Historically, defined benefit plans have held a dominant position in the health care market since they were first introduced in the middle of the 20th century. Because the contributions were tax-deductible for employers and pre-tax for the employees, it was a popular way to increase employee benefits without raising wages.
But over the years, the rising cost of health care has caused employers to re-examine how much they pay for insuring their employees and caused them to think more about defined contribution plans.
“With a defined contribution plan, an employer can decide exactly how much they want to contribute to an employee’s health insurance and have a certainty about the cost,” says John Mills, senior director, Consumer Products, Product & Consumer Innovation at UPMC Health Plan. “And a defined contribution plan can be offered by a company of any size.”
Smart Business spoke with Mills about defined contribution plans and their increasing popularity with employers.
What is a defined contribution plan?
Technically speaking, a defined contribution plan is not any specific kind of health plan. Instead, it is a concept that can be applied to different approaches that employers can use to manage health care for employees.
With a defined contribution plan, a company gives each employee a fixed dollar amount that the employees can use to purchase health insurance and dental and vision benefits.Some employers will allow employees to put any money not spent on these benefits into a flexible spending account or to take as a cash benefit.
Why are these plans becoming so popular?
Certainly, the rising cost of health insurance is a major factor in the increased popularity of defined contribution plans. Any plan that can place some kind of limit on health care expenses, or provide some certainty about how much money will be paid, will get close scrutiny by those companies concerned about the bottom line.
But defined contribution plans also touch on areas that are becoming more important to both employers and employees than was possible under managed care. These include:
- The consumer’s desire to have more choice and involvement in health care.
- Concern about quality.
- Increased information.
- More freedom for providers.
What are some common characteristics of defined contribution plans?
The most common characteristic is choice. Defined contribution plans are intended to give members greater flexibility in benefit decisions. The choices include: plan choices, care choices and the ability to opt out.
Other common characteristics include increased cost sharing between the employer and the member, as well as greater knowledge and engagement in management of health care by members.
What do employers like about defined contribution plans?
One popular feature is that there is no limit on the amount of money an employer can contribute to an employee’s defined contribution health plan. Also, there is no minimum contribution requirement. That allows the employer to set the amount that makes the most sense for the company.
Employers also can give employees different contribution amounts based on classes of employees. The combination of cost management and decreased employer involvement makes defined contribution plans very attractive.
What other factors are driving the growing popularity of defined contribution plans?
Rising costs of premiums are a factor, as is the desire of providers to regain control over decisions concerning patient care. At minimum, they want a greater ability to advise patients who will make the final decision.
Concerns about quality are another factor. There is evidence that defined contribution plans will enhance the quality of care and also increase the amount of information available on the quality of health care, which makes them popular when there is such a focus on quality. And, small businesses find that with defined contribution plans they can have a feasible way to provide some kind of health insurance for their employees.
John Mills is a senior director, Consumer Products, Product & Consumer Innovation, at UPMC Health Plan. Reach him at (412) 454-8821 or email@example.com.
For more information about defined contribution plans available through UPMC Health Plan.
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Many aspects of the Patient Protection and Affordable Care Act (PPACA) become effective Jan. 1, 2014, but preparing for that date is difficult for businesses because not all of the rules and regulations have been written.
“As of last month, there were still 1,200 regulations yet to be written by the end of the year. I don’t think anybody has it figured out yet — that’s the biggest problem,” says William F. Hutter, president and CEO of Sequent.
Nonetheless, there are steps businesses can take now to be ready for 2014. “The first thing to do is to understand the PPACA. Unfortunately, there is no definitive source of information on how it will impact companies because of the yet-to-be written regulations. So you need to read a variety of materials, starting in July — that’s when we should see those rules and regulations start to manifest,” says Hutter.
Smart Business spoke with Hutter about strategies small and midsize businesses can take to deal with the uncertainty surrounding health care reform.
Is there a chance that the effective date of PPACA provisions might be delayed?
Some factors already have. The Small Business Health Options Program (SHOP), an exchange for small businesses to purchase health insurance, has been delayed for a year. Also, nothing has been presented showing how the federal health care exchange, a marketplace for individuals to purchase insurance, is going to work.
Since everything is in flux, what can companies do in preparation?
A number of strategies are going to emerge, and many might have questionable structure. If someone presents an opportunity too good to be true, it probably is. Be careful about vetting companies offering creative strategies to avoid some of the impact of health care reform.
