As the current administration in Washington continues to stumble through the daunting see-saw process of navigating the waters of healthcare, there exists a growing movement amid the ranks of employer sponsored health plans. While the term consumer driven health may not be new, the attention that it is starting to receive is something worthy of serious consideration. The past decade has seen costs associated with employer sponsored health plans skyrocket, often at double-digit rates. We've reached a point where many employers are forced to gut their once generous plans, and/or shift a substantial portion of the costs to their employees. Interestingly enough, many employers continue to accept this historic trend as a necessary evil.
Statistically speaking, healthcare represents the 2nd or 3rd largest annual expenditure for most companies in the U.S. However, it rarely sees the same type of attention or management control that payroll, material costs, or rents might. The failure of employers to recognize the importance of better management of these costs is startling. The very same companies that squeeze their suppliers for pennies of margin on raw materials are blindly accepting the ever-inflated costs of their employee health plans. While we can all agree that providing health benefits is necessary to attract and retain quality employees; this should by no means justify the habit forming exercise of annual plan review, carrier negotiation and ultimate acceptance of inflated renewal premiums. It’s an act of futility, and simply not a supportable model for the long-term.
So what’s the answer? As with any change of value on a large scale, the process must be one of deliberately consistent manageable steps. Simply stated, it’s time for employers to turn the tides on spiraling healthcare costs. In short, some of the steps necessary include migration toward a self-funded plan model, a strong concentration on results-driven wellness, and the expectation of employee engagement in the process of shopping for care. While it may appear oversimplified, the reality is that the aforementioned is a recipe for success that has delivered tangible cost saving results for employers that are willing to make the effort.
Self-funding
While historically this has been an option only available to large employers, there has emerged a growing number of options for small to mid-sized companies. Some carriers have developed partially self-funded or level-funded plans which can have a positive impact on risk and volatility. However, a deeper dive into self-funded solutions for smaller companies is available via Captive solutions. On a basic level, Captives are groups of like-minded employers who pool their risk and resources in an effort to mitigate the escalating costs of healthcare. Employer members invest an equity stake in the Captive, and pay out of pocket for individual claims up to specific & aggregate thresholds. Stop loss insurance is utilized to cover claims in excess of these thresholds. Self-funding is certainly a paradigm shift for employers, as they have to become comfortable with paying claims along the way. But the potential for mitigating costs over the long-term is certainly worthy of serious consideration.
Wellness
This is probably one of the most talked about buzz words in the industry, yet a vast majority of employers have failed to make this part of their culture in the workplace. Employee wellness programs must be clearly defined, and developed with incentives that drive a shift in daily lifestyle behavior. Simply offering a premium discount to employees who agree to annual biometric screenings and non-smoker status is not the answer. Wellness plans must incentivize employees to take ownership of their individual health, and rely upon results-driven outcomes. Also, statistics have shown that engagement must start at the management level for employees to buy into the process. While there is no one best way to develop a plan, recent stats indicate that coaching can have a significant impact on the success of a wellness program. Research also shows that allowing employees to connect with live experts can contribute greatly to attracting and keeping participants active in a company’s wellness program; ultimately driving significant health results and helping companies achieve medical and pharmacy cost savings. After working with a health coach, 84% of employees report improved productivity and 91% report satisfaction with their employer’s health and wellness-related resources, information and tools. Wellness coaching also has a monetary impact on employees. Those who engage in coaching, save an estimated $580 per year on annual medical expenses.¹
Shopping for Care
Quite possibly one of the most critical components to the success of the consumer driven health model is employee engagement in the process of shopping for care. Historically, we have been conditioned to take direction from our primary care doctors when seeking referrals for serious or chronic conditions. The flaw in this process is that most primary care doctors will direct you to a facility or specialist that is affiliated with their own group or hospital. Unfortunately, this quite often is some of the more expensive care, and not necessarily the best care available. Employers can help drive this behavior by developing relationships with preferred providers or Centers of Excellence via health advocacy. For instance, an MRI at the hospital could be $2500, while a private off-premise MRI center may offer the very same service for $500. Employers can incentivize their employees to seek these preferred providers by sharing in the savings ie: the employee gets a check for $250 for choosing a preferred provider, and the net savings to the employer is still an impressive $1,750. Similar types of approaches have proven to be successful with more serious procedures such as knee and hip replacements via “domestic tourism”. Again, while there exists many hospital-related specialists that will charge tens of thousands of dollars for such a procedure, there are care centers that will negotiate “all-in” pricing for thousands less. Furthermore, as many of these facilities specialize in one type of procedure, they have excellent care ratings. The key to success here is enlightening employees to the availability of top quality care at significantly reduced rates, and allowing them to share in the savings.
