Employers who want to lower healthcare costs are usually told there are two levers: raise the deductible or shrink the network. Donovan Ryckis, CEO of Ethos Benefits, explained a different approach on the HVAC School podcast with host Bryan Orr. Bryan’s company, Kalos Services, is an Ethos Benefits client, and the episode walks through what the two companies changed in Kalos’s plan.
Donovan described what most employers have heard for years as a lie: “you can’t do anything to control the cost of health care.” This article covers what he says employers can do instead.
Can employers really lower healthcare costs?
Yes, by changing what the plan pays for care rather than how much care employees get. Donovan hears the same objection from employers again and again: “the claims are the claims.” What they mean, he said, is that the conditions are the conditions. A company can’t change the fact that an employee had a heart attack.
But a claim is a request for money, and the amount is “wildly variable.” The company can change how much it pays for that heart attack. That gap between the condition and the bill is where the savings are.
Why start with the data?
Because an employer’s health plan isn’t really insurance in the everyday sense. Home or auto insurance covers an unlikely event. Someone at a company uses the health plan every single day, so Donovan calls it “healthcare financing.” Rates follow the group’s own claims, and without claim-level data the employer can’t see where the money goes.
The first step at Kalos was freeing up that data, down to “every single penny” in the plan. Federal law bars plans from agreeing to contract terms that block access to their own cost and claims information, but how much detail a plan actually gets still depends on its contracts. For what employers can ask for today, see health plan claims data access.
Why fix the pharmacy contract first?
It is usually the easiest change and the least disruptive. Donovan called the pharmacy benefit manager the most “nefarious” part of most plans: the insurer often owns the PBM that sets the plan’s drug prices, and the PBM can keep a spread between what the plan pays and what the pharmacy receives. The FTC’s 2024 interim staff report describes this kind of vertical integration among the largest PBMs.
Replacing that contract changes nothing for employees. They use the same pharmacies and the same medications. Donovan’s rule for any benefit strategy follows from it: savings should come from what the employer does for employees, not from asking employees to do something for the employer. Kalos lowered its pharmacy cost per member per month by 70%. For how spread pricing works, see PBM spread pricing.
Where do the big savings come from?
From a small share of large claims. Donovan’s team uses Medicare’s rates as the benchmark for what a service should cost, and settles claims against that benchmark. Hospital bills can arrive at many times that amount, so the work goes into the few claims that reach six figures, not into tightening the plan for everyone.
The other lever is where care happens. On the show Donovan described a minor surgery a hospital wanted to preauthorize at a very high price. The same surgeon had privileges at a surgical center a few miles away, and the procedure was done there for a small fraction of the hospital’s price, with no delay. “Same doctor, different building,” he said. Imaging works the same way: the same MRI can vary widely in price depending on where it’s done. For how plans pay claims against a Medicare benchmark, see reference-based pricing.
Does lowering costs mean worse care for employees?
No, and Donovan argues the reverse is true. Employers coming off “two decades of training” expect lower costs to mean higher deductibles, smaller networks and more coinsurance. The Kalos plan went the other way: lower deductibles, and help for employees in finding the right place for care.
That help matters because healthcare delivery is as confusing as healthcare financing. On the show, Donovan described steering employees to specialty centers for second opinions and care, and Kalos has a care coach who helps employees through complex care. Bryan was careful to say the care coach is still being evaluated, while the results so far have been good.
What does direct primary care add?
Fast access to a doctor who knows you. Kalos added direct primary care as an elective plan option, so employees can choose it or keep a traditional plan. Members get same day or next day appointments with longer visits, and can get stitches, blood work and generic drugs there at no cost. Bryan described the relief of reaching a doctor who already knows the family, instead of a receptionist and a wait. Kalos saw 34% fewer emergency room visits with direct primary care.
What did Kalos get?
Kalos Services, a 400-employee HVAC, electrical, plumbing and construction company, moved from a fully insured plan to a self-funded one in October 2022. Since then, according to the published case study, its cost per employee per year has run 42% below national benchmarks, deductibles are lower, and the plan has saved $13.5 million in claims. Bryan was candid on the show that it hasn’t been easy: “It has been a battle to make this happen.” Read the Kalos Services case study for the full results.
For why costs climb in the first place, see why is health insurance so expensive.
How Ethos Benefits helps.
Ethos Benefits starts with the plan’s own claims and works from the largest, least disruptive savings down. We fix the pharmacy contract, review large claims against a fair benchmark and help employees find better care at a better price. Our claims analytics work is where that begins. To see what your plan could change, Request a Strategic Analysis.