One legitimate strategy on the increase is the use of cell captives. Companies will self-insure, but with minimal exposure. There are good self-insurance options for businesses in the 60- to 70-employee range that will exempt them from certain aspects of the legislation, such as unlimited rehabilitative services. An employee can go to rehab for 30 days, come back and four months later have another drug problem that sends him or her back to rehab — there’s no limitation and it’s covered under the Family and Medical Leave Act. A company can design a plan that doesn’t allow that because it’s not required in a self-funded plan, even though it is part of the minimum essential coverage required under the PPACA in the fully insured environment.
All of these self-funded plans will become high deductible health plans with three layers of risk. The first is the employee deductible, which will pay the first layer of claims. The second layer will be an amount of self-retained insurance risk a company insures. The insurance company will pay the third layer. That setup protects insurance companies from a lot of the smaller claims. In Ohio, about 70 percent of claims are less than $8,000.
What impact will reform have on health care costs?
It will not bring down the cost of insurance because there’s nothing health care reform can fix relative to the aging demographics of the workforce. There’s been a dramatic increase in recent years in the use of medication and cost of defensive medicine. As baby boomers continue to age, those costs will only increase. There are not enough 20-somethings coming into the workforce to compensate for the aging demographic in the state of Ohio.
If anything, the cost of regulation just keeps increasing. A recent study stated that fines and penalties are expected to total $88 billion. All kinds of alternative strategies are being considered, not to avoid the intent of providing good coverage for employees, but because of uncertainty with the legislation. If you can create certainty by having a new health care plan design, that’s good for business. At least you know what you have.
We’re not going to see the conclusion of how health care reform is going to be implemented for a decade. It’s going to be a really long time.
William F. Hutter is president and CEO at Sequent. Reach him at (888) 456-3627 or firstname.lastname@example.org.
Website: Understand your legal obligations when sponsoring a health plan for your employees. Download a checklist.
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Health savings accounts (HSAs) are a savings vehicle increasingly being used to offset health care costs and improve awareness when utilizing health care simply because there is additional skin in the game. Further, HSAs provide potential savings and accumulation of assets that work well with long-term financial planning.
“HSAs encourage us to be better consumers, plan ahead and consider the ramifications of health care, as it applies to your long-term financial plan,” says Michael Bartolini, President and CEO of First Commonwealth Insurance Agency.
“It might be a very good opportunity to save more tax-deferred and tax-free money, depending on your situation,” says Nancy Kunz, Lead Financial Planner at First Commonwealth Financial Advisors.
Smart Business spoke with Bartolini and Kunz about how health savings accounts operate and where they fit in with your financial planning.
How does an HSA work in conjunction with your health insurance?
Many people are going to a high-deductible health care plan that has premium savings as a result of the larger upfront deductible. The idea is to shift those premium savings to an HSA, which can be used to pay for unreimbursed medical expenses on a pre-tax basis. The list of applicable expenses is long and includes dental, vision, long-term care insurance premiums, home improvements for medically necessary conditions, etc.
An HSA does not have to be provided by an employer; it can be set up on an individual basis. You also are able to accumulate funds year after year, with the idea of using those dollars against future medical expenses.
The current annual contribution limits, which tend to increase, are $6,450 for a family or $3,250 for an individual. If you are over the age of 50, you are able to contribute an additional $1,000.
How does this differ from a flexible spending account?
Typically provided by employers, a flexible spending account (FSA) works on a pre-tax basis for many of the same unreimbursed medical expenses, but the money does not roll over to the following year. If the monies that are in the FSA are not spent by the end of the calendar year, they are lost. Unlike an HSA, all monies you plan to contribute to the FSA throughout the year are available as soon as you sign up, whereas only the actual contributions are available in an HSA.
How does an HSA help you better manage health care expenses?
When something hits your pocket or you have a new cost, it causes you to be more responsible and a better consumer. If you have to pay $2,000 first with the high-deductible health plan, you’re going to be more mindful of where you go for health care expenses, including which hospital or provider you choose for a procedure.
The economics of health care don’t follow traditional economics where you choose wisely based on price points and/or quality. What one provider may charge for an MRI versus what another provider charges could be very different, but you’re not likely to care if it’s a $10 or $15 copay. We don’t have the mindset that even if insurance companies are paying, so are we — one way or another.
