“Russia is a riddle wrapped in a mystery inside an enigma.” —Winston Churchill
While this quote would seem to be just about the furthest thing away from the topic of employee-sponsored healthcare, I often borrow this statement when answering questions about insurance companies and how employers can control their rate increases.
The cost-savings advice I proffer for self-funded plans is readily accepted and implemented, but more times than not, those employers with fully insured plans merely scoff at many of my ideas. They wrongly believe that premiums are premiums, and since they are not paying claims directly, they have little to no influence upon their annual renewal.
My argument is simple. I explain that there are many laws that govern how insurance companies determine renewals, and that, yes, pooling does occur, but your incumbent carrier is looking at your specific group every year. Whether they rate upon past claims, diagnosis and prognosis codes, or a convoluted formula involving demographics and other factors, an unhealthy group generating large-dollar or chronic claims will pay more and have larger annual rate increases than a healthier one. Remember, these insurance companies, for-profit or not-for-profit, do not want groups that habitually cost them more in claims than they take in with premiums.
In 2010, according to the Kaiser Family Foundation, the average cost of a traditional PPO plan in the United States was $5,584 per year for a single person—of which American companies paid 79 percent. For families, the average premium was $15,404 annually—of which employers picked up 74 percent. That means a typical 25-man employer group is paying nearly $200,000 a year for healthcare for their employees, and most dramatically, the difference between a five-percent rate increase and a 20-percent rate increase is $35,000 and compounding every year going forward.
If the purpose behind health insurance is to attract and retain employees, and the employer is spending tens or hundreds of thousands of dollars, it is absolutely something that should be actively managed.
1. Incentives. The only way to motivate employees away from negative behavior which drives your group’s claims is to reward them for proper behavior. The only limitation here is the employer’s imagination. Ideas such as paying part of the employee’s premium for maintaining a healthy BMI or keeping blood pressure under control have run rampant in the marketplace over the last three years, especially on the coasts. Programs which provide free health club memberships or gifts like iPods or pedometers to employees who are active have also become popular. The only concern is that you must make the standards for the incentives reasonably achievable and easily engaged.
2. HSA/HRA. There is a lot to like about health savings accounts. A study out this month showed that over 70 percent of large-group employers in the United States will offer an HSA plan this year for their employees. Costs of the underlying plan should be 25 to 35 percent less than a traditional plan, and part of that savings to the employer should be used to fund the employee’s HSA account. The monies are placed pre-tax and grow tax-free, and so long as they are spent on qualified items, they are dispersed tax-free. The account can even be turned into a retirement stream and taxed as ordinary income at age 65. More importantly, when the employees are spending their own money, it gives them pause to consider how they purchase their healthcare and what is most cost-effective. The argument that it discourages people from seeking care is negated by the fact that all wellness care is now being covered at no cost to the employee.
3. Spousal Coverage. It certainly is a benefit to the individual when their employer pays part of the premium for their spouses and children to be on their plan. But many times, that spouse has the ability to have coverage at their place of employment, too. Why should an employer give a competitive advantage to a potential competitor? Simply implement a rule which states if an employee’s spouse has comparable coverage available to them at their place of employment, then they are not eligible for your plan. Not only will you save premium dollars, but you will eliminate the risk of potential claims.
4. Smoking. Each smoker on a plan, according to recent studies, costs their employer $4,000 per year. Smokers also miss more work (because they are sick more often) and are not as productive (they take more breaks). Implementing a comprehensive program that eliminates smoking during work hours, assists employees in efforts to quit and incentivizes them to remain nonsmokers can reduce your smoking population. Nationwide studies show that 22 percent of the population smokes, and at $4,000 per smoker, the costs add up quickly.
5. Discount Drug Programs. Many of the large pharmaceutical chains, from Walmart to Target, offer discount drug programs that could have a dramatic impact on reducing your prescription costs. Walmart offers more than 300 generic drugs and over 1,000 overthe- counter drugs for a four-dollar copay. With a little education from your broker, a few employee meetings, and some welldistributed emails, your costs could be dramatically cut. Remember, 50 percent of Americans live within five miles of a Walmart.
6. Emergency Room Education. The cost of an average emergency room visit in 2009 was $1,318, while the average cost for a visit to a physician was $199. Not only are ERs four to five times more expensive than other types of delivery, the costs are going to explode, given some of the pressures placed upon them by the Affordable Care Act of 2010. What is needed is education. There is a plethora of urgent-care facilities, clinics inside pharmacies and chain stores, and 24/7 nurse/physician hotlines that can be the first line of care for employees and a much better option than running to the ER for the most minor of symptoms.
7. Proper Benefit Design. Too often we see employers who wish to be generous with their plans, but in fact, they are costing themselves thousands upon thousands of dollars in unnecessary expenses. No matter how successful the company, resources are limited, and it is put upon both the employee and employer to be good stewards of those limited dollars. Benefits should be designed to guide employees to the lowest-cost option first. For example, a physician specialist is three to four times more expensive than a general practitioner, so shouldn’t the physician office copay be three to four times higher? A properly designed plan that rewards good purchasing behavior is critical to cost containment.
8. Shop. According to a study from the Kaiser Family Foundation, only 57 percent of small businesses shop their insurance every year. Yet those who do shop found an opportunity to move carriers a third of the time. Simply because an employer received a three-percent rate increase does not mean there isn’t another carrier out there who might offer a ten-percent decrease.
9. Wellness. For every dollar spent on wellness, a full five to six dollars are returned upon that investment. Employers should be proactive in offering to pay for online health risk assessments and blood profiles. 71 million people in the U.S. have high cholesterol, but only half of them are currently seeking treatment. Find ways to educate your employees about their health, make them aware of concerns and motivate them to live healthier lives. Look at it as a simple ROI: Would you rather pay $95 per month for an employee’s Lipitor prescription, or pay for his hospitalization for a stroke?
10. Brokers. Unlike men, not all brokers are created equally. With all the tumult and change this industry has undergone in the last ten years, you must utilize a broker who specializes in healthcare. A good broker should not simply bring your renewal 30 days prior to its end date, but actively seek ways to support you and your employees while providing innovative ideas and uses for new technology. It is incumbent upon a good broker to actively educate themselves, seek out the leading thinkers in their industry and engage their clients with the top companies in the industry. Ask yourself the hard question: Am I with my broker because he’s a nice guy, or because he is delivering costcontainment ideas? If it is just the former, it could be costing you thousands of dollars.iBi
