This is the first in a series of four articles targeted to senior Finance, Human Resource and Benefits professionals responsible for the management of the health & welfare plans for their organization.
Did you know that for a January 1 renewal, about 60% of companies start the insurance renewal process less than 2 months before open enrollment? Deferring the annual review of your organization’s health care program is like using a credit card: it’s fine until the bill comes due. Then there’s the typical scramble to meet potential “better” vendors who can help make minor plan design changes (unless the current increase is so high as to require a more massive redesign. Then struggle to finalize design, employee premium share, and communications within the 8 to 12-week timeframe before open enrollment. There are many potential problems with this more passive approach as it results in both a lack of time to develop and consider multiple design and funding options which in turn leads to implementing a less-than-optimal plan design and cost outcome for both management and employees.
In addition to timing considerations, healthcare insurance premiums continue to rise steadily, often with double-digit annual increases and representing a larger portion of overall compensation costs. For example, using the average national salary of approximately $53,000, healthcare premiums represent an addition to compensation of up to 33.1%. These percentages will continue to grow as healthcare costs rise faster than salaries. We have also seen that plans not actively managed experience greater trend than the national average.
While every company will have unique goals for their healthcare program, we believe that a starting point for strategic discussion should be shaped around the following:
- Manage the growth of healthcare costs to be significantly below trend
- The healthcare program must protect employees from catastrophic illness or injury
- Create a culture of health through a preventive and proactive approach to health care utilization and management
- Preserve employee choice, but make the choice cost neutral to the company
- Maximize the tax efficiency of benefit delivery
- Ensure data driven management of healthcare quality and cost with definable ROI
That said, smaller to medium sized companies are often unaware of the various opportunities available to explore that will