HSAs and high-deductible health plans with their greater level of upfront deductible pushes consumers to exert more energy to pick up the phone and find out what a procedure costs. In addition, many health insurance carrier websites are starting to populate this kind of transparent data to show provider price points.
How does an HSA fit into your overall financial plan?
An HSA can act as another retirement vehicle, especially if you start young enough to accumulate funds without having to — or choosing not to — use those dollars against medical expenses. Once you’ve reached age 65, HSA funds can be used without penalty for any purpose. An HSA also will follow you wherever you go; it’s not tied to an employer.
Many people have reached their maximum on 401(k) or IRA contributions, so depending on your age and health needs, this may be an option to look at seriously for tax benefits and long-range financial planning.
Michael Bartolini is president and CEO at First Commonwealth Insurance Agency. Reach him at (724) 349-6028 or email@example.com.
Nancy Kunz, CFP®, ChFC®, CLU®, is lead financial planner at First Commonwealth Financial Advisors. Reach her at (412) 562-3232 or firstname.lastname@example.org.
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The Patient Protection and Affordable Care Act regulations are changing every day as the legislation continues to roll out. Each of these new provisions has an impact on many aspects of a company — from employee retention to the bottom line. In this constantly changing environment, business owners need health insurance brokers who are health care reform experts to guide them through each new complex step. However, this means brokers need to prepare themselves for a new role.
“Change is hard for many brokers to implement,” says Sherrie Zenter, senior vice president at Momentous Insurance Brokerage, Inc. “Brokers need to get past this fear of change to avoid failing in the current marketplace. Revenue will continue to diminish with health care reform changes, but those who distinguish themselves as experts will rise to the top and succeed.”
Zenter says business owners are concerned with how new regulations will affect them, their employees, what the costs could be and their responsibilities as employers. By choosing a health insurance broker who is knowledgeable, available and a good communicator, business owners can stay well informed.
“Brokers exist to help their clients. Therefore, the ones that help their clients understand the bigger picture and adapt to the reform changes quickly will help everyone succeed,” she says.
Smart Business spoke with Zenter about what to look for in a health insurance broker.
How should business owners gauge the effectiveness of their health insurance broker?
Business owners must work with health insurance brokers who are well informed to give them the most up-to-date information on health care reform. There are several indicators that your broker can be an asset to your company:
• He or she tells a good story by using education tools, such as webinars and/or seminars, that help you understand the issues well enough to make intelligent decisions for your business.
• He or she is available to react quickly when you ask for information. Your broker should have current literature at hand and deliver it to you in a timely manner.
• He or she maintains a viable network of experts in the health care community to stay current with new regulations and how each could impact your business.
• He or she serves as your go-to leader on health care reform.
It can also be beneficial if your broker’s associates in his or her firm are educated as well. That means there is a greater pool of knowledge that you and your broker can tap into.
What else do brokers need to demonstrate in this area?
Brokers need to demonstrate that they are well versed on this topic, and it should be clear that they take the time daily to learn about changes put in place as this legislation unravels in the marketplace.
Your broker’s skills should position him or her as a trusted adviser and expert on health care reform — someone you’re willing to rely on when making decisions that will impact many levels of your business.
What’s the current health insurance marketplace like?
There is a lot of competition among brokers. As they adapt to this new landscape, they are developing new servicing models. This can be a benefit to business owners who can leverage the competition and take advantage of the new skills brokers are developing. Some brokers are leaning toward ancillary sales, while others are focusing on large group sales versus small group. Bottom line, brokers have taken a cut in commissions but are still striving to maintain the quality of service promised to all clients. Business owners can benefit from brokers who are eager to stand out among the competition and prove they are an asset to their clients and their businesses.
Sherrie Zenter is senior vice president at Momentous Insurance Brokerage, Inc. Reach her at (818) 933-2739 or email@example.com.
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Health care reform is on the way, with most mandates starting in 2014, but it will be 20 or 30 years before we really know how the Patient Protection and Affordable Care Act (PPACA) will work, says William F. Hutter, president and CEO of Sequent.
“That creates much uncertainty for small and middle-market companies.
They don’t know what to do. And that uncertainty is bad for the economy and it is bad for business. When business owners can’t make decisions, it’s bad for all of us,” says Hutter.
