From COLA Constraints to Cost Control: A Smarter Health Benefits Strategy

Many self-insured employers and large risk-bearing organizations must strategize and budget Total Rewards within a Cost-of-Living Adjustment (COLA) that typically ranges from 2% to 4% annually. At the same time, rising health benefit costs, averaging 7% to 8%, often force proportional reductions in compensation adjustments. Employer compensation is one of the most powerful Social Determinants of Health (SDOH) for working populations. When pay growth slows, health outcomes can decline, especially for chronic conditions like asthma. This creates a vicious cycle. Reduced compensation can contribute to poorer health, which drives higher claims costs and further constrains compensation. Research shows that modifiable household exposures such as indoor smoking, poor ventilation, mold, rodents, and lack of air purification are associated with higher asthma morbidity, while smoke-free and well-ventilated homes show protective effects (Obeng et al., 2025). These challenges are not insurmountable. The solution is not simply to spend more, but to reallocate existing health benefit dollars more strategically.

Medical strategies should better align provider financial incentives with desired outcomes, not just negotiate rates. Investment should shift, not shrink. Leveraging purchasing power toward high-value PROACTIVE CARE services, including primary care, gynecology, behavioral health, urgent care, and physical therapy, can reduce reliance on reactive emergency and inpatient services and lower Total Cost of Care. On the pharmacy side, a data-driven strategy that supports targeted investment in high-impact medications may prevent downstream medical expense. In some cases, a high-cost specialty drug can reduce inpatient utilization and generate overall return. A narrow focus on cutting pharmacy spend alone can worsen Total Cost of Care trends rather than address root causes.

Ultimately, the marketplace reflects the actions and alignment of employers, members, providers, and pharmaceutical manufacturers. Stronger communication and financial alignment across these stakeholders can create a more sustainable model and foster a virtuous cycle that benefits all parties involved.

Obeng, A., Roh, T., Moreno-Rangel, A., & Carrillo, G. (2025). Household and environmental determinants of adult asthma morbidity in Texas, 2019–2022. Atmosphere. https://doi.org/10.3390/atmos17010058