7 Tips to Keep Health Care Costs at Bay

With more health care changes looming in the wake of Health Care Reform legislation, employers have rising health care costs to address and need to keep their eye on the ball.

Health care costs for midsized businesses have risen 5% to 8% per year over the past five years, according to McGraw Wentworth Inc., a consulting and brokerage firm in Troy, MI that specializes in employee benefits in the middle market and tracks costs based on data submitted by local companies.

At IntegraFlex, our advice to employers is to stick to the issues at hand and not let the Health Care Reform distract them.

Everyone has been so focused on Health Care Reform and the cost increase, but it’s important not to lose sight of the next couple of years.  You need to think long-term and benchmark your plan and look at solutions/strategies.

Although most employers tend to look at health care once a year at renewal time, they should review it several times a year.  If you wait for renewal to come around it’s always a scramble to try to decrease the rates!  Things need to be well thought out and enough time given so that a solution/strategy can be developed prior to renewal.

Though many employers have focused on just staying in business, now is the time for businesses to think strategically about how their plan design will look three to five years out. Three years is practically long term in health care.

With the rate increase coming, what can be done to contain it over the long-hual?

Here are 7 tips  for small businesses to consider in managing their health care costs:

Shop the market

Particularly in the small and midsize market there have been some changes in the past 18 months in terms of competitiveness of products.  Some popular plans have had fairly large rate increases this year, while other insurance companies have whole new product lines or new features with higher out-of-pocket costs that keep premium rates down.  Other companies have greatly expanded their networks.

Specialty drug plan design

A number of health plans are coming out with special plan designs for high-cost specialty drugs such as injectables for multiple sclerosis and rheumatoid arthritis that generally cost $1,000 or more a month.  Plan designs can offer incentives for using non-formulary or non-preferred drugs or therapeutic alternatives that can keep premium rates down for employers.  Although it may only result in a 1 percent to 2 percent savings for employers in the short term, it may become a more important consideration in the future with many of these types of drugs currently in the pipeline.

Consider wellness plans

If companies are not focused on keeping employees healthy, it will cost them in the long term — especially in the small to midsize range.

It’s the disability costs, (worker) compensation costs and the overall costs from lack of productivity when people are not feeling well.

It’s a good idea to take 5% to 8% of the health care budget and invest it into a wellness plan.

Some wellness-based preferred provider organizations (PPO) plans have outcome-based program incentives for employees to stop smoking, keep body mass index below a certain level or maintain cholesterol levels.  Those who achieve the desired outcome — or in some cases just participate — have a lower premium rate or better benefit.  This won’t fit for every employer, but a lot of people like it.

Be wary of becoming the “plan of choice”

While many employers want their health plan to be better than the market in order to attract talent, this can drive up the cost of their plan over time.

What you often find since the market has changed in the last few years is that couples will always take that plan for their family at renewal time.  In effect, you are covering another employer’s employees.

To dissuade that, spousal provisions have become popular.  This is a monthly surcharge — the median being $100 — that an employer tacks on if an employee’s spouse is eligible for other coverage but doesn’t take it.  An employee who has a stay-at-home spouse or whose spouse doesn’t have available coverage does not have to pay the surcharge.

Employees might object to this, but for an employer whose employee contribution is below market, the rate even with the spousal provision is still reasonable.

Employers should look closely at their enrollment rate and how their plan compares to the market.  How many employees are taking it and how many of them have dependents on it?

The market median is 58% of dependent enrollment.  If you have 70% of employees enrolling dependents, you may have plan of choice issues going on.

Funding the plan

Large companies are considered companies who have  100 employees or more — and some say that number should be much higher.  However, this is far from the contrary, employer groups under 100 employees are very capable of choosing a self-funding route that allows more individualized plan design and potentially lower costs over time.

An employer self-funds its health benefit plan by paying the medical costs for its employees and using a third-party administrator to process claims.  Most small businesses contract with an HMO or insurance company to cover employees and dependents in a fully-insured arrangement.

A number of insurance companies have come up with plans for companies with as few as 50 to 60 employees to do self-funding or partial self-funding.

By converting from fully-insured to self-funding, companies can continue the same coverage with their health care plan and everything appears the same for employees, but employers might be able to better control costs.  They are in effect gambling that they will have lower health care costs as a company than they would by being placed in a one-size-fits-all group rate with companies of similar size.

When self-funded, employers typically pay an administrative fee to the third-party administrator and purchase stop loss insurance or reinsurance.  If an employer purchases reinsurance at $35,000 and an employee wracks up $200,000 in claims, the company is liable for $35,000 and the reinsurance kicks in to cover the other $165,000.

Small businesses that consider self-funding should know it’s a bit of a gamble.  It may make sense if the demographics for a particular employer are favorable and the company believes costs can be managed at a lower rate.

A company might save significant money over a year, but you may have a bad month or two.

Communicate with employees

Companies, especially those that have high turnover or a high number of contract employees that don’t come into the office daily, need to make sure they have strong communication to get employees to understand what the actual health care costs are.

The goal is to get employees to at least consider the impact of their behavior on the company. This relates back to the idea of wellness programs. You want your employees to participate in behaviors that benefit, not diminish, their health.

In effect, I’m handing you an American Express Platinum card and letting you go wherever you want to eat.

Review the broker

Most companies use agents to find the best health care program for them even when they grow large enough to hire a human resources manager, which provides its corporate members with human resources services.

When companies start maturing, they may start hiring HR people, but they have a lot of responsibilities beyond health care, such as recruiting or payroll.

Most companies don’t hire a benefits administrator until they have more than 500 employees, and they continue to rely on consultants until they hit 1,000 or so employees.   And some never take over benefits management.

You need to figure out that blend between using outside help versus inside help.

Although, most base commissions for brokers are 3 percent to 5 percent for smaller companies, but be warned, what brokers do for that commission varies significantly.

Most bid out coverage, but the question should be, are they coming up with strategies, benchmarking plans and providing data, handholding (a company) through complying with healthcare reform and COBRA or helping communicate the plan?



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