Smart Business spoke with Hutter about some of the lesser-known aspects of the PPACA.
What are the minimum participation standards?
There are two standards for minimum participation:
• 80 percent of all eligible employees must take coverage from the employer.
• 70 percent of net eligible employees must take coverage from the employer.
Net eligible employees won’t include those who decide to get coverage from a spouse’s plan.
A really unique caveat about this is that if a company cannot maintain those participation requirements, technically no carrier has to write it coverage. That would force the company into a state health care exchange because it would be unable to provide a health insurance program for employees.
You could try to increase employee participation by improving the plan, but then the cost goes up and the company can’t afford it. Or the cost goes up and somebody can go to the state health care exchange and get a subsidized plan for less.
A lot of companies with between 75 and 150 employees are really going to be challenged. If they can’t meet minimum participation requirements and can’t afford to design a plan to compete with the exchange, they can give up and let everybody go to the exchange. But then they have to pay a $2,000, per employee, nondeductible penalty. For a company with 100 full-time equivalents (FTEs), that’s a $200,000 tax and they still don’t have a health plan.
How can companies that provide adequate health insurance still wind up paying penalties?
Say I run a company that has more than 50 FTEs and I’m offering a good health care plan. However, because of the subsidies that are offered, an individual opts out of my health care plan and instead seeks out insurance from a state exchange. A family of four can earn up to $80,000 and get a subsidy for buying on the exchange. I could still wind up paying a $3,000 penalty if I have an employee who opts out.
So companies will be weighing whether it costs more to provide health care or simply pay the penalty?
Correct. If that’s the case, how does that impact my company culture and how do I want to take care of my employees and their families? We don’t know how some of those questions are going to manifest. Or the fact that, as an employee, I get my health care out of an exchange, therefore I can go to work anywhere I want to. That begins to break down the loyalty factors between employees and companies.
What impact will the PPACA have on health insurance costs?
Based on the average cost of $440 per month for an individual, 75 percent is used for claims. That means the remaining 25 percent, or $110, goes for administration costs, profits, compensation, rents and other expenses related to the health care plan. The legislation says that 85 percent of every dollar must be used to pay claims. In order to maintain that same $110 a month, the cost for an individual goes up to $730; it’s just a reverse calculation. This can be attributed to the legislation and how it ultimately impacts the medical loss ratios.
William F. Hutter is president and CEO at Sequent. Reach him at (888) 456-3627 or firstname.lastname@example.org.
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Stop-loss or reinsurance is a “backup” policy designed to limit claim coverage or losses to a specific amount. This type of coverage ensures catastrophic (specific stop-loss) claims or numerous (aggregate stop-loss) claims don’t deplete your reserves in a self-funded arrangement.
“There are a lot of companies in this stop-loss space, and there are more and more getting into it because the health care law eliminated lifetime limits, and health care costs are driving employers into self-funding,” says Mark Haegele, director, sales and account management at HealthLink.
Smart Business spoke with Haegele about what employers should look for when shopping for reinsurance.
What should employers know about the fixed cost of reinsurance?
The main components of a partially self-funded model are the third-party administrator (TPA) that pays claims; pharmacy benefit manager (PBM) network that contracts with doctors and hospitals for discounts; and the reinsurance carrier, which has the highest cost.
Stop-loss represents a disproportionate amount of the fixed costs for an employer. The smaller the employer, the less risk they’re willing to take, the more stop-loss they’ll need to buy and the more expensive it is. For smaller employers, the reinsurance purchasing decision becomes more relative and important. For example, a self-funded employer with a 500-life health policy might purchase specific stop-loss, paying $200,000 in claims for every member before the insurance kicks in. However, if a 20-life employer purchases $10,000 specific stop-loss, the stop-loss cost will be higher.
How can employers and brokers negotiate with stop-loss carriers?
In the eyes of the reinsurance carriers, there is no perfect model of self-funding components. This opens the door for the employer and broker to play a vital role in controlling the premium and overall stop-loss cost. If you can sell the reinsurance carrier on your vendor alignment — your TPA, network and PBM — you can decrease the premium.
Don’t go to the stop-loss carrier and say ‘I’m a 300-life employer and I want to buy $125,000 specific stop-loss,’ while providing your claims experience. Instead, demonstrate, in a refined and focused way, how you are working to lower the impact of large claims. Your premium might have been X, but you could now get X minus 20 percent. Employers and brokers don’t realize how much negotiation room is available.
