As Vice President Joe Biden famously said, federal health care reform is a very big deal. Its potential impact can’t be understated. However, many of the reforms aren’t actually going to be implemented until 2014.
“So many employers are so focused on what health care reform is going to do for them in two or four years that they are overlooking things they could do today to impact their business’s bottom line,” says Gary Cumpata, senior vice president and Health and Benefits practice leader with Aon Consulting. “A lot of people are just forgetting we have present issues. We can’t just sit around and wait for health care reform to solve them.”
Smart Business spoke with Cumpata about 10 tactics employers can use to reduce benefit costs right now.
1. Get aggressive, competitive bids on your life and disability program. Mortality rates have continued to drop by 4 percent per year over the past 10 years, so life and disability rates now are nearly 50 percent of what they were 10 years ago. Yet we often see employers who haven’t even looked at their programs in years, either because they don’t have time, or they are more focused on medical, or they don’t think it is enough money to worry about. In 75 percent of the evaluations we’ve done over the past several years, there has been at least a 10 percent savings on life and disability premiums.
2. Eliminate outdated contract provisions. Many benefit contracts are evergreen. You write the contract and you don’t ever look at it again. But as business practices change, you need to re-evaluate the contract provisions in your plan. You’ll find outdated riders and provisions that people no longer need. Each of those has some dollar impact associated with it.
3. Insure self-funded benefits. Over the past 20 years, there has been a movement toward self-funded benefits, particularly for medical, dental and pharmacy. Because the markets have changed, there are opportunities to move from self-funded back to insured, reducing risk, volatility and cap liability, and thereby saving dollars.
4. Implement a high-performance network. Provider networks have grown over the years to satisfy employer and employee needs for access. High-performance networks are selecting 30 percent of the top-performing providers in a given area, which could be geographic, or a specialty, such as 30 percent of cardiologists. You are contracting those doctors and hospitals based on their outcomes. If you can reduce the provider network by 30 percent, you can reduce costs by about 10 percent.
5. Join purchasing coalitions for pharmacy and dental benefits. This is just economies of scale. Small and mid-sized employers have more trouble purchasing products than larger employers. There are a number of coalitions to join based on your company’s industry or size. You can achieve between 4 and 8 percent savings by going through a coalition.
6. Consolidate plan designs. Many employers, to give employees choice, offered multiple benefit plans. Now that cost has risen and price is a bigger concern than access, they are finding that if they consolidate those plans into two vendors instead of five or six, they can save 2 to 4 percent by getting additional leverage and consolidating their risk pool. Also, health plans cover larger geographic areas than they used to, so consolidation does not impact access for employees the way it would have 10 years ago.
7. Review physician and hospital discounts. The cost of health care varies by a range of approximately 10 percent across the country. So if you’re in Detroit, and you have employees in California and Florida, costs may differ in those areas. A lot of employers haven’t paid attention to the differences from city to city. Maybe you picked the vendor that had the best discounts in Detroit, but now that you have employees in Florida, it may not be the best. Look at the regional costs in each of your markets and reassess whether you should stay with one vendor that has the best discounts in all markets or use different vendors for each region.
8. Use claim audits, especially for catastrophic claims and Medicare Part B drugs. It’s an opportunity to audit very specific things — not for savings, but for reducing leakage or inappropriate payments. For example, some drugs paid under Medicare Part D should have been paid under Medicare Part B and they weren’t. For employers that offer medical coverage to retirees, that’s a good opportunity to recover funds.
9. Rebalance rate tiers for employee contributions. Many of the rate tiers were developed in the 1970s and don’t reflect the true cost of benefits. Today, employers are reassessing costs and reallocating the true cost of the tiers to the employees. But it’s only fair that if employees are going to pay that they pay the accurate number that reflects their cost. For example, the family rate might be 2.5 times the single rate. The true cost might be 3.5 times the cost of single but the employer never changed it. So your single people are subsidizing your family coverage. Many employers are implementing smoker surcharges, or dependent surcharges. As you increase costs to employees, you’re making sure their cost sharing has a correlation to the actual cost of medical tiers.
10. Reduce unnecessary commissions. A lot of benefit plans were set up when costs were low, with a percentage of the premium going to the agent or broker. As costs went up, so did the commission. The broker or agent is entitled to be paid for services, but the plan sponsor has a fiduciary responsibility to make sure the commissions paid are in line with the services provided.
Gary Cumpata is senior vice president and health & benefits practice leader for Aon Consulting. Reach him at (248) 936-5399 or firstname.lastname@example.org.