How to reduce healthcare costs: 7 proven strategies for employers

Healthcare costs are climbing, and employers are feeling the strain. In 2024, average family premiums in employer-sponsored plans rose 7 percent to $25,572.¹ Behind those numbers are familiar cost drivers: chronic disease, specialty drugs, rising utilization, inefficient care delivery, and hidden but preventable MSK claims.²

The good news: the trend is not inevitable. With the right plan design and vendor partnerships, employers can lower spend while improving outcomes and employee experience.

This guide lays out seven proven strategies that reduce costs without cutting benefits. From smarter plan design to digital-first MSK care, you’ll see practical ways to optimize benefits, improve employee health, and get more value from every dollar spent.

1. Rethink plan design for value, not volume

Traditional fee-for-service models pay for visits, not results. That means providers are rewarded for volume, even if outcomes don’t improve.

Employers end up footing the bill for services that don’t always improve health outcomes.

A more effective approach is value-based care, which aligns incentives with quality and total cost of care. Employers adopting a value-based care model take a different approach by matching payment to how well people actually recover. Providers are rewarded for helping members get healthier faster, avoiding complications, and reducing unnecessary procedures.

Here are some ways to start moving toward value-based care:

• Work with proven providers. Partner with hospitals or clinics that specialize in high-cost procedures like joint replacement and consistently deliver strong outcomes. This is often called a “center of excellence.”
• Set fair price benchmarks. For services that vary widely in cost (like MRIs or surgeries), agree on a reasonable price and steer employees to providers who meet that standard. This ensures you don’t overpay for the same quality of care.
• Offer better coverage for high-value providers. You can lower out-of-pocket costs for employees who choose providers that deliver high-quality care at lower cost. This nudges people toward smarter choices without reducing access.

By designing plans around value, not volume, you improve member health, build satisfaction, and gain more predictable healthcare spend over time.

2. Carve out high-cost categories like pharmacy and MSK

Employers don’t need to manage every benefit through their main carrier. Carve-outs give more control and transparency in high-cost categories like pharmacy and musculoskeletal (MSK) care.

• Pharmacy carve-outs: Traditional pharmacy benefit managers (PBMs) often use opaque pricing and rebates. Transparent PBMs or direct-sourcing models give employers visibility and control, often leading to immediate savings.
• MSK carve-outs: MSK conditions are now the number one cost driver in employer-sponsored plans.² Yet many costs are avoidable with early, conservative care. By working with digital-first MSK providers, employers can reduce spend and improve recovery rates.

Sword Health’s model is a clear example. Members can start care quickly, at home, without scheduling delays. That convenience leads to higher adherence, earlier recovery, and fewer unnecessary MRIs, injections, or surgeries. Outcomes are clinically validated and financially backed through outcome-based pricing.⁷ ⁸

3. Invest in digital-first care for chronic conditions

Chronic diseases like MSK pain, diabetes, and hypertension often escalate into high-cost claims when treatment is delayed. Traditional care models create barriers with referrals, appointment wait times, and scheduling conflicts. Digital-first programs remove these access barriers.

With Sword, members are matched with a Doctor of Physical Therapy who prepares a persoanlzied care supported by the real-time biofeedback of Sword's FDA-listed medical devices. This allows any Sword member to complete their care plan from the comfort of home at any time that suits their schedule.

Exercises are tailored and adjusted daily, and members can start within 6 days compared to 17+ days for in-person care.⁹

Completion is where digital-first care shines. Sword members complete care plans at double the rate of traditional physical therapy.⁷ That higher engagement translates into better outcomes, fewer high-cost interventions, and proven employer savings of $3,177 per member per year.⁸

4. Improve employee engagement with smarter health navigation

Even the best benefits don’t work if employees don’t use them. Underutilization is a hidden cost driver, especially for preventative services.

Health navigation solutions make it easier for employees to understand their benefits, access the right care at the right time, and avoid costly, low-value options. Examples include:

• Digital platforms that show plan benefits and costs
• Concierge support to answer coverage and provider questions
• Behavioral nudges that encourage preventative care use

Elements like personalized digital onboarding, push notifications, and real-time progress tracking are scalable mechanisms to keep members engaged in care.

Look for providers with clinical teams that check in frequently to help members stay on track, celebrate progress, and complete care. Higher engagement means fewer dropouts, better health, and lower overall spend.⁸

5. Directly contract with high-quality, lower-cost providers

Direct contracting allows employers to bypass traditional networks and negotiate directly with health systems or vendors. This provides more control over cost, quality, and reporting.

It works especially well for high-cost episodes such as:

• Joint replacements
• Spine surgeries
• Bariatric procedures
• Maternity care

Employers can bundle payments, set quality metrics, and ensure accountability. When paired with digital-first care, direct contracts are even more effective. Sword helps keep employees out of the surgical funnel by resolving MSK pain before expensive interventions are needed.²

6. Use predictive analytics to prevent high-cost events

Many of the costliest claims follow predictable patterns. With the right data, employers can identify high-risk cases before they escalate.

Sword Predict is built for this purpose. Predict analyzes claims, engagement data, and proprietary MSK indicators to flag members at risk of surgery, imaging, or opioid use. Once identified, those members receive proactive outreach and are guided into conservative digital physical therapy.

The results are compelling:

• Up to 4.4x ROI for high-risk members¹⁰
• Reduced use of unnecessary imaging and procedures
• Improved recovery and productivity for at-risk members

Solutions that only use medical claims fail to differentiate between last year’s high-cost members and future high-cost members. 72% of high-cost members are missed by relying only on prior high-cost claims.

7. Measure ROI and outcomes to hold vendors accountable

Employers often pay for health programs regardless of results. Outcome-based pricing flips that model, ensuring accountability. Sword’s Outcome Pricing is a clear example:

• Employers only pay when members achieve clinically significant improvements in pain, function, or productivity
• Vendor risk is shared, not shifted to the employer
• ROI is tracked through validated outcomes and claims analysis

For finance leaders, this provides budget confidence. For HR and benefits leaders, it ensures investments translate into healthier, more satisfied employees.⁸ ¹⁰

Lower costs and raise the quality of care

Cutting benefits doesn’t reduce long-term costs. The reverse is often true. The smarter path is to focus on early, effective, and accessible care that prevents conditions from escalating.

Shifting from volume to value, from clinic friction to digital-first access, and from reactive to predictive care helps employers lower costs while raising the quality of benefits.

MSK care is a prime example: one of the most expensive categories when managed poorly, but one of the most cost-effective when delivered digitally and proactively.

Sword Health delivers this transformation, with validated ROI, predictive analytics, and outcome-based pricing that guarantees results. Employers who act now will be positioned to bend their cost curve while improving the health of their people.

Ready to rethink your MSK strategy? Set up a call with a Sword expert to see how digital PT can slash your MSK costs and free your people from pain.