The cost of healthcare has increased over the past few years, pushed up by broad inflationary pressure and the introduction of new categories of medicine such as GLP-1 drugs, which every month can cost between $936 and $1,023, according to reports.
CFOs who aim to navigate such rising expenses and develop attractive healthcare plans for their employees first need to answer, “What am I willing to live with in totality?” Manu Diwakar, CFO of metabolic health platform Virta Health said. “And then that becomes my top end of my budget, on a per employee basis, or on a total basis, this is how much I want to spend on it.”
Figuring out that cost envelope is crucial as employers balance rising healthcare costs against the long-term needs and goals of the business. Finance chiefs are “ultimately responsible for the financial health of the company,” Diwakar told CFO Dive. “And if any of your costs are going up by more your business performance can bear, you immediately enter a conversation on how to rationalize or contain that cost.”
Asking the hard questions
As healthcare expenses grow, companies are faced with making a difficult decision — “how much of that cost are they going to cover versus how much of the cost are they pushing onto their employees,” Diwakar said.
Currently, with interest rates rising to the highest level in years, “I think you have to really ask yourself what you get by being better or more generous to your employees,” Diwakar said. “And I think in that environment, costs are spiking. People are asking themselves some really, really hard questions.”
Diwakar has served as CFO for Virta Health, a Denver, Col.-based telehealth and metabolic health provider, since 2022, according to his LinkedIn profile. He has served part-time as a managing partner for S7 Ventures, an investment platform focused on the tech and healthcare spaces, since January 2019. Prior to Virta, he held CFO roles at Kaia Health and Ceres, an agriculture-focused data and analytics platform.
To answer those hard questions, it’s important for finance chiefs to work closely with other key executives, such as the head of the people team and head of the benefits or human resources team, to determine not just the totality of costs but where efficiencies can be found.
For instance, at one of Diwakar’s previous companies, one of the things the team discovered after looking at its healthcare benefits was that while the organization was generous with employee health coverage, they were “very terrible on spousal and children coverage, so more of the healthcare cost was being borne by the folks with families or the folks who had spouses,” he said.
The business brought down the premiums for spouses or children, but in order to do so, they had to raise the cost of per-employee coverage, he said.
No perfect decisions
Changing norms within healthcare, such as the rise of artificial intelligence and the growing popularity of new medication categories such as GLP-1s — which treat metabolic conditions such as diabetes or cardiovascular disease as well as targeting weight loss — are further complicating employers’ coverage decisions.
According to a March 26 article by the National Conference of State Legislatures, over 12% of adults are currently taking a GLP-1 drug — and while most say their insurance covers at least some of the cost, 53% say the cost-sharing amount remains too high.
Providing coverage for those diseases and enabling treatment is “morally the right thing to do, and it also is the most cost-effective thing to do,” Diwakar said. However, the “the complicating factor ends up becoming, how much money are you willing to spend to do that, and who's experiencing the benefit?” he said.
To put the question a different way, if an employee remains with a company for a two-year period, for example, “and you're spending a lot of money to make them healthy for the rest of their lives, for a single business from a dollars and cents perspective, it ends up becoming the wrong thing to do,” he said.
For an employee who remains with a company for decades — such as Diwaker’s father, who spent his career at General Motors — “it makes 100% sense to make sure somebody's healthy forever,” he said. The “ethical imperative, the health imperative, and the financial incentive all aligned really clearly.”
As a CFO, therefore, “you’ve got to think a lot about what kind of workforce you want to encourage, how you think about retention, how you think about attracting talented employees,” Diwakar said. That decision becomes very different depending on the size of the company, the state of the economy and the stage of the company itself, he said.
“I think you have to realize there's no perfect decision,” he said. “You’re going to create a problem somewhere, you just have to own up to what it is, and then figure out how to deal with it.”
