Last month, a CFO called me in a panic. His healthcare costs had jumped sharply despite adding what his broker promised would be a "cost-saving" telemedicine benefit. He wanted to know what went wrong.
Nothing went wrong. The system worked exactly as designed, just not the way he thought.
After two decades analyzing employee health plans, I've seen this pattern repeat hundreds of times. Telemedicine gets pitched as the silver bullet for rising healthcare costs. Employees love the convenience. Vendors show ROI calculators with impressive savings. Everyone signs on the dotted line.
Then the claims data comes back, and reality hits.
What Utilization Data Shows
The most careful research shows what happens when you add telemedicine to a benefits package. A RAND Corporation analysis published in Health Affairs studied more than 300,000 commercially insured patients and found that direct-to-consumer telehealth rarely replaces other care.
Only 12 percent of direct-to-consumer telehealth visits replaced a visit to another provider. The other 88 percent represented brand-new utilization, care that would not have happened otherwise. After accounting for the savings from the visits telehealth did replace, net annual spending on acute respiratory illness rose by $45 per telehealth user.
The vendor pitch about "avoiding expensive ER visits" rests on the 12 percent of cases where telemedicine might have prevented something more expensive. The other 88 percent is new utilization that adds cost instead of removing it.
Let me show you the math they don't put in the sales deck.
The Real Cost Structure
Take a company with 1,000 employees and a standard telemedicine implementation. The invoice might read like this:
The Visible Costs:
- Platform fee: $30,000 per year
- 300 employee visits at $49 each: $14,700
- Total apparent cost: $44,700
Looks reasonable, right? Now consider what doesn't show up on the telemedicine bill:
The Hidden Downstream Costs:
- 180 prescriptions that weren't medically necessary: $15,300
- 75 follow-up in-person appointments: $15,000
- 40 lab tests and imaging orders: $14,000
- 25 specialist referrals: $11,250
- Real induced cost: $55,550
Your $44,700 "convenience benefit" cost you $100,250. That's a conservative estimate that doesn't include the specialist visits that follow those referrals, or the additional prescriptions that come from those appointments.
This is why sophisticated self-funded employers watch their claims trend upward after implementing telemedicine. The vendor told them they'd save money. The vendor was wrong.
The Prescribing Problem
The telemedicine industry doesn't want you looking too closely at its prescribing patterns. The published evidence is mixed, and where direct-to-consumer telehealth is involved, the pattern is concerning.
A 2015 RAND study of direct-to-consumer visits found patients were just as likely to get an antibiotic as in-person patients, but more likely to receive a broad-spectrum antibiotic, which costs more and fuels resistance. A Cleveland Clinic analysis of urgent care found the odds of an antibiotic prescription were 1.7 times higher in virtual visits than in-person, concentrated in sinusitis diagnoses. Studies of telehealth embedded in an existing primary care practice, by contrast, show prescribing in line with in-person care.
Controlled substances sit in the same debate. The Drug Enforcement Administration has extended its temporary telemedicine prescribing flexibilities through December 2026 while it finalizes permanent rules, including a proposed Special Registration for Telemedicine. Federal regulators have made clear they see remote prescribing of controlled medications as a diversion risk that needs ongoing guardrails.
Overprescribing happens for three reasons, and none of them are good.
First, defensive medicine. When you can't physically examine a patient, you prescribe "just in case." The virtual provider can't hear lung sounds or palpate an abdomen, so they cover their liability with a prescription pad.
Second, patient expectations. Someone who logs into a telemedicine visit expects to get something out of it. They don't feel satisfied being told to rest and drink fluids. They want validation that their symptoms were "real" enough to warrant intervention.
Third, volume economics. Many telemedicine physicians work on a per-visit compensation model. More visits, more income. Writing prescriptions keeps patients happy and moves volume. Nobody gets dinged for antibiotic overuse when they'll never see that patient again.
For self-funded employers, the prescribing effects show up in the pharmacy benefit, often flying under the radar until renewal time. You thought you were saving money on medical claims. Instead, the prescription volume lands in a different line item.
Who Uses Telehealth
After running enrollment systems for years, I can spot utilization patterns a mile away. Telemedicine has one of the most skewed utilization profiles I've seen.
Your high-cost, high-risk employees, the small share of your workforce that drives most of your healthcare spend, use telemedicine at far lower rates than everyone else. In commercial populations, the top 5 percent of spenders account for roughly half of all health spending. Which employees reach the service is the question that matters. Why the gap?
- They have lower digital literacy and comfort with technology
- They often lack reliable smartphones or home internet
- They work frontline jobs where they can't hop on a video call during shift
- Their conditions require hands-on medical care
Meanwhile, your healthy, high-earning employees, the ones who cost you almost nothing in claims, are racking up telemedicine visits for every sniffle and stubbed toe.