How can you demonstrate your management of large claims?
Some ways to control large claim costs are having a dialysis or transplant carve out. You pay a small premium for a transplant insurance policy where any transplant will be completely covered, and then the reinsurance carrier gives you a credit, which often pays for the transplant policy premium.
Another option is working with your PBM. For one reinsurance carrier, more than 25 percent of all of the large claims is represented by prescription drugs. For instance, J-codes — high-cost injectable drugs used for hormone therapy or to treat cancer — often run through the medical plan. Finding a PBM that will further negotiate these J-codes while having a focused managed program can reduce that expense by upward of 30 percent.
When you follow these practices, it helps you when you’re paying your premium upfront with the stop loss carrier and downstream by controlling your overall claims.
How should employers and brokers examine stop-loss carriers to find the best price?
It’s important to know how reinsurance carriers have networks rated. If your network is that stop-loss carrier’s best-rated network, the premium will be lower. Reinsurance carriers evaluate networks with different levels of intensity, and therefore get wide ranging results.
Also, carriers give networks different levels of credibility with respect to discounts. For example, if your network gets a 52 percent discount in metro St. Louis, but the carrier only gives 60 percent credibility to that, that’s only a 31 percent discount. Some carriers give 100 percent credibility to the network.
Mark Haegele, director, sales and account management HealthLink. Reach him at (314) 753-2100 or email@example.com
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Rising health care costs have companies looking everywhere for ways to get expenses under control.
“In years past, we would meet with human resources personnel and explain their renewal increase to them. Nowadays, with benefits costs rising so quickly, it’s an important and high-dollar line item on budgets and profit and loss statements. CFOs and CEOs are asking how to stem the tide of these increases. It’s captured everyone’s attention,” says Dan Wilke, Director of Underwriting at Benefitdecisions, Inc. Wilke says solutions can be found by analyzing medical claims to identify problem areas that can be addressed through plan changes and wellness programs.
Smart Business spoke with Wilke about reviewing claims data and what to do with the results.
What are the major categories of medical claims that impact insurance costs?
Most employee groups are going to have medical claims that fall into six major categories:
• Coronary heart disease
• High blood pressure
How do you gather claims data to analyze?
Most companies can obtain this data from their insurance carrier if the group is larger. There are also analytical tools that mine this data and produce reports that can be reviewed to pinpoint areas of concern that show extraordinary claims history or occurrences. These analytical tools provide detailed claims benchmarks in comparison to other companies of your size and industry. Your benefits consultant should be doing this analysis on a regular basis to advise you on the best strategies for your company.
How can companies use the claims data to lower health care costs?
One method for fully insured plans is to obtain Size of Payments reports from your insurance carriers. These categorize how many claimants incur medical claims in specific dollar ranges. Upon reviewing the data, employers may be able to capture significant premium savings of 25 to 30 percent by pairing a Health Reimbursement Arrangement (HRA) with a High-Deductible Health Plan (HDHP), with limited impact to total out-of-pocket costs.
Can you look at claims reports and tailor wellness programs to fit problem areas?
Absolutely. Some programs, such as smoking cessation, will affect all claim categories and chronic conditions. Companies can educate employees on the damage smoking and poor lifestyles can do, since on average, employees incur three to four times more claims per year if they have negative lifestyles.
When the claims incurred are higher than average in the high blood pressure category, strategies such as a walking program with pedometers can target high blood pressure and help reduce the risk of heart failure.
What else can you do to manage rising costs of health insurance?
The other direct way to manage costs is to have a healthy employee group. Getting employees to participate in a wellness program is the first step, and money can help motivate them. Give them choices whereby if they take a health risk assessment or participate in a wellness program, they’ll get a reduction in their medical insurance premiums, and you’ll start to get their attention.
HR departments also need to work with the C-suite and the owners of the company. When management buys into the concept of wellness, it goes a long way toward improving the culture and motivating employees to change their lifestyles. Even the healthiest groups will include people who have claims resulting from the lifestyles they lead. Companies should promote wellness by changing the culture and getting employees to change their lifestyles, whether it starts with a simple walking program or charging different premium rates based on whether they’re a smoker or nonsmoker.
