides Fortune 500-level healthcare to small businesses at affordable prices.

I have a passion for fixing the broken healthcare industry, and made my first charge at that when I saw an underserved and often overlooked market in small businesses and their employees.

Prior to Sana, I helped hundreds of small business owners manage payroll and benefits as the head of operations at Justworks, a venture-backed PEO. I also spent two years at Google before earning my MBA from Harvard.