Look at who can use a video visit. Frontline workers on a shift can't hop on a call mid-shift, and many lack reliable home internet or a private place to talk. Salaried office employees working from home face no such friction. They're the ones driving utilization.
Telemedicine functions as a regressive benefit. You're subsidizing convenience for your healthiest, highest-paid employees while the people who need better healthcare access can't use it.
Compliance Exposure: HIPAA and Licensing
Let me put on my compliance hat for a minute, because this is where the exposure lives.
HIPAA Security Rule Obligations
During the COVID public health emergency, HHS announced it would not penalize providers for using consumer video platforms that missed HIPAA requirements, so long as care was delivered in good faith. That enforcement discretion ended with the public health emergency. Today, a covered health plan is responsible for its vendor's compliance through a business associate agreement, and the plan sponsor carries the exposure if the vendor's encryption, access controls, or documentation fall short.
Some vendors still run on the consumer-grade video stack they adopted under the waivers. Others store records on systems that don't meet current encryption standards. The documentation gaps surface during an audit, and the plan sponsor is the one answering questions.
The liability sits with you. As the plan sponsor, you're the one liable. Not the vendor. You.
State Licensure Across State Lines
During COVID, nearly every state waived the requirement that a physician hold a license in the state where the patient sits. Those waivers have largely expired. The current fix is the Interstate Medical Licensure Compact, which speeds up licensing across participating states but still requires a license in each state where you treat a patient.
Most telemedicine platforms use physicians licensed in a handful of states. If you have employees in 15 states, you may have employees receiving care from providers who aren't licensed to treat them.
Practicing medicine across state lines without a license in the patient's state puts the physician, the vendor, and ultimately the plan sponsor at risk. State medical boards do pursue these cases, and a group health plan can get named when it routes employees to out-of-state providers.
Most HR leaders don't see this exposure until a board action or a vendor audit puts it in front of them.
How Vendors Calculate Savings
Let's talk about how telemedicine companies calculate the impressive savings numbers they show you.
Their formula looks like this:
- Take 200 telemedicine visits per year
- Multiply by $1,200 (claimed "avoided ER cost")
- Congratulations, you just "saved" $240,000
The whole calculation rests on one assumption: every telemedicine visit replaces an emergency room visit. That assumption is the trick.
RAND measured what happens instead. Only 12 percent of direct-to-consumer telehealth visits replaced a visit to another provider. The rest were new utilization. The "avoided ER cost" line item applies to a small slice of the visits, not to all 200.
Run the math with the real substitution rate and the savings mostly evaporate. Then add the downstream prescriptions, follow-ups, and referrals those new visits generate, and the program tips into net cost. This is the difference between a marketing ROI and a CFO-grade ROI.
What Works Instead
Most companies ask the wrong question. They ask, "How do we make healthcare more convenient for our employees?" The question that matters is: "How do we keep our employees from needing healthcare in the first place?"
Let me show you the difference.
Scenario A: On-Demand Telemedicine
A 1,000-employee company adds direct-to-consumer acute care telemedicine:
- Only about 12 percent of visits replace other care; the rest are new utilization
- Net spending rises by roughly $45 per user per year, per the RAND analysis
- Most of the conditions treated would have resolved without a visit
- Net effect: convenience at a net cost
Scenario B: Prevention-First Approach
Same company puts the same budget into verified preventive health incentives instead:
- Employees complete biometric screenings and health assessments
- High-risk conditions get identified before they become claims
- Employees earn Store reward dollars and automatic retirement contributions for verified preventive actions
- Net effect: fewer claims down the line, and employees build health and wealth at the same time
One approach makes sick care convenient. The other prevents people from getting sick in the first place while building their financial security. Which one would you rather have?
The Dividing Line: Direct-to-Consumer vs. Integrated Telehealth
Most of the damage documented in this post comes from one model: direct-to-consumer acute care, where an employee calls a national vendor they've never met and talks to a clinician with no access to their records. That is the model the RAND analysis measured, and it's where new utilization and phantom savings concentrate.
Integrated telehealth behaves differently. When the video visit connects to a physician who already manages the patient's care, for a chronic condition or a behavioral health follow-up, the visit substitutes for care that would otherwise happen in person instead of adding a new layer of demand. The cost and prescribing problems described here are features of the direct-to-consumer configuration, not of video care itself.
Every buying decision that follows should start with one question: is the vendor selling access to strangers, or continuity with a physician who knows the patient? The first is a convenience feature with a cost problem. The second is where telehealth earns its keep.
When Telemedicine Makes Sense
Telemedicine isn't useless. There are legitimate use cases where it adds value. The problem is that most implementations focus on the wrong ones.
