How can I cut medical insurance costs without compromising the plan?

Designing a benefits strategy for success

For more than a decade, most employers have wrestled with how to keep medical insurance premiums in check and come up empty. Double-digit medical trend, increased utilization, and a lack of employee understanding have created an environment that has bred discontent toward employer-sponsored benefit programs for both employers and employees. By using traditional business planning principles, this pattern can be reversed. Employers can take steps to help contain health care costs that don’t rely on simply slashing benefits or shifting costs to employees.

Design a three-year strategy

For many companies the cost of funding an employee benefit program is second or third to payroll expenses. Just as employers have plans and budgets to manage their human resources, it’s important to adopt a similar approach to managing a benefits program. Certainly the additional requirements imposed by the Affordable Care Act make it even more crucial that employers plan for the future.

Companies large and small should consider designing a three-to-five year benefits strategy that takes into account business growth, employee demographics, market position and employee needs. In the absence of a strategy, employers may find themselves making reactive decisions each year prior to renewal. In a reactive environment it’s more likely that employees will experience medical service disruption and unexpected cost increases. In the aftermath, employers view their benefit investment as underappreciated and under valued. 

A benefit strategy that has the best chance to contain long-term costs and increase employee satisfaction should address plan design, wellness and communication. Each of these components are important determinants of cost and can influence employee behavior as it relates to health care consumption.

Plan Design

In both the fully insured and the self-insured marketplace, plan design is the most effective way to influence employee behavior. While self-insured plans have almost unlimited flexibility when it comes to plan design, even the small group marketplace has a myriad of plan options. Adjusting co-pays, coinsurance and payment schedules in a manner that drives employees to make consumer-oriented decisions is a proven cost strategy.

Groups that have access to their claims experience are in the best position to design a plan that addresses areas of overutilization and misuse of medical services. For example, if a group receives data that reveals its emergency room usage exceeds national trends, adding a separate deductible or a higher co-pay for emergency room care will help lower ER visits. Likewise, adding a $25 co-pay for urgent care visits will drive employees to seek a more affordable means of care.

Wellness

Given one’s personal lifestyle is the best predictor of good health, it’s no wonder that wellness programs are the new industry buzz. Studies repeatedly show that wellness is an important weapon in the battle against rising health care costs. Developing a wellness program that complements your plan design is an important element in any benefits strategy. It’s important to avoid the one-size-fits-all wellness plan. Wellness programs should be designed with the employee population in mind. What appeals to employees in a law firm may not work well in a manufacturing environment.

Premium differentials that reward healthy habits are another effective way to affect sustainable behavior change. When there is a cost associated with lack of exercise, smoking and poor nutrition, employees are more likely to break old habits. Encouraging employees to accept responsibility for their personal health is not the traditional role of employers. However, employers who embrace wellness in the workplace are realizing a tangible return on their investment.

Communication

The most overlooked element in a benefits strategy is communication. As it relates to plan design, a well constructed employee opinion survey will help identify employee preferences and cost limits. This type of employee feedback can be valuable before initiating plan design changes.

Employees typically underestimate the value of their employer benefit plan simply because the emphasis is on the employee’s share of costs and not the real cost of providing health insurance. Generally the only discussion about the benefits plan occurs at open enrollment. Year-round communication that increases awareness and understanding helps move employees from a position of entitlement to empowerment.

Most industry experts predict that the near-term effects of health care reform will increase costs. Employers who embrace the need for proper planning and strategy will be ahead of the curve. More importantly their employees will be positioned to be good stewards of and partners in their health care benefit.