Claims can be analyzed in a variety of ways to provide cost saving ideas to help manage your medical insurance costs. Work with your benefits consultant to strategize and develop cost-savings options.
Dan Wilke is director of underwriting at Benefitdecisions, Inc. Reach him at (312) 376-0437 or firstname.lastname@example.org.
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Now that the 2012 presidential election is in the history books, a lot of attention has befallen the health care industry, particularly in terms of “health care exchanges” due for implementation under President Barack Obama’s health care reform beginning Jan. 1, 2014.
Ron Present, principal of health care advisory services at Brown Smith Wallace in St. Louis, Mo., says, “On a broad level, these health care exchanges are like an Amazon.com for insurers to offer their services. But there are implications for employers that can be far-reaching.”
He says while these exchanges can offer certain employers a way to unload the burden of providing health insurance to employees, business owners should carefully consider the implications — in terms of strategy, cost, and talent acquisition and retention — such a move could have.
Smart Business spoke with Present about health care exchanges, what they are and how they might impact health insurance options for employees.
What are health care exchanges?
On the broadest level, they’re a marketplace that offers health care coverage options for a given geographic area. It’s an access listing point for insurance companies to identify what costs and benefits would be available for customers in one collected area. These portals will look different depending on whether it is a federal- or state-created exchange, and the options within would, of course, differ accordingly.
When someone goes on the exchange, that person would be presented with a multitude of options through carriers like Aetna and United Healthcare, and those selections would be made by a user based on demographic data, type of coverage and so on. The exchange calculates costs, eligibility, payment options and such, allowing potential buyers to decide what’s best for them. Then it’s up to the buyers to decide what suits them best.
What’s really interesting in light of the election is that a lot of states are talking about not complying with this provision of health care reform. Exchanges are supposed to be in place by Jan. 1, 2014, and notifications of intent to the federal government by the states were supposed to be completed by Nov. 16, 2012. However, U.S. Department of Health and Human Services Secretary Kathleen Sebelius recently has extended the deadline to Dec. 14. The problem is, if states don’t have a state health care exchange set up, they’ll have to revert to the exchange that’s set up on the federal level, with more federal involvement. It’s an interesting irony for those resistant states.
How can health care exchanges benefit businesses from an accounting perspective?
Exchanges are currently geared to individuals and small businesses, with the definition of the latter differing by state guidelines. The most common definition of small business is one with fewer than 100 employees; those entities may be able to use an exchange to purchase insurance for group employees, which in theory opens them up to a better deal. The buying power of a large group is good for smaller employers and helps keep their overall costs down — think standards and levels of cost.
The other theory is, that in going to these exchanges, so many people will be buying insurance that the insurance competitors with similar benefits will make things interesting. It’s anticipated that by 2016, or perhaps 2017, this model may open up for larger employers, as well.
How did the election results change the way health care exchanges are viewed?
The big impact of the election is that health care reform is here to stay, so many individuals and companies who took the wait-and-see approach are now scrambling. Some 42 percent of health care providers hadn’t really done much at all about it leading up to the election, according to a recent survey by Modern Healthcare.
Are there tax advantages to health care exchanges?
It’s difficult to discern, but the penalties and the taxes aren’t really related to the exchange itself so much as they are to the actual health care reform. If we’re focusing specifically on the exchange, you could say that if certain employers opt to cut all health insurance, they might decide that it is cheaper to leave employees to find their own health insurance. It leaves them open to a bit of a double whammy though. The employer would have to pay a penalty for noncompliance, and it would no longer have the deductible from the insurance side.
How can business owners prepare for changes in health care exchanges?
Work with your accountant to do a complete financial analysis of your business. A lot of the issues in health care reform are more strategic than financial. The real challenge is looking at the ‘What if I don’t offer insurance?’ model, because the financial implications are mostly related to not doing it.
The jury’s still out on how it will all play out. But even those situations aren’t just a black-and-white number-crunching approach. It’s looking at what your competitors are doing. You might ultimately be saving money by not offering health care, but if you’re unwittingly losing your best employees to a competitor, where is the savings? Maybe you’re paying the price another way without really counting the cost.
Ron Present is principal, health care advisory services, at Brown Smith Wallace in St. Louis, Mo. Reach him at (314) 983-1358 or email@example.com.