Plan Design
It’s imperative that employers don’t take a one-size-fits-all approach to plan offerings. Carefully consider your employee demographic, and work to provide a few plan options that address their needs. One plan option that should not be overlooked is a High Deductible Health Plan (HDHP). With the realized savings at the introduction of an HDHP, even small employers can afford and justify providing a modest company match/contribution to a Health Savings Account (HSA); and this can have a substantial impact on the success of employee plan migration. Furthermore, costs per employee enrolled in a HDHP (with an HSA), averages $9,228…..compared to $11,248 for HMO’s, and $11,212 for PPO’s.² At an average annual savings of $2k per EE, it’s hard to argue the benefit of offering an HDHP with HSA.
What’s the value of an HSA to the average employee? As with any form of investment, the value is relative. However, when you consider the HSA on the whole, the reduced plan contribution cost to the employee frees up funds that can be redirected to the HSA. Furthermore, there is no other offering that provides such a tax incentive…..pre-tax contributions & tax-free gains, for use with healthcare expenses.
HSA’s as a Retirement Component: HSA funds accumulate and roll-over from year-to-year, and upon reaching age 65, accumulated HSA funds can be withdrawn for any purpose (like most retirement funds, interest is taxable at that point). HSA’s are also an inheritable asset. Upon death of the HSA owner, if a surviving spouse is listed as the beneficiary, she/he becomes the owner of the HSA account and can use it for his/her own medical expenses. For other beneficiaries, the account ceases to be treated as an HSA, and monies will move to the beneficiary, or become part of the deceased person’s estate.
HSA Annual Limits for 2018:
Single Coverage:
- HDHP minimum deductible: $1,350
- HDHP maximum out-of-pocket maximum: $6,650
- HSA maximum contribution: $3,450
Family Coverage:
- HDHP minimum deductible: $2,700
- HDHP maximum out-of-pocket maximum: $13,300
- HSA maximum contribution: $6,900
Catch-up contribution (age 55 and older): $1,000.
HSA Big Picture: A growing percentage of working Americans are failing to address personal health concerns due to lack of available funds, and a staggering 30% of Americans over 55 years old have no money saved for retirement outside of Social Security. The introduction of an HDHP in conjunction with an HSA (with employer contribution), creates a vehicle by which employees are incentivized to redirect a modest amount of income directly from their paychecks tax free. These accumulated funds provide employees with necessary money for their health bills, thereby increasing the likelihood of engagement in routine preventive care, as well as treatment of more serious conditions.
Summary
These are a few of the many strategies available to achieve a consumer driven approach to healthcare in the workplace. For employers that are willing to invest in a thoughtfully-developed program (introduced progressively), it will provide the framework for a shift in the employee health culture. When employees have ‘skin in the game’, it changes the way they think and behave with regard to their overall health and wellness.
Employers can be instrumental in the development of a culture that acknowledges that their most important asset is their people; a culture that invests in its employee health, encourages and rewards awareness, prevention, preparedness, and ultimately cultivates healthier (thereby happier and more productive) employees.
Written by Kyle Todd, Employee Benefits Consultant at Connor & Gallagher OneSource
Sources: 1. "70 percent of medical cost savings comes from employees using health coaches." Benefits Pro. April 10, 2017. By Cherie Buraglio.
2. "Health savings accounts: the most valuable employee benefit." Benefits Pro. October 18, 2016. By Jeff Bakke
