Facing One Big Beautiful Bill: 4 Ways Insurers Can Cut Costs
The past few months have been rocky for health insurers, with many reporting losses during recent earnings calls. Rising medical costs, and increased use of specialty drugs, stand out as key factors in downward forecasts for the remainder of the year. The road ahead won’t get any smoother as insurers try to predict and navigate the impact that the One Big Beautiful Bill Act (OBBBA) will have on finances and operations.
As we noted in a previous article on the impact of the OBBBA, insurers must start preparing for a more volatile future. In this article, we identify a set of no-regret moves that organizations can take to lower internal costs and relieve some pressure — quickly. These steps could yield results within three to nine months.
Four levers for near-term cost reduction
This is not an exhaustive list of actions, but they should be a top priority for any insurance company’s cost transformation efforts:
Spans and layers
Flattening layers and widening spans can drive immediate savings. Industry benchmarks suggest that top-performing organizations keep about 10 to 15 direct reports per manager and no more than seven layers of hierarchy. But there’s no one-size-fits-all formula. What matters most is setting aggressive, function specific targets. Optimal spans vary by role type and managerial capability. For instance, managers overseeing skills- based roles often have six to seven direct reports while supervisors in more task-based areas like a call center can have up to 15 direct reports.
Quick wins with spans and layers often show results in two or three months, with fuller benefits being realized in six to nine months. While conducting this exercise, it is critical to avoid “hack and slash” cuts. A well-designed spans and layers program pairs cost takeout with faster, clearer decisions, by eliminating low value work and clarifying accountability. In our work with a large payer, we identified approximately $40 million in savings through organization redesign, with a significant portion of that being achievable in the three-to-six-month window. To ensure sustainability, it is critical to prevent relayering by hardwiring governance — human resources dashboards, clear key performance indicators, regular management reviews, and linking span targets to leadership compensation so leaders remain accountable, and the organization stays fit for purpose over time.
Vendor optimization and outsourcing
Taking a close look at vendor contracts and focusing on consolidation and smarter outsourcing can be a game-changer, especially when done without sacrificing the member experience. By outsourcing routine tasks like billing, subrogation, claims processing, and regulatory compliance to specialized providers that utilize artificial intelligence (AI), payers can streamline workflows and mitigate the risks of audit failures under new OBBBA mandates.
When combined with targeted vendor spend optimization, the impact can be even bigger. For example, in a recent Oliver Wyman engagement, a payer organization underwent a rapid, comprehensive three-week vendor spend diagnostic, uncovering approximately 15% spending reduction potential through more than 15 targeted initiatives and a clear execution roadmap. Prioritizing quick wins like group-wide price negotiations, improved contract terms, volume shifts to best-price vendors, and enhanced vendor service levels promised $17million to $25 million in near-term savings. This illustrates how focused vendor optimization can quickly relieve financial pressures and strengthen operational performance amid OBBBA-driven market changes.
Contact center optimization
The contact center is the frontline interface between payers and their members, serving as a crucial touchpoint that can signal broader organizational challenges. By utilizing the latest in advanced AI-driven analytics, payers can uncover the underlying drivers behind call patterns and volumes and armed with these insights, improve member experience and reduce pressure on the contact center. This includes more transactional inquiries where improved automation and self-service tools can enable members to get what they need without having to wait for an agent, as well as more strategic areas in need of critical improvement, such as overly complex plan design or an inadequate provider network.
We’ve identified savings of up to 50% when these tactics are paired with changes in how callers are served such as arming agents with more sophisticated tools and implementing a service model that better aligns agent skills with caller needs. Furthermore, top-performing organizations are transforming their contact centers from traditional cost centers into engines for growth and competitive differentiation.
Technology modernization
Technology modernization represents a key no-regret move for payer organizations aiming to reduce internal costs and alleviate operational pressures. Measurable results are often seen in-year. AI and automation stand out as powerful enablers, driving administrative cost reductions between 15% and 25% through in such areas as claims processing, prior authorizations, and payment integrity. Organizations adopting AI-driven billing and claims automation have reported dramatic efficiency improvements like a 40% reduction in documentation time and halving turnaround times.
Cloud migrations and modern platform transformations further reduce infrastructure spending by 25% to 35%, while operational consolidations enabled by digital maturity free resources for higher-value activities. Beyond cost savings, it can boost member satisfaction by delivering personalized, user-friendly digital experiences. These combined efforts not only meet current compliance demands but also build a resilient foundation that position payers to thrive in a highly competitive environment, with both incumbent players and digital-first entrants.
Waiting is not an option
Insurers can’t afford to wait on taking action. As we’ve seen in earnings reports, financial pressures are not easing. The moves we’ve outlined will not only generate immediate financial relief, but they’ll build the operational bedrock upon which payers can layer additional capabilities to transform their overall operating models.