Three problems with health insurance for employers & the solution

Three problems exist when it comes to renewing your company’s health insurance. The first problem is that renewal proposals are usually received very close to the renewal deadline allowing little time for analysis. The second problem is that benefits continue to be reduced to avoid premium increases. And the most significant problem to employees is that when all else fails, employers pass the increased cost on to the employees.

Employers put a great deal of time and effort into changing their complete benefit plans, changing pharmacy benefit managers, changing the amount they pay of the employee and dependent cost. Many of the changes are only temporary. The same process has to occur prior to the next renewal every year.

The key to reducing the cost of large group healthcare plans is identifying what is driving the cost from company to company. What drives cost for the oil and gas industry is different than what drives cost for wholesale and retail companies. Oil and Gas companies tend to have richer plan designs to compete for technical employees. Wholesale and retail employers tend to have more unmarried workers that result in fewer dependents. To remain competitive, it is vital that employers first know how their benefits and cost compare to their peers. If your costs are not competitive, find out why. Cost differences within an industry sector can be due to items such as plan design, level of dependents covered or the cost of illness within a group.

The renewal process should be more than a once a year decision. Employee utilizations should be continually monitored and reviewed by executive brief throughout the year. Trends can be identified and decisions become an ongoing informed process rather than a last minute decision. This process solves the first problem. At ABS our account executives conduct new employee meetings monthly, reports are reviewed regularly with key employer staff and decisions begin to be formulated six and three months prior to the formal renewal date of the healthcare plan.

Two key drivers across all industry sectors continue to be pharmacy cost and hospital cost. The state that has done the best at controlling hospital cost is Maryland. The State of Maryland has implemented an “all-payer rate setting system” for hospitals. Controlling pharmacy and hospital cost in Texas and other states can be done in a similar manner by indexing the true cost to a benchmark such as Medicare. In this benchmarking process a reasonable profit margin is negotiated with the pharmacy benefit manager and the hospital service provider. By using a system like this, the State of Maryland has the acquired the lowest hospital rates in the United States. According to the Institute for Health & Socio-Economic Policy Maryland has an Average Charge to Cost Ratio of 140.18%. Compare that to Texas which has an Average Charge to Cost Ratio of 398.31%.

Lower cost solves the second and third problems mentioned above. Lower cost results in a stable level of benefits and employers are not forced to increase rates for employees. Stable cost mitigates a great deal of tension between employer and employee. A stable healthcare plan goes a long way in creating a better work life balance for employees.

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