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Employers — and subsequently, their employees — are becoming more savvy about the decisions involved in choosing and administering a health plan, often a business’s second- or third-biggest cost of operations. Just as safety initiatives can help reduce property and casualty insurance premiums, health insurance savings can often be achieved through self funding, says Mike Debo, senior sales and renewal executive at HealthLink.
“By instituting wellness programs and encouraging routine physicals and post-condition care for not only employees but for covered dependents, employers can reduce premium and claims costs while increasing productivity,” Debo says. “Instituting wellness programs, encouraging routine physicals and promoting post-condition care are especially beneficial to self-funded groups as they see the savings in the form of fewer claims spent, which can reduce reinsurance costs.”
Smart Business spoke with Debo about how increased involvement on the part of employers and employees can lead to lower health plan costs.
What is driving employers to be more involved with their health plans?
For many employers, the No. 1 reason they are becoming more involved is that they have no other option. They may have already maxed out what they can do from a plan design perspective with greater participant out-of-pocket costs. In addition, fully insured employers are constantly getting rate increases, but over the years, often no one has been able to fully explain the increases.
What are some tools an involved and educated employer can use to lower health costs?
An employer’s decisions are only as good as its information. That is why many business owners move into self-funding, where there is greater reporting about their group and its claims, whether medical or pharmacological.
One of the first tools businesses use is to have participant biometric testing, which provides the employer with information on how many people in the group have high cholesterol, hypertension, weight or smoking issues. From that — combined with reporting and claims — employers can create wellness programs and condition management programs. Wellness programs eventually save money from a claims perspective, but it might take a year or two to absorb the initial cost of testing.
With a year’s worth of information from claims and wellness programs, businesses can begin to change their plan design to address health conditions, utilization patterns or provide unique coverage for their plan participants. For instance, a business may find its participants are frequently visiting chiropractors because of their job type. With that information, they can look at not only how many visits they are allowing for chiropractors and the cost but also institute a condition management program strictly for back injury care.
Then, they can look at pharmacy claims. Are participants using generics as often as they can, brand names as necessary or mail order whenever possible? What does the employer need to do regarding the pharmacy benefit to not only ensure that people get the drugs they need but also to make it cost effective for the group?
By changing the plan design and addressing the specific needs of a group, employers often find they don’t need a particular program, such as condition management or a 24-hour nurse line, further cutting costs.
How can employers overcome initial resistance to wellness programs and other initiatives?
Most people aren’t going to participate in biometric testing, a smoking cessation program, a weight loss program or a condition management program unless there are cost differentials to participants in the form of incentives or disincentives. Plan participants often think such programs are an invasion of privacy or that they require too much of a time commitment, but when there is a 10 to 30 percent difference in premium costs, they get involved.
How can employers communicate to employees the true costs of health care?
One of the easiest ways is to use a plan with no co-pays, where everything goes toward deductible/coinsurance, so that participants understand how getting an X-ray at an outpatient facility versus a hospital can mean the difference between a bill of $700 or one of $1,800.
Reporting is extremely important because it provides the knowledge to make wise decisions. Communication is equally important, whether via traditional posters and payroll stuffers or new technology smartphones, emails and blast texting.
To be effective, the communication must address how to get the most out of plan benefits and programs while avoiding unnecessary costs to the participant and the group.
How do self-funded plans give employers so much more control of their health program?
Employers have full control, outside of federal mandates, to do what is best for plan participants and plan costs. For example, if an employer has a population with an average age of 45 and people taking off work for elderly parents going into nursing homes or going to the doctor frequently, the employer can bring in a vendor to work with employees on how to make decisions about their parents. This takes pressure off employees. They show up to work more regularly and are more committed to the company because of the service their employer provided.
With self-funding, it’s at least a three-year commitment of time and effort to cut costs and provide better benefits for employees. The employer has to sit down on a quarterly to semi-annual basis to go through reports and have someone scrutinizing claims. Employers with healthy groups may stay fully insured because they think there is no risk involved, but the risk is that they pay $2 million for something that costs $1.5 million. With self funding, employers have a program that they are in charge of, a program better suited for them and for their plan participants.
Mike Debo is a senior sales and renewal executive at HealthLink. Reach him at (866) 643-7094, ext. 1, or firstname.lastname@example.org.
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The workplace is where most adults typically spend half of their waking hours and can have a powerful impact on one’s health. Thanks to efforts in engaging employees in workplace wellness, many businesses are promoting healthier lifestyles while also reducing absenteeism, lowering health and workers’ compensation costs and improving employee health, morale and productivity.
