# How employers can lower healthcare costs. Without cutting benefits.

Source: https://ethosbenefits.com/insights/how-to-lower-healthcare-costs
Type: Insight
Topic: Benefits strategy and administration
Author: Donovan Ryckis, Founder and CEO
Reviewed by: Patrick Ansara, Partner and Director of Client Operations
Publisher: Ethos Benefits
Published: 2026-11-12
Last updated: 2026-11-12
Cite as: "How employers can lower healthcare costs," Ethos Benefits, https://ethosbenefits.com/insights/how-to-lower-healthcare-costs, updated 2026-11-12.

**Summary:** How employers can lower healthcare costs without raising deductibles, from pharmacy and large claims to site of care, and what Kalos Services did.

## Key takeaways

- The idea that "the claims are the claims" mixes up two things. An employer can't change an employee's medical condition, but it can change what the plan pays for the care.
- Pharmacy is usually the first fix, because a better pharmacy contract lowers cost without asking employees to change doctors, pharmacies or medications.
- A small share of large claims drives much of a plan's spend, so negotiating those claims one by one does more than tightening the plan for everyone.
- The same procedure by the same doctor can cost far less at a surgical or imaging center than at a hospital.
- Kalos Services, an HVAC and trades company, brought its plan to 42% below national benchmarks while lowering deductibles.

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](https://hvacrschool.com/podcasts/what-can-be-done-about-healthcare-w-ethos) 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](https://ethosbenefits.com/insights/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](https://ethosbenefits.com/benefits-101/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](https://ethosbenefits.com/benefits-101/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](https://ethosbenefits.com/results/kalos-services) for the full results.

For why costs climb in the first place, see [why is health insurance so expensive](https://ethosbenefits.com/insights/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](https://ethosbenefits.com/services/claims-analytics) is where that begins. To see what your plan could change, [Request a Strategic Analysis](https://ethosbenefits.com/strategic-analysis).

## Frequently asked questions

### How can employers lower healthcare costs without cutting benefits?

Change what the plan pays instead of what employees get. Get claim-level data, replace a pharmacy contract built on spread pricing, negotiate large claims individually, and steer employees to lower cost settings such as surgical centers, imaging centers and direct primary care. None of these require a higher deductible or a narrower plan.

### What is the fastest way for an employer to lower health plan costs?

For many plans it is the pharmacy benefit manager. Moving to a contract without spread pricing and with rebates passed through to the plan can lower drug spend without employees changing pharmacies or medications. Kalos Services lowered its pharmacy cost per member per month by 70%.

### Why do hospital prices vary so much?

Each hospital sets its own charges, and each insurer negotiates its own rates, which are usually kept confidential. The same procedure can be billed at very different amounts at a hospital, a surgical center or an imaging center. Medicare's published rates give employers a benchmark for what a service should cost.

### Does direct primary care lower costs for employers?

It can. Direct primary care gives employees same day or next day access to a doctor for routine needs, which keeps visits out of the emergency room and urgent care. Kalos Services saw 34% fewer emergency room visits with direct primary care.

### Do employers have a right to their health plan claims data?

Federal law bars group health plans from agreeing to contract terms that block access to their own cost and claims information, and plans attest to that each year. In practice, how much detail an employer gets depends on its contracts, which is why data rights belong in every renewal negotiation.

## Sources

1. [What Can Be Done About Healthcare? w/ Ethos](https://hvacrschool.com/podcasts/what-can-be-done-about-healthcare-w-ethos), HVAC School
2. [FTC Releases Interim Staff Report on Prescription Drug Middlemen (July 9, 2024)](https://www.ftc.gov/news-events/news/press-releases/2024/07/ftc-releases-interim-staff-report-prescription-drug-middlemen), Federal Trade Commission
3. [Gag Clause Prohibition Compliance Attestation](https://www.cms.gov/marketplace/about/oversight/other-insurance-protections/gag-clause-prohibition-compliance-attestation), Centers for Medicare & Medicaid Services