Co-authored by: Jack Standbridge & Nick Tranguch

For private equity fund managers, maximizing portfolio ROI is not just about revenue growth or operational efficiency; it’s also about strategically managing costs. One often-overlooked area with a significant impact on the bottom line is employee benefits. Containing these costs without sacrificing employee satisfaction or talent retention can enhance EBITDA, improve valuation, and ultimately boost returns. If your PE firm thinks just having a strategic partner on this line item is enough, you’ll definitely want to read further.

The Employee Benefits Challenge
Employee benefits are a substantial expense for portfolio companies. In 2023, the average cost of employer-sponsored health insurance in the U.S. reached over $15,000 per employee annually, with costs rising faster than inflation. For private equity firms managing diverse portfolios, these escalating costs can erode margins and constrain growth. Yet, cutting benefits isn’t a viable solution in today’s competitive labor market. The challenge lies in striking a balance between cost control and maintaining robust benefit programs that attract and retain top talent.

Why Cost Containment Matters for Private Equity
In private equity, where timelines for value creation are often compressed, every dollar saved can have an immense impact on ROI. Effective benefits cost containment can drive:

• Enhanced EBITDA: Lower benefits costs translate directly into richer bottom-line results, a critical metric for valuations.
• Improved Exit Valuation: Investors and buyers value lean, efficient operations. Reducing benefits expenses without compromising employee morale or productivity makes portfolio companies more attractive.
• Scalability: For high-growth companies, cost-efficient benefits strategies prevent costs from scaling disproportionately with headcount growth, while also offering a scalable outsourcing of benefits administration with the right partner.

Cost Containment Strategies That Work
Successful benefits cost containment doesn’t mean offering less; it means offering smarter. Here are some strategies:

1. Self-Funded Health Plans: Unlike fully insured plans, self-funding can give companies greater control over plan design and cost management. By partnering with independent benefit experts specializing in self-funding, companies can mitigate risks while reaping significant savings.
2. Data Analytics: Leveraging data to identify cost drivers enables targeted interventions. For example, analyzing claims data can highlight high-cost conditions or unnecessary emergency room visits, prompting tailored employee wellness initiatives.
3. Wellness Programs: Investing in preventative care and wellness programs can reduce long-term healthcare costs by improving employee health outcomes. More specific to PE results, these programs lead to higher productivity, less absenteeism and lower instance of Workers Comp claims. Focus areas like mental health support, chronic disease management, and fitness incentives are particularly impactful.
4. Vendor Negotiation: Bulk purchasing, benchmarking, and competitive bidding can help negotiate better terms with insurers and benefits providers. Larger portfolios should expect leveraged pricing incentives across all fixed fees in the plan.
5. Employee Education: Educating employees on how to use their benefits effectively—such as choosing in-network providers or opting for telehealth—can reduce costs for both the company and employees.

The Competitive Edge
Private equity firms that prioritize benefits cost containment gain a dual advantage: improving portfolio company financial performance while enhancing employee satisfaction. Employees value well-structured, transparent benefits programs, which in turn support talent retention and engagement—key drivers of productivity.

As fund managers look for innovative ways to create value, employee benefits optimization should be a strategic priority. It’s not just a cost-cutting measure; it’s a lever for sustainable growth, improved debt capacity and a higher exit multiple. In today’s challenging economic environment, aligning operational efficiency with employee centered benefit strategy is a win-win proposition.

By addressing employee benefits with the same attention directed toward other cost centers, private equity leaders can unlock hidden value, maximize ROI, and stay ahead in the competitive race for portfolio success.

The BSI CORE Difference
BSI CORE offers a comprehensive solution to the challenges of employee benefits cost containment, particularly for companies with 50 to 500 employees. Traditionally, the advantages of data transparency and risk protection in employee benefits were accessible only to large corporations with over 5,000 employees. BSI CORE democratizes these benefits, providing mid-sized companies with access to detailed claims data and robust risk management tools.

Remember earlier when we told you the national average is over $15,000 per employee annually for employer sponsored plans? BSI CORE employers average $12,400 in annual per-employee benefits, placing them in the top 10% for plan richness compared to national benchmarks. This difference not only translates to over $250,000 in savings for every 100 employees annually, but also signifies millions of dollars in improved valuation, even at average multiples.

A unique advantage of BSI CORE is its exclusive consortium, not to be confused with captives–comprising over 2,100 employer/member groups and more than $800 million in total stop loss premium. This collective model enables companies to self-fund their health benefits while mitigating common risks associated with self-insurance. Notably, BSI CORE ensures there are no lasers, exclusions, or significant stop-loss increases following a catastrophic year, offering financial predictability and stability.

By participating in BSI CORE, companies gain control over their healthcare spending, gain access to comprehensive claims data, and are afforded the stability of joining a large consortium. This approach empowers businesses to plan their medical costs over a multi-year period, providing greater financial predictability and control.

For private equity fund managers, integrating BSI CORE into portfolio companies’ operations can lead to significant cost savings and enhanced financial performance. The platform’s emphasis on data transparency, risk protection, and strategic planning aligns seamlessly with the goal of maximizing ROI through effective employee benefits cost containment.

Managing employee benefits effectively is more than just a cost-cutting measure; it’s a strategic lever for driving portfolio growth and maximizing ROI. For private equity fund managers, prioritizing benefits optimization not only reduces expenses but also enhances employee satisfaction, talent retention, and company valuation. BSI CORE provides an innovative solution to these challenges by offering mid-sized companies access to advanced data transparency, risk protection, and cost-saving opportunities traditionally reserved for larger corporations. By integrating BSI CORE into portfolio companies, private equity firms can unlock hidden value, improve financial performance, and gain a competitive edge in the race for long-term success.