To learn more, Smart Business turned to Tammie Brailsford, RN, MemorialCare Health System executive vice president and chief operating officer, whose passion for employee wellness has created an environment of improved health among the system’s 11,000 employees.
Why should businesses invest in wellness?
A healthy work force is the foundation for good business, as critical to your bottom line as the quality of products and services. To stem rising health costs and encourage healthier lifestyles, employers have been adding and expanding wellness programs. A University of Michigan study revealed health costs for a high-risk worker is three times that of a low-risk
employee. American Institute of Preventive Medicine reports 87.5 percent of health claim costs are due to lifestyle. Companies implementing wellness activities save from $3.48 to $5.42 for every dollar spent and
reduce absences 30 percent.
Costs can be minimal — from $50 to $500 or more per employee annually, plus incentives for health improvement. Instead of building a fitness center, offer employees a pedometer, mealtime walking programs and sessions on achieving better health. It’s as simple as selecting a salad, taking stairs or a 10-minute break to walk. Leadership involvement is critical to success. Your participation and engagement create ‘permission’ among employees to join the conversation and build health and wellness behaviors, like activity, into their daily work life.
What is the impact of overweight employees?
With nearly 70 percent of America’s work force overweight, businesses carry an additional $500 to $2,500 per employee in medical care and work loss totaling $50 billion in annual expenditures related to obesity alone. Expanding waistlines fuel increases in blood pressure and blood sugar levels, reaching epidemic proportions. The impact of too much weight on health quality and life expectancy is now equal to if not greater than smoking. Chronic diseases like hypertension, high blood pressure, diabetes, asthma and depression are responsible for two-thirds of the total increase in health care spending, taking an enormous toll on employees and their families.
Can you describe The Good Life?
As a health care system, we want to model a commitment to health and wellness. The Good Life program is at the heart of our efforts to build a culture of excellence that encourages employees to make healthier daily choices and improve their overall health. Initiatives include nutritious on-site food options, walking challenges, exercise classes, walking trails, weight reduction programs, gyms, smoke-free campuses, activity days, newsletters, work-life balance programs and more.
Other innovations include walking rather than sitting meetings, installing Wii sports stations to encourage activity during breaks and walking workstations. The latest evidence shows us that ongoing support of a dedicated onsite health coaching team can help employees with conditions like diabetes and hypertension make important life changes, lessen long-term complications and improve medical outcomes. Employees receive paycheck incentives by participating in confidential health assessments that help identify opportunities to improve health by setting and achieving personal goals. In the last year alone, employees walked 350,000 miles in walking challenges and achieved a combined total of 4,000 pounds in weight reduction.
What outcomes can wellness achieve?
Weight loss of as little as 5-10 percent can significantly impact cholesterol, blood pressure and blood sugar. For every pound lost by those overweight, there’s a 4-pound reduction in knee-joint stress load. That’s almost 5,000 pounds less stress on one group of employees’ knees. We will gladly share wellness best practices forged in our own programs with other businesses aiming to improve employee health and lower both company and employee health care expenses.
Where can an employer start?
You can begin with an employee wellness committee to plan initiatives with guidance from health professionals. Start with simple screenings to make employees aware of their blood pressure, weight, cholesterol numbers, nutritional habits and fitness levels. Get your work force walking during meals and breaks. Offer sessions that share advice, activities and coaching to reach and maintain goals. Identify employee advocates to motivate others to follow their lead. Engage employees’ families to extend healthy habits at home. Partner with local hospitals and heart, cancer and lung associations.
MemorialCare hospitals can help employers with information and resources on low- to no-cost screenings, prevention and healthy lifestyle sessions at your company as well as in the community. And Memorialcare.org provides a number of online health risk assessments and wellness tips on the journey to better health.
Tammie Brailsford, RN, is executive vice president and chief operating officer, MemorialCare Health System. The not-for-profit MemorialCare Health System includes Long Beach Memorial Medical Center, Miller Children’s Hospital Long Beach, Community Hospital Long Beach, Orange Coast Memorial Medical Center in Fountain Valley and Saddleback Memorial Medical Center in Laguna Hills and San Clemente. For additional information on excellence in health care, please visit memorialcare.org.