Health-care benefits can make up nearly one-third of a company's total payroll expense. As employers face challenging economic times, there are ways they can get a handle on this ever-growing cost while still keeping employees engaged and productive despite potential benefit cuts. Here are some basic steps to keep health-care costs down while still satisfying the needs of your employees.

Have a plan: Define how your work force is made up today and project what it will look like five years from now. Many benefits programs still are based on a basic template that was developed years ago and tweaked only marginally since then to help alleviate the impact of cost increases. It's likely, however, that your work force has undergone many changes over the years, and employees now have different needs and priorities.

Understanding your employees helps you make strategic—rather than wholesale—cuts, targeting the areas with the least impact on employee morale and productivity. Base your decisions on a realistic forecast of how much employees will use their health-care benefits over the next three years since that is what drives the cost of medical plans.

Focus on key talent: With layoffs and hiring freezes, it may seem that employee retention won't be an issue. That may be so for some job types, but losing talented, seasoned people in many types of key positions still can happen during times of uncertainty. Losing such talent, along with the knowledge base that those people possess, would hurt your organization even more now, when the focus on each employee's productivity is greater than ever. Make sure your benefit program is designed to focus specifically on retaining your key talent and keeping these employees productive and engaged.

Communicate effectively: Make sure you have an effective strategy in place to communicate with employees. That's the foundation of organizational stability in uncertain times. Intensive corporate communication is key to settling fears and keeping employees engaged and productive. Offer well-crafted employee surveys to show employees that you care about their feedback. Effective communications that educate employees about the value of benefits can do more to improve employee satisfaction than richer benefit plans.

Beware of increasing claims: History has shown that medical, prescription, dental, and disability claims spike when the economy is down. Workers compensation claims and absenteeism also increase. Employees afraid of losing their jobs or who anticipate benefit cuts take advantage of medical services while they still have benefit coverage. Also, the higher stress level has an adverse effect on the health of the population. Sometimes, there may even be an uptick in fraudulent claims. Make sure to factor this into your cost analysis to present a realistic forecast of benefit utilization.

Formulate a long-term benefits strategy: Now more than ever, employers have to be proactive in formulating benefits strategy, rather than just reacting to internal budget cuts and increasing external cost pressures as they come. The key to having a solid strategy is valid analysis. Forecast your medical claims and costs for three years ahead then track plan performance against your forecast and industry norms. When making decisions during renewal time, look at actuarial models of different funding scenarios, plan design alternatives, and assess the true impact of possible layoffs on medical costs. Finally, if you already are doing such analysis, make sure it's based on sound actuarial principles and is yielding data that you can truly rely on to make decisions impacting millions of dollars of premiums.

Test cost-reducing solutions: Some new benefits can help reduce costs, but make sure to consider the short-term cost increase along with the long-term cost benefit. Health-risk management, or wellness, is one area that can have a positive long-term impact on medical costs. Automating benefits enrollment through an online system also might result in some savings over a period of time. Neither of these actions, however, can be viewed as a quick fix. These are areas that employers should invest in to reap the benefits over several years. Therefore, if your organization is cutting back substantially, evaluate which aspects of such programs might need to be delayed.

Consider flex time and telecommuting: Introducing flexible work options might have far-reaching positive effects, including offsetting negative feelings about cuts in traditional benefits, improving employee loyalty and morale, and lowering the company's overhead costs. Evaluate your work force to help pinpoint how much value that adding or expanding such benefits might help.

Turn over some stones: Conduct benefits-eligibility audits to make sure that no ineligible dependents are on the company plan. In addition, consider auditing your insurance carrier to check to make sure claims are being paid properly.

Focus on your core business: This is a proven business strategy that helps you weather tough times especially. Organizations have to shift resources to support the core business functions and outsource non-essential duties, such as benefits administration, to a reliable specialized vendor that can do it more cost effectively. This may be especially important if you've had a reduction in staff or a hiring freeze and now have fewer people to support the increasing administrative duties. Companies going through layoffs, in particular, face the often heavy load of administering continuation of benefits for former employees under the Consolidated Omnibus Budget Reconciliation Act (COBRA). Outsourcing a function like this can help find cost savings and limit the employer's exposure to legal liability.

During these challenging economic times, take the time to drill down into how your benefit plans best fit your work force to keep employees happy while at the same time reducing costs.