Telemedicine works well for:
- Behavioral health services where in-person barriers prevent people from getting help
- Chronic disease management and monitoring (diabetes, hypertension, CHF)
- Extending specialist access to employees in rural areas
- Second opinions before major procedures
- Post-discharge follow-up to reduce readmissions
Telemedicine works poorly for:
- On-demand acute care for colds, flu, and minor injuries
- Generic "I don't feel well" visits
- Prescribing without an established patient relationship
- Replacing preventive care and primary care relationships
One set of use cases reduces utilization and improves outcomes. The other creates incremental volume and downstream costs.
What You Should Do Instead
If you're evaluating telemedicine or already offering it, your playbook based on what works:
Companies Under 500 Employees: Skip It
Don't do it. The ROI math almost never works at this size. The administrative burden exceeds the value. Take that budget and put it toward prevention incentives instead.
Expected result: fewer induced visits and prescriptions, and better health outcomes for the same budget.
Companies 500 to 2,500 Employees: Limit It Strategically
If your executive team insists on offering telemedicine:
- Restrict it to behavioral health and chronic condition management only
- Explicitly exclude acute care convenience visits
- Require integration with primary care physicians
- Layer on prevention incentives to offset the induced demand
Companies 2,500+ Employees: Integrate Carefully
You have enough scale to make this work, but only if you:
- Build telemedicine into a broader centers of excellence strategy
- Use it for specialist access and second opinions, not convenience
- Require pre-authorization for any prescriptions
- Deploy aggressive prevention programs alongside it
- Track total cost of care with a dedicated analytics team
Even then, expect modest results only with aggressive management and serious ongoing oversight.
The Prevention-First Alternative
After 20-plus years in this industry, one lesson stands out.
The future of employee benefits is making healthcare unnecessary, and building employee wealth when care is still needed.
Instead of "Here's telemedicine when you're sick," imagine "Here are Store reward dollars and automatic retirement contributions when you stay healthy." WellthCare™, the first Health-to-Wealth™ Benefit System, makes that vision a reality by working alongside your existing health plan to reward verified preventive actions with earned store dollars and automatic retirement contributions, all with no disruption to your current benefits.
The difference is fundamental:
- Telemedicine creates costs every time someone uses it
- Prevention creates wealth by keeping people healthy
- Telemedicine serves your healthiest, wealthiest employees
- Prevention reaches the high-risk populations who drive your costs
This is the Health-to-Wealth approach. It rebuilds the incentive structure from the ground up instead of adding incremental improvements to a broken system.
Your Next Steps
If you're sitting on a telemedicine benefit or evaluating proposals, start with these steps:
In the Next 30 Days
- Run honest ROI analysis. Track total cost of care, not just visit costs. Include every downstream prescription, lab order, specialist referral, and follow-up visit. Compare to what would have happened naturally, not to inflated "avoided ER" assumptions.
- Audit your compliance exposure. Review vendor licensing in every state where you have employees. Verify HIPAA technical safeguards. Check how well this integrates with your ERISA plan documents.
- Analyze who's using it. Break down utilization by salary band, job type, and health risk score. I'd bet money your highest-cost employees aren't the ones using it.
In the Next 90 Days
- Flip your model from reactive to preventive. Reduce telemedicine scope to behavioral health and chronic conditions only. Eliminate acute care coverage. Redirect those savings to prevention incentives that change behavior.
- Implement real measurement. Track prevention metrics like screenings completed and conditions identified early. Measure wealth creation alongside healthcare costs. Compare total cost of care year over year with proper attribution.
In the Next 12 Months
- Build Health-to-Wealth infrastructure. Layer prevention rewards onto your existing benefits. Create automatic retirement contributions or HSA funding from the savings you generate. Use data to prove when switching to a prevention-first model makes financial sense.
The Bottom Line
That CFO I mentioned at the beginning? Once we analyzed his data, the problem was obvious. His telemedicine vendor was technically delivering exactly what they promised: convenient virtual care with high satisfaction scores.
The vendor never mentioned that convenient virtual care would create six figures in incremental costs his company didn't need to pay.
Telemedicine is effective. The real questions are: effective at what, for whom, and compared to what alternative?
When you run the numbers honestly, on-demand acute care telemedicine increases total healthcare costs for most employers. It serves the wrong populations. It creates compliance exposure most HR teams don't understand. It's a convenience feature masquerading as cost management.
Prevention-first strategies, by contrast, work. They reduce utilization by keeping people healthy. They reach high-risk populations through financial incentives. They build employee wealth while reducing claims. And they align everyone's interests: employer, employee, and provider.
The choice is between benefits that create costs and benefits that create health and wealth.
After two decades analyzing this stuff, I know which one delivers results.
The question is: which one do you want?