Healthcare Expenses

How to achieve effective and sustainable cost control.

 

Managing expenses is a crucial factor in operating a successful business. Why shouldn’t the same hold true for your company’s healthcare plan? Right now, companies accept rising premiums on subpar plans that are often passing the the cost increases to employees. There is a better way to take care of your employees and your company. It starts with understanding that the vast majority of healthcare expenses are variable — and therefore controllable. Imagine giving your employee an unlimited credit card and telling them “Just do the best you can.” You would never consider this for normal expenses but it’s what most companies are doing with their healthcare expenses.

WHY COSTS INCREASE

 

Why Insurance Carriers’ Misaligned Incentives Won’t Reduce Insurance Costs

Companies regularly ask us, why do our health insurance rates continue to increase year after year? The reason is that you’re trusting the insurance carriers to manage the health care supply chain, and they have no incentive to reduce insurance costs.

By acquiring hospitals, providers, and pharmacy benefit managers, the insurance carriers are able to retain more of your premium dollars at their wholly owned subsidiaries. 80% of your health insurance cost is variable, and therefore controllable. Those dollars are being managed by the insurance companies. In this case, the fox truly is watching the henhouse! It’s vital that you make sure you and your insurance broker are managing those dollars, not insurance carriers.

80% of Your Company’s Health Insurance Expenses are Variable. Stop Buying Based on Premium Rates!

Independent actuary and health care consulting firm Milliman finds that in any form of health plan only 20% of the plan cost is a fixed expense, such as plan administration fees or stop loss premiums. The other 80% of health insurance expenses are variable. Plan costs vary depending on what services your employees are getting, where those services are performed, how many claim dollars you are spending.

Of the 80% of claims costs that are variable, the vast majority comes from four profit centers in the healthcare supply chain: Inpatient & Outpatient hospitalization, Professional Services, and Pharmacy. Brokers who zero-in on the 20% of expenses that are fixed may squeeze a few nickels out of the carrier, but who cares if the other 80% is going completely unmanaged?

COMMON MISTAKES

 

Do You Recommend Price as the Sole Consideration for the Products You Make or Sell?

Treating health insurance like a commodity and choosing the lowest priced insurance plan has caused companies and their employees’ significant financial pressure. Rising premiums for plans that continually shift more financial burden to employees have been accepted as a cost of doing business. This hurts both your business and your employees.

Companies that understand how applying healthcare supply chain management can lead to substantial long term and sustainable cost reduction.

 

Don’t Accept Industry ‘Trend’ Data as an Excuse for Your Company’s Annual Benefit Premium Cost Increases

When informing clients of yet another annual premium increase, brokers will commonly reference industry “trend,” or the average percentage by which health plan costs are rising each year, as a benchmark to validate their performance. The problem is, health insurance trend is a fake number.

For years you’ve probably been told “The claims are the claims. We can’t do anything about the claims.” The typical broker mindset is that as long as your costs don’t go up as much as the average “trend,” then they’ve done a great job for you. Who cares what the data shows? You should be focused on managing your costs in the most effective way possible. We can help you drive your costs down. Yes, we can dramatically reduce your cost. Not simply slow down cost increases.

 

Charging Employees More is NOT an Effective Strategy to Lower Costs

Putting in a Health Savings Account alongside a PPO may reduce an employer’s costs in the short term, as premiums are cheaper when the plan doesn’t cover as much, but every year those costs will keep going up. Instituting a high-deductible plan is a one-year bandage, not a sustainable health insurance strategy.

Your company doesn’t have to offer less benefits. In fact, the only way to truly reduce costs is to offer a better benefit, and offering a better plan starts with giving the employees an incentive to make the right decisions. There is a best way to access the health care system, and then there’s the way you are probably doing it today. True cost savings only comes from better utilization of the health plan, not plan design changes and parlor tricks.

THE SOLUTION

 

Benefits Cost-Savings is Easily Achievable for Companies Who Understand These Four Healthcare Supply Chain Verticals

When we ask companies what they’re doing to control the 80% of their health insurance costs that are coming from four key areas in the healthcare supply chain — inpatient, professional services, outpatient and pharmacy — they do not have an answer.

To generate the greatest benefits cost-savings for your, BenefitU advises companies to address the four verticals in this order: Pharmacy, Inpatient, Outpatient, and Professional Services.

 

How Are Companies Reducing Healthcare Costs by Offering a ‘Free’ Option to Employees?

Companies and their employees have almost no access to information on quality and cost when it comes to health care. We wouldn’t even think about walking into a car dealership to pick out a nice car tell them to “Just send me the bill.”

As the plan sponsor, it’s in your best interest to ensure your employees have incentives and information to utilize the least expensive, top-quality providers then waiving deductibles and out-of-pocket maximums for these facilities. By offering free health care, you can ensure your employees are going to the best facilities and saving money. This is a win-win that will help both your employees and your company’s bottom line!

 

How to Know If Your Company’s Benefit Plan Helps or Hurts You While Competing For Qualified Workers

The average employer/employee cost share for a in our region of the country is roughly 75/25, or $6.08 per hour. The U.S. Bureau of Labor Statistics found that in addition to benefits, the cost of wages per hour worked has grown by an average of $4.51 in the last eight years.

While these numbers provide some perspective, if you’re a company competing for qualified workers you need to take a look at how well you’re managing your health care supply chain. Lowering the overall cost of your benefits means you can become more competitive by paying a higher percentage of employee benefit costs, increasing wages, or both!