Reducing Health Insurance Costs: Top 5 Employer Strategies

Written by Joanna Morrow

Joanna Morrow, Principal and Founder of Employer Benefits & Advice, is an employer consultant and advocate who has worked in the employee benefits industry for over two decades. She works diligently to help employers overcome obstacles in their business by sharing her expertise in Human Resources, Benefits & Compensation, Process Mapping, Risk Management and ERISA/DOL/IRS compliance. She is a licensed life and health insurance professional in the State of Arizona and is an active member of the National Association of Health Underwriters (NAHU).

Reducing Health Insurance Costs: Top 5 Employer Strategies

It’s that time of year again when the majority of employers start looking at ways to save on health insurance in the coming year. This week, in the spirit of football season I have assigned a maximum of 10 points to a winning renewal strategy and weighted each factor according to their impact on overall cost.

Let’s play. For each factor you are incorporating in your renewal strategy this year give yourself the stated number of points. Good luck!

1. Carrier – 1 Point

Of all the factors impacting cost, the carrier you choose to go with is probably the least significant. If your medical plan is fully insured and you’re headquartered in Arizona, you have a choice of either Aetna, Blue Cross Blue Shield, CIGNA, Humana, or United Healthcare.

The products sold by the fully insured carriers are fairly similar and even more so since the introduction of the Affordable Care Act (ACA). Health insurers will generally offer discounts of up to 5% in an effort to sell new business, but employers must decide if the disruption and added administration is worth the savings.

Selecting the right carrier has more impact for employers with self-funded medical plans. In a self-funded arrangement stop loss carriers will have a greater variance when it comes to their appetite for risk and therefore it can make sense to shop the market.

2. Funding Arrangement – 2 Points

Employers have a choice in how they want to fund their medical benefit plans.

Fully Insured

  1. In a fully insured arrangement, the employer pays a fixed monthly premium to the insurer providing the medical benefits.
  2. The premium amount covers the claim dollars the insurer expects to pay out over the course of the contract year (expected claims) and administrative costs, as well as an insurance risk charge.
  3. If the ACTUAL claims paid come in lower than what the insurer expected, the insurer keeps the difference. If actual claims are higher than expected, the insurer pays the difference.

Self-Funded

  1. In a self-funded arrangement the employer typically pays a fee to a third-party administrator (TPA), who performs functions such as claim processing and securing discounted services from health care providers.
  2. The employer takes on the risk of claim fluctuation, paying the actual claims incurred by enrolled employees and their dependents each month. Sounds crazy right?
  3. That’s why employers also purchase stop loss insurance which caps their liability to a set dollar figure per individual and also on an aggregate basis. In the unlikely event the stop loss carrier has to pay out more than 125% of expected claims for the whole group the aggregate stop loss policy protects the employer from liability.
  4. If total claims paid come in lower than expected the employer retains the financial savings.

The advantages of self-funding include greater flexibility in plan design, improved cash flow, reduced premium taxes and greater potential for premium savings – 10-15% in annual premium increases and as much as 50% over 5 years.

3. Plan Design – 3 Points

Plan design is perhaps the greatest opportunity for employers to impact their medical insurance costs. When determining the medical plan that best meets the needs of employees it’s important to understand the reality of how people utilize medical insurance. Even more important is to understand how employees SHOULD be spending on medical insurance.

Plan designs that incorporate consumerism strategies such as health savings accounts (HSA) and telemedicine go a long way in saving on claims costs for both employer and employee.

An HSA option can offer employers average potential savings of 10% – 35% on medical premiums, and more when the employer contribution is based on the lowest cost plan option. Similarly, when employees utilize their telemedicine benefit it can save the plan up to 25% in medical claim dollars and up to as much as 5% in overall medical premiums.

4. Contributions – 2 points

Before determining what the employer wants to contribute I like to first establish plan design, carrier, and funding arrangement to ensure we are basing contributions using the most cost-effective strategy.

Contributions for Participation

The employer contribution has to be healthy enough to garner enough plan participation to make the group attractive to an insurer. Remember, insurers have appetites for risk. A group with 200 eligible employees and only 30% participating tells health insurers that the only people electing the medical plan are also big users who pay for it because they desperately need it.

This is why most insurers require a minimum employer contribution of 50% toward the single employee premium.

Contributions for Morale & Stabilization

Beyond the minimum contribution required by insurers I encourage companies to identify an “ideal employee” profile. What does your ideal employee look like? How old is he/she? Are they married? Do they have children? Are they responsible? Mature? Leadership material?

Mature, responsible, loyal employees are often the ones with larger life responsibilities such as mortgages to pay and mouths to feed. Making a contribution toward the dependent medical premium can further the employer’s agenda in standing out among competitors when it comes to attracting and retaining this type of employee. The result should be lower turnover and boosted employee morale.

5. Communication – 2 Points

Emphasizing insurance consumerism is a chance for employers to not only empower employees, but also to influence how they finance their healthcare.

According to the Journal of Healthcare Economics only 14% of users can articulate the meaning of deductibles, co-pays, co-insurance, and out-of-pocket maximums.

A lot of employers make the effort to promote the benefit package, but many fail to teach employees how to properly use those benefits in order to maximize their financial savings. Education is an added perk that costs the employer nothing but goes a long way in saving everyone money in the long term.

A benefits renewal presentation at open enrollment along with a few follow-up emails isn’t enough. You need a comprehensive strategy that delivers communications throughout the year via different channels that take your various workforce demographics into account.

Final Score

How did you do? This renewal season remember that a good benefit advisor does more than place and manage insurance products. We are here to ensure you maximize your points and come out a winner at reducing health insurance costs.

Want to get better at it? We can help. Call us today at 602-903-4047.