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controlling health insurance costs is a team effort

Do you have an “open wound” in your budgeting process every year while you wait for your dreaded health insurance renewal? Are you tired of the annual “juggle” of your health insurance costs where you either pay more, change carriers and plans, limit coverage, shift costs to your employees, or a combination thereof? None of these are long-term solutions.

Controlling the cost of your corporate health insurance program is actually a team effort, and the key is to understand and coordinate every teammate’s responsibility. But first you have to understand a couple “undeniable truths” about your health insurance program…

First of all, each state regulates the health insurance companies that are licensed to do business in their state. Consequently, plans, coverage, and cost can vary dramatically from state-to-state. For example, Blue Cross Blue Shield in Minnesota has dramatically different plan designs and costs compared to Blue Cross Blue Shield in Iowa.

Secondly, it’s easy to blame the “dirty rotten insurance company” for your health insurance woes, but actually the cost of your health insurance program is a function of your anticipated “claims” for the upcoming year. Now, admittedly this is an educated guess made by a person who was really good at math back in high school, and who went on to become a health actuary (the life of every party!!!). Every year they estimate what your group’s medical bills will be based upon your employees’ demographics, health history, and where they live (more on this later). They add in the cost of administering your claims and often the cost of your advisor, and the total determines what you have to pay over the next year.

Third, while the vast majority of your claims are low-cost office visits, 80-to-90% of the total dollar amount of your annual claims actually come from just a few conditions – heart attacks, cancer, strokes, premature babies, and major accidents. And many of these are due to poor lifestyle choices by your employees and their dependents covered under the plan.

Fourth, the average age of your employees dramatically impacts the total cost of your group health insurance program. WHY??? The probability of those big claims increases with age, especially after 50. The average person incurs over 82% of their lifetime medical expenses after age 40. So…an employer with a workforce with an average age of 47 may have substantially higher group health insurance premiums than an employer with an average age of 32. Even poor lifestyle choices like smoking often don’t result in big medical expenses for decades.

And last, the larger your group, the more stable your health insurance rates tend to be. Statistically it’s just the law of large numbers. That’s why smaller groups have a higher probability of getting the dreaded 25%+ premium increase at renewal time, and a big reason to consider alternatives to group insurance like ICHRA (Individual Coverage Health Reimbursement Account).

Now…with all this in mind, let’s look at the role you must play and that of all your teammates in order to have a chance at “controlling the beast” known as health insurance premiums:

1. The “Dirty Rotten Insurance Company” – Actually, aside from the above, they play a key role in helping you control the cost of your health insurance program. Their mission critical job is to negotiate on your behalf your “network” discounts with doctors, clinics, and hospitals located in your geographic area. These discounts can range from as little as 3-to-5% on many services in southern Minnesota, to as much as 30-to-50% on these same services in other geographic areas or with another health care provider. For example, a lumbar spine MRI in southern Minnesota can cost as much as $1,700 with the negotiated discounts, while it would cost less than $500 in Minneapolis or northern Iowa. BIG DIFFERENCE!!!

The other important job of the insurance company is to put together a menu of both group and individual policy health plan options to meet the diverse needs of your workforce, and then to actually adjudicate and pay your claims according to your plans’ provisions. Obviously, accuracy is critical here.

2. The Health Care Providers in Your Area – The only sure way to lower the cost of your health insurance program is to encourage your people to utilize high quality less expensive health care providers. Since your health insurance costs are determined by your anticipated health care bills, the primary job of your health care providers is to deliver quality care at a fair, competitive price. Competition is key here, and there can be significant differences in the prices that they charge. Another example is two health care systems less than 35 miles apart – a normal vaginal delivery without complications would be billed at $11,115 by the high quality / high-cost health system, but only $6,000 by its high quality / low-cost competitor.

Now one of the new cost control techniques that many larger employers are implementing is to work with a health care provider to set up an onsite private clinic/pharmacy for their employees and dependents, which in our experience can result is some significant savings. AND…smaller employers can actually band together to set up their own private clinic/pharmacy.

3. YOU…the Plan Sponsor – Health insurance is generally an employer’s most expensive employee benefit; plus, it often goes up in cost 4-to-8% per year, and budgeting for this beast seems impossible. Instead of being at the mercy of your health insurance company actuary for next year’s budget number, why not give your advisor the amount that your company can afford to spend on health insurance next year, have them then design the appropriate plan(s) with the most cost effective networks, analyze whether you should go with individual policies or group insurance, fully-insure or self-insure, and determine the employee premium share that fits your budget?

Isn’t this what you effectively do for your retirement program? You determine the company contribution/match, your advisor helps you find a good cost-effective recordkeeper, and puts together a menu of investment options, and then it is your employees’ responsibility to determine what they need to contribute and how to invest all the money to meet their future needs. Why not take the same approach for your health insurance program?

4. Your People – It is mission critical that you engage your workforce in the battle to control the cost of your health insurance program. Your employees and their dependents are the actual users of your health insurance! It is their medical bills that determine the total cost of the program, and nothing will engage them more than putting them in charge of some of the money that you devote to your health insurance budget each year.

You then incentivize them to become better “shoppers” of their health care by encouraging them to shop for high-quality less expensive health care providers, select a less expensive Health Savings Account-eligible consumer-driven health plan, and to actively participate in your company wellness plan to promote healthier lifestyles.

Obviously, employee education and advice is critical here. Think about how much time and money you have dedicated to educating your employees on how to use your retirement plan to comfortably retire. Your health insurance program is your most expensive employee benefit, and your employees must be educated on how to use it properly. This should actually be part of an overall financial wellness program for your people.

5. Your Health Insurance Advisor -- Think of your advisor as your quarterback. They obviously have to have intimate knowledge about the insurance companies licensed to do business in your state, and the “value” of their network discounts. It’s their job to help you put together health insurance plans that fit both your corporate budget, but also your employees’ diverse needs and finances. They should also analyze the pros and cons of being fully insured verses self-insured, explore utilizing individual policies with an ICHRA rather than traditional group insurance, identify high quality lower cost health care providers, and assist with the merits of putting together a private clinic/pharmacy for your people.

Annually, they should analyze your health insurance program’s total claims for utilization trends and misuse, negotiate your renewal, and bid your program out to other carriers when appropriate. Plus, they should periodically analyze the “hidden cost” of delayed retirements, and the impact that can have on your health care costs and overall corporate finances.

But the most important job of your advisor is to educate and advise your employees about the plans that you offer, which plan best fits their needs for the coming year, how to appropriately use the plan, and then how they can help control its ongoing cost. This, along with all the other employee benefit decisions that they have to make, has actually become a financial planning issue for your people.

Do you have ONE RESOURCE that can actually answer all of your employees’ questions – that can motivate and engage them to join the battle against rising health insurance costs? That’s a pretty important teammate!!!




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