Explaining total cost of care
Understanding total cost of care means looking beyond discounts. Learn why utilization matters as much as unit costs.
Every year, employers take on the important responsibility of selecting health plans that work for their teams and their budgets. They carefully compare premiums, analyze discount percentages and choose plans that demonstrate strong financial value.
Yet even with this diligent approach, there's an opportunity many organizations may be missing — one that could unlock even greater value from their health care investments.
The key lies in looking beyond traditional cost comparisons.
When employers and their brokers and consultants understand what drives true health care value, they can make selections that don't just look good on paper but that deliver meaningful results for organizations’ bottom lines and their people. The good news? The insights employers need to make this shift are more accessible than ever.
The missing piece
When employers evaluate health plans, they typically focus on unit costs — the negotiated rates for individual services like office visits, procedures or prescriptions. These discount percentages matter. They show what a plan pays for each unit of care.
But unit costs only tell half the story. What they don't capture is utilization: how often care is used, where it's delivered and how it's managed.
Consider a simple site of care example. An emergency room visit might cost $1,800, while the same condition treated at an urgent care facility costs $175. The unit cost matters — but so does which door employees walk through. If a plan directs employees toward lower-cost settings for appropriate care, total spending drops even if the discount percentages stay the same.
This is where total-cost-of-care thinking comes in.
Total cost of care isn't a formula — it's the full picture
Total cost of care isn't a formula or a single metric. It's a way of understanding how health care costs actually add up over time — combining both unit costs and utilization patterns.
Utilization may be shaped by:
- Clinical programs that help employees manage chronic conditions and coordinate care
- Payment integrity processes that ensure claims are accurate
- Site of Care redirection that guides employees to appropriate, lower-cost settings
- Utilization management that ensures care is necessary and timely
These factors often represent a significant share of the total cost picture. When employers, brokers or consultants focus solely on discount percentages, they're seeing only part of what drives actual spending.
A proven way to measure cost
More employers are moving beyond discount-only comparisons. Instead of asking "What's the unit cost?" they're asking broader questions: How does this plan guide care? How does it manage chronic conditions? How does it reduce unnecessary utilization?
This shift reflects a growing recognition that managing utilization matters as much as negotiating discounts. In fact, a third-party analysis from Milliman found that UnitedHealthcare delivered a more than 11% lower total cost of care compared to national benchmarks.
For employers, this validates why a total-cost-of-care lens matters when evaluating long-term value, not just upfront price.
Discounts matter. They're part of the equation. But they're only part of the story.
Total cost of care gives employers a more complete financial picture by looking at both what services cost and how care is delivered and managed. When evaluating health plan options, considering both pieces helps employers make decisions that reflect how costs actually work — not just how they appear in a rate sheet.
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