Health care inflation has increased with the arrival of the Affordable Care Act. Most employers are struggling with rising health care costs. Many 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.
For instance, let’s examine mid-sized employers covering 200 lives who are fully insured by a major carrier with a preferred provider organization network. The majority of these employees at both are based in one geography, yet each has endured 11-18% increases in medical premiums the past 2 years.
This situation is pretty typical. What shouldn’t be typical is the solution applied to reduce employee health risks and inspire better claims, as data can reveal the difference in claims experience by comparable sized employers in disparate industries. Alternately funded solutions have the potential to not only provide costs savings, but also peel back the curtain to the needed additional data. The analysis of such is what allows for great insight into insured behaviors and cost drivers, while allowing for more meaningful solutions to be put into play to help attack the root issues and bend the cost curve.
Employee profile points to solution set
A comparison of employee populations at manufacturer and software companies that cover 200 lives can illustrate the point that each group needs a tailored solution set.
A manufacturer’s employees are typically male, lower paid and blue collar. This group often receives hourly wages, which invites turnover. They operate in shift environments, making preventive care challenging as scheduling doctor visits is difficult and the odd hours aren’t conducive to regular exercise, nor support a healthy diet. Shift environments also put greater stress on employer communication with employees.
The group is active at work and their age can vary, depending on the organization; however, if older, their past poor health practices will likely be realized in chronic conditions that usually translate to increasing absenteeism, injuries in the workplace and other business disruptions. If younger, they are vulnerable to feeling invincible, which leads to riskier behaviors both at work and off duty. Lastly, this group is a non-exempt workforce, although salaried employees do serve administrative roles; regardless, the employer’s health culture is dictated by the majority when left unmanaged.
The employee profile at most technology companies, on the other hand, is very different. Employees in this group receive slightly higher compensation rates. Depending on geography, recruiting can be a challenge as a result of short supplies of qualified talent. Compounding matters, too often mid-sized companies must compete with larger firms that can more easily respond to higher salary requirements.
Split evenly between males and females, these employees typically work in sedentary environments and for longer work weeks, yet no shifts. They are primarily a salaried, exempt workforce. Any new overtime rules have the potential to have a significant budgetary impact, as these requirements put added cost and demands on cash flows.
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 opens a window to alternative funding arrangements. These, of course, need to be evaluated at renewal for every employer above 100 lives insured, many times even 50 lives, as demographics and case characteristics are crucial in the solution evaluation, prior to any carrier underwriting.
Maintaining a competitive benefits package is on every organization’s radar, yet the degree to which they grade, score, or prioritize which its elements are dependent on the type of talent you are trying to attract and who you are competing with locally and even regionally.
For instance, top performing employers are doing more than simply providing employees with total reward statements, which account for and total all the investments (salary, health and life insurance, benefits and other perquisites) that an employer makes with an individual employee. These employers also quantify the value of the total rewards package with prospective hires too. And, wisely, they do it in a clear and concise manner, multiple times throughout the year, so as to truly differentiate their offering and win the talent needed.
Communicate value, and again and again
Unfortunately, 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 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, such as the midsized manufacturer described earlier, need to work harder to quantify the value they provide employees. To not do so risks losing an employee to a competitor who offers 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 move by an employee.
Most employers are challenged with increasing health care costs – and any 200 life, fully insured employer is 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. Better yet, 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.
Have both: Cash flow protection and data
The organization’s characteristics, however, will ultimately dictate the set of solutions with the greatest impact. For example, the 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 evaluate narrow networks in order to maximize their savings potential.
In the case of the technology company described earlier, and which may be more impacted by new overtime rules that can potentially spike total compensation expenses, alternate solutions are even more crucial. These can establish a budget neutral balance between increased wages and every increasing healthcare expenses.
Private exchanges can be a great fit in these types of organizations. These offer a fixed financial commitment, expanded product choice, and sound communication that can inspire more informed healthcare decisions, while also delivering a truly personalized level of protection that includes not only major medical coverage, but nice-to-have benefits like legal services and pet insurance.
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 the ACA's pending Excise Tax in 2020. 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, epurcell@armadarisk.us
