Use 3 strategies to cut health care costs
Health care costs continue to rise. Health care reform has added new complexity. More than ever, employees are looking to HR for help. The C-Suite relentlessly pressures HR for solutions.
Little wonder that the heat is on comp and benefits pros to rein in employer spending on health insurance. And with insurance plan renewal time fast approaching for hundreds of thousands of employers, there’s even more urgency.
“Now is the time for all of you with plan-year start dates on or near Jan. 1 to start thinking about ways to control health plan costs,” said insurance expert Nancy L. Newell, SPHR, of Nth Degree Consulting in Albuquerque, N.M. She told participants at a recent HR Specialist webinar that lowering employers’ health insurance burden requires balancing three strategies:
- Cost shifting—asking employees to pay a bigger share
- Cost reduction—cutting the bottom line through greater efficiency
- Plan changes—designing insurance plans to save costs in the first place.
What’s driving high costs
According to the Kaiser Family Foundation, the average per-employee health insurance annual premium was $4,824 in 2009. Of that, employers paid an average of $4,004—about 83%.
For family coverage, the average total was $13,375. On average, employers paid $9,764—about 73%.
Health plan costs are up 131% since 1999. A familiar litany of problems is to blame. Chronic, preventable conditions such as diabetes, hypertension and heart disease eat up 75 cents out of every dollar Americans spend on health care. Prescription drug costs are spiraling. Administrative costs are growing. And as baby boomers age, Americans are getting older … and sicker.
If the cost trend continues, average annual health insurance premiums for family coverage are projected to be as high as $30,803 by 2019.
Assuming a 73% employer contribution rate, are you ready to pay $22,500 to provide insurance to an employee and his or her family?
Shift more costs to employees
It’s perfectly legitimate to ask employees to pay a bigger share of the health care bill, said Newell. In fact, 88% of employers plan to do so next year, according to Towers Watson research.
How? Build health plans that increase employees’ out-of-pocket expenses. Raise deductibles and copays. Pass premium increases directly to employees.
Just one problem: Employees are in no better shape to pay more than employers are.
“In many cases, the increases that we’re asking employees to pay exceed the amount of raises that employers have been able to give,” Newell said. “If we’re asking people to pay, for example, $10,000 a year for family coverage, that’s not sustainable.”
Implement cost savings
Reducing health care spending isn’t easy, but it’s a more realistic approach than cost shifting.
“We can reduce overall plan expenses by reducing utilization, improving health outcomes, and more efficiently using our health care spending,” Newell said. “This benefits both employees and the employer.”
Some specific tactics to consider:
• Explore the feasibility of self-funding insurance coverage instead of buying indemnity from an insurance carrier. That saves administrative expenses, and any lower-than-expected expenditures return straight to the bottom line. Downside: It’s risky, especially for small employers that may not be able to afford the financial hit of covering catastrophic illness or injury.
• Get a great broker on your side. “A really good broker negotiates rates on your behalf,” Newell said. “They have access to a gamut of providers, so they can really shop the plan and get you better rates and discounts.”
• Demand more from service vendors. In addition to handling paperwork, claims processors and prescription-drug plan administrators, for example, can educate participants about how to use the system more efficiently. Write monetary incentive clauses into your agreements with them, so they’ll be motivated to help lower costs.
• Ask insurance carriers and vendors for compliance assistance. In many cases, their in-house experts will be able to save you a visit to your attorney, and that saves money. This is especially important now that health care reform is driving constant change.
Make plan changes
Here’s where innovative employers find the biggest savings, according to Newell. Some examples of changes that work:
• Price deductibles and copays in ways that affect employee behavior—for example, different copays for physician office visits, urgent care and emergency room visits. Make the difference meaningful enough to alter participant behavior, so they’ll choose a doctor’s visit instead of the ER for routine care.
• Find the right-sized physicians’ network. The fewer the providers, the bigger the discounts employers can score. “That’s a fine balance. You want a small enough network to get good discounts. But you have to make sure there are enough providers so it’s easy for participants to actually access a network provider,” Newell explained. Your broker can help.
• Review prescription drug coverage. Meds are a hugely expensive health care cost. Consider scrapping prescription copays in favor of deductibles, Newell advised.
• Emphasize preventive care. Pitney Bowes pays for insulin, blood-sugar testing and needles—no copays, no deductibles. The theory: It’s cheaper (and healthier) to treat diabetes than it is to treat diabetes-related kidney failure and blindness. Aetna saved $28 million over five years by implementing a high-deductible health plan that reduced barriers to employee access to preventive care.
Final note: To order a copy of Newell’s HR Specialist webinar “How to Control Your Health Plan Costs,” visit www.BusinessManagementDaily.com/healthcostwebinar.
