The Solution for Health Care Insurance Inflation

Posted by Ed Purcell on September 22, 2017

What’s your broker’s 3-year plan to contain costs and retain services?

Failure to plan is a plan to fail. The popular adage, attributed to Ben Franklin, holds truer today for employers battling health insurance inflation, which continues to compound despite Affordable Care, Accessible Care, and soon Trump Care. None of these have offered hope for changing the externalities that are driving health cost trends. A strategic plan by an employer’s insurance broker, however, can prepare its workforce and its insurance program to be prepared to contain costs and retain valuable health services.

According to the Kaiser Family Foundation, premiums for employer-based family insurance programs have increased 27% over the last five years -- and 61% over the last ten. The Congressional Budget Office estimates that average premiums for employer-based family coverage will reach $24,500 in 2025 -- a 60% increase over premiums today.

In 2015, one of every three employers reported increasing cost-sharing for employees, through higher deductibles or co-payments. Another 15% said that they cut worker hours to avoid falling afoul of Obamacare's employer mandate, which requires firms to provide health insurance to anyone working 30 or more hours per week.

These annual increases, which are compounding 3-5x faster than consumer inflation, are further raising pressure on employers to find solutions that counter this pricing pressure. Unfortunately, most mid-sized companies simply don’t have the data to begin evaluating cost drivers and devise solutions to counter these. Data is critical because not all solutions apply to companies of equal size. Additionally,  organizations without any sort of strategic plan in place for employee benefits are destined to fall short for their employees – even a goal of “status quo” requires some sort of multi-year strategy, as many competing external (and often internal) forces simply don’t allow for things to stay the same.

The answers are in the data

The competing requirements on cash flows from group health insurance programs increase the need for employee health behavior data, which can open a window to alternative funding arrangements. These, of course, need to be evaluated at insurance renewal for every employer above 100 lives insured and many times down to even less than 50 lives (and possibly as few as 10), as demographics and case characteristics are crucial in the solution evaluation that happens prior to any carrier underwriting.

Maintaining a competitive benefits program is on every organization’s radar. The degree to which employers grade, score, or prioritize a program’s components is dependent on the combination of the type of talent you need to attract and who are your recruiter competitors, both locally and regionally.

For instance, taking time to have employees complete medical applications, securely and electronically, can open a world of additional funding options, such as level funding and even reference-based pricing. These options are now available to groups under 100 and, yes, even under 50 lives.

Not all employers are prepared to make a change quickly in their funding approach. With the aid of a strategic planning process, however, these options are now a possibility for mid-sized employers, providing them with additional opportunities for cost reductions and better benefits utilization. The lack of a plan, on the other hand, forces organizations to be reactionary, as they are unprepared for what might arrive. Meanwhile, those employers with a plan are able to pivot, yet maintain their path toward a stated goal.

Communicate value, again and again

Too often many employers make the mistake of only issuing a communication on total rewards once per year and, worse yet, in only one mode or form of communication – such as a payroll stuffer. They ignore or fail to realize internal marketing or the need for additional modes of communication, such as requiring total rewards to be a standing topic reported at staff meetings. Any diversified message delivery reiterates and emphasizes the company’s commitment to the workforce and the commitment management asks to be returned from investments in a healthy workplace culture.

Organizations with high turnover need to work harder to quantify the value they provide employees. To not do so risks losing an employee to a competitor that might offer an extra dollar an hour but less total rewards. This employee makes a marginal gain in wage, yet loses much more in the total rewards that he/she enjoyed. This knowledge could have discouraged such a loss.

Most employers are challenged by increasing health care costs and are most likely struggling to identify those causes with only limited data. An alternately funded solution, however, has the potential to not only produce costs savings; it can provide the additional data that peels back the curtain to great insight into the drivers, allowing for more meaningful solutions to be put into play that attack the root issues and finally begin bending the cost curve.

Customization is key

An organization’s characteristics, however, will ultimately dictate the set of solutions that can deliver the greatest impact. For instance, a manufacturer with high turnover may not be the best candidate for a traditional self-funded solution. This would result in costs from self-insuring and budgeting applied to an unstable employee base. The effect of that can best be compared to kicking a field goal into a goalpost that is continually moving back and forth, side to side. For this reason, higher turnover organizations, especially those fully insured, need to evaluate level funded offerings more closely and compare narrow networks in order to maximize their savings potential.

Simply mastering your business is not enough. Today, managers need to acquire the capacity to understand industry specific challenges. This expertise is paramount to an organization's sustainability plan, as it positions them to best develop a multiyear strategy in the face of constantly changing externalities. If you don’t have a plan, you’ll be forced to react inside a short timeframe that can compromise your long-term ability to attract and retain top talent in your industry.

Do you have a 3-year plan to improve employee health and reduce insurance costs?

If not, please contact me: Ed Purcell, (216) 350-5052, [email protected]
 
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About the author Ed Purcell

Ed Purcell leads the employee benefits consulting arm of Cleveland-based Armada Risk Partners, an all risk insurance brokerage. As a Senior Vice President and founder, he focuses his counsel on assisting small and middle market employers when developing and executing innovative and cost-efficient employee benefit strategies.