8 Nov 2022


How to Reduce the Cost of Benefits

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Academic level: Master’s

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Words: 858

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Every organization aspires to reduce the cost of operations in order to maximize revenue. One type of cost that continuously proves a challenge in managing is the cost of employee benefit. The increasing cost of Employee benefit has a negative impact on the profitability of the organization. However, restrictive employee benefit plans have the effect of demoralizing the employees. Therefore, it is important for organizations to strike a balance between managing the cost of benefits and offering competitive ones to the employees. For this reason, Magna International will require the adoption of various measures in order to reduce the cost of employee benefits. 

One of the measures that Magma international could consider is the High Deducible plan. In this plan, the employees will be required to pay a certain amount of money when accessing health care before they can claim for the employee benefit. This amount will vary from one health care to another depending on the level of charges for healthcare services in the specific healthcare facilities. This has the effect of restricting the employees to specific healthcare facilities that are generally cheaper. The employees will have to consider carefully when they should access medical health and health facilities to offer them treatment. Consequently, the company will be able to greatly reduce the cost of benefits and hence increase its revenue earnings (Reed, 2007). 

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Secondly, the company could consider implementing reference-based pricing. In this plan, the company will set up a maximum benefit for specific operations. These operations may include dental, optic and other specialized operations. The setting up activity for a given period ensures that employees are not only able to manage their cover but also ensures that employees carefully assess the facilities they access for such specialized operations from a cost perspective. Consequently, the employees will be forced to seek service providers whose pricing falls within the reference-pricing framework. Therefore, the cost of benefits on specific operations will greatly reduce. This will reduce the overall cost of such benefits at Magna International (Stan & Peter, 2008). 

The company could consider pharmacy benefit management as a tool for managing employee benefits. In this plan, the employer negotiates with specific pharmacists on pricing and encourages their employees to access those pharmacists. Through this plan, employees are able to access high-quality medical benefits at a much-reduced cost for the employer. This ensures that the company reduces the cost of while maintaining attractive benefits to employees (Arellano, & Higgins, 2013). The target of every employer is attracting and maintaining a highly qualified workforce. This plan assures the employer that they will attract and maintain a highly qualified workforce through quality healthcare while cutting down on the cost of such benefits. 

Another type that greatly increases the overall for a company is the voluntary benefit plan. These are insurance products that employees choose to take above what the employer has provided. Employees may choose a voluntary benefit plan due to its flexibility or its attractive compensation package. Whereas the employees pay for the biggest percentage of the voluntary benefits plan, some employers choose to add a contribution to what the employee has chosen (Deric, 2010). Consequently, this increases the overall cost of employee benefit for the company. In managing the overall cost of employee benefit, Magna International could consider either restructuring the company contribution to the voluntary benefit plan of eliminating the employer contribution to such plans. This will greatly contribute to the reduction of the entire cost of benefit for the whole company. 

The retirement benefit is another potential area that employers and corporate organizations can explore in their bit to cut the employee benefits cost. Although many employees consider it as a distant type of benefit compared to health benefits, an attractive retirement plan is often used by employers to attract and retain a highly qualified workforce (Deric, 2010). However, many companies are now restructuring their employee retirement benefit plans as a strategy to reduce the cost of this benefit and maintain profitability in a competitive and dynamic work environment. 

When seeking to reduce the cost of employee retirement benefits, Magna International could consider two reliable options. The first option is to renegotiate their retirement benefit plans with insurance providers and source for those providers that offer attractive benefits with considerably minimal monthly premiums per employee. This will ensure that the company is able to offer the best retirement benefit at a reduced cost. Consequently, the company will be able to attract and retain a qualified workforce while cutting down on the cost of employee retirement benefits (Deric, 2010). 

Secondly, Magna International could consider renegotiating the retirement benefit with the employees. The company should make employees understand the level at which the company can sustain employee retirement benefit. It is in the interest of the company and the employees as well that the company maintains its cost of operation at a level that the company can sustain (Stan & Peter, 2008). The management can reduce the retirement benefits to the agreeable level and hence reduce the cost associated with it. 

In conclusion, the contemporary dynamic business environment is constantly necessitating a review of the corporate business model in a bid to cut cost and maintain the bottom line. Employee benefit is one of the areas that contribute to high-to-high operational costs in many organizations. These benefits could be voluntary, retirement, or related to health. The strategies outlined in this paper will be effective in helping Magna International cut down their cost of benefits and maintain profitability. 


Arellano, F. E., & Higgins, D. (2013). Increasing Profits Through Cost-Reduction: The Role of employee benefits. SSRN Electronic Journal, 21(2), 

Deric, A. J. (2010). New Cost Control Tools for Employee Benefits. Compensation & Benefits Review , 4(3), 60-63 

Reed, L. S. (2007). Employee Health Benefits Programs. Public Health Reports. 72(12) 

Stan Finkelstein; Peter Temin (2008). Reasonable Rx: Solving the Drug Price Crisis. Upper Saddle River, NJ: FT Press. 

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StudyBounty. (2023, September 16). How to Reduce the Cost of Benefits.


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