[Case Study] How A Construction Firm Cut Health Costs While Adding Disability Perks

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[Case Study] How A Construction Firm Cut Health Costs While Adding Disability Perks

For construction companies, managing employee benefits is a delicate balancing act. High-risk environments lead to volatile health insurance premiums, while the physically demanding nature of the work makes robust disability benefits critical for recruiting and retaining skilled labor.

Faced with a 14% year-over-year increase in premium costs, Apex Infrastructure Partners—a mid-sized heavy civil construction firm with 150 field and office employees—needed a radical change.

This case study details how Apex restructured its health plan, slashed annual healthcare spend by 18%, and reinvested those savings to provide comprehensive, employer-paid short- and long-term disability perks.

The Challenge: Skyrocketing Premiums and High-Risk Workers

Like many mid-market construction firms, Apex was locked into a traditional, fully insured group health plan. Every year, their insurance carrier presented double-digit premium increases, citing the high-risk demographic of field laborers and a few large ongoing claims.

The Cost-Benefit Paradox in Construction

Apex faced a critical retention problem. While health insurance costs were rising, the actual value of the benefits to the employees was shrinking due to rising deductibles.

Furthermore, Apex lacked budget for short-term disability (STD) and long-term disability (LTD) benefits. In an industry where a physical injury can end a career, the absence of disability protection drove skilled operators and carpenters to competitors with better safety nets.

To stay competitive, Apex’s leadership team set three strict objectives:

Reduce overall healthcare expenditures without shifting more costs to employees.
Implement robust, company-funded short- and long-term disability coverage.
Stabilize future renewal rates to make benefit costs predictable.

The Strategy: Restructuring Healthcare to Fund Better Benefits

Apex partnered with a specialized benefits consultant to abandon the traditional fully insured model. They implemented a three-step strategy focused on self-funding, transparent pricing, and strategic reinvestment.

[Traditional Fully Insured Plan] 
       │ (High premiums, carrier retains unused funds)
       ▼
[Partially Self-Funded Plan + Stop-Loss]
       │ (Pay only for claims incurred + protect against catastrophes)
       ▼
[Reference-Based Pricing (RBP)] 
       │ (Cap provider payouts at 140%-160% of Medicare rates)
       ▼
[Accumulated Savings ($185,000/yr)]
       │ (Reinvested to fund 100% of STD & LTD Disability Perks)

Step 1: Transitioning to a Partially Self-Funded Plan

Under their old fully insured model, Apex paid a fixed monthly premium to the carrier. If employees didn't use much healthcare, the insurance company kept the surplus.

Apex transitioned to a partially self-funded (level-funded) plan. Under this structure:

The Claim Fund: Apex paid a set amount into a claims fund each month. If claims were lower than expected, the surplus was returned to Apex at the end of the year.
Stop-Loss Insurance: To protect against catastrophic claims (such as severe injuries or chronic illnesses), Apex purchased individual and aggregate stop-loss insurance. This capped their maximum financial exposure.

Step 2: Implementing Reference-Based Pricing (RBP)

To curb the high cost of hospital procedures and outpatient surgeries, Apex eliminated traditional PPO networks in favor of Reference-Based Pricing (RBP).

Instead of paying arbitrary, marked-up hospital rates, Apex’s new plan capped payouts to medical providers at a set percentage above Medicare reimbursement rates (typically 140% to 160%).

The Result: A standard MRI that previously cost $2,400 under the PPO network was capped and paid at $650 under the RBP model.

Step 3: Reinvesting Savings into Disability and Ancillary Perks

By transitioning to a self-funded model with RBP, Apex projected an immediate annual savings of $185,000.

Rather than absorbing these savings into the bottom line, leadership reinvested $55,000 to purchase group Short-Term Disability (STD) and Long-Term Disability (LTD) policies for all full-time employees.

Short-Term Disability: Covers 60% of weekly earnings up to $1,000/week for up to 26 weeks.
Long-Term Disability: Covers 50% of monthly earnings up to $5,000/month, starting after 180 days of disability.

The Results: Financial Savings and Improved Employee Retention

Within 12 months of launching the new benefits framework, Apex Infrastructure Partners achieved remarkable financial and cultural outcomes.

Cost Comparison: Before vs. After

The table below outlines the financial shift from Apex's old fully insured plan to their new strategic benefits program:

| Cost Category | Old Fully Insured Plan (Annual) | New Self-Funded + RBP Plan (Annual) | Net Change (%) | | :--- | :--- | :--- | :--- | | Employer Premiums / Claims Fund | $1,150,000 | $880,000 | -23.4% | | Stop-Loss Insurance Premium | $0 (N/A) | $85,000 | New Expense | | Third-Party Admin (TPA) Fees | $0 (N/A) | $22,000 | New Expense | | Short- & Long-Term Disability Perks | $0 (Employee-paid voluntary) | $55,000 (100% Employer-paid) | Added Benefit | | Total Benefits Expenditure | $1,150,000 | $1,042,000 | -9.4% Total Net Savings |

By restructuring their health plan, Apex saved $108,000 in net expenses in year one, even after accounting for the newly added, employer-paid disability benefits.

Workforce and Recruitment Impact

Zero Out-of-Pocket Increases: Employees saw no increase in their deductibles or co-pays.
100% Disability Coverage: Every field laborer and office worker gained immediate peace of mind knowing their income was protected in the event of an off-the-job injury or illness.
Reduced Turnover: Apex’s annual turnover rate dropped from 18% to 11% over an 18-month period, saving the company thousands in recruitment and onboarding costs.

Key Takeaways for Construction HR and Finance Leaders

For construction firms looking to replicate Apex’s success, keep these actionable strategies in mind:

Unbundle Your Benefits: Stop buying pre-packaged insurance plans. By separating your medical plan, pharmacy benefits manager (PBM), and third-party administrator (TPA), you gain transparency and control over where your dollars go.
Leverage Reference-Based Pricing: Hospital networks often charge inflated prices. RBP establishes a fair, transparent benchmark for medical services, immediately lowering high-dollar claims.
Use Savings as a Talent Magnet: In a competitive labor market, offering employer-paid disability benefits is a major differentiator. Reinvesting healthcare savings into disability coverage protects your workforce and elevates your employer brand.

Conclusion: Building a Sustainable Benefits Blueprint

You do not have to accept double-digit health insurance renewals as an unavoidable cost of doing business. By moving away from traditional insurance models and adopting self-funding and reference-based pricing, construction firms can reclaim control of their healthcare spend.

As Apex Infrastructure Partners proved, cutting healthcare costs doesn't mean cutting corners on coverage. Instead, smart plan design can free up the capital needed to build a safer, more supportive, and highly competitive benefits package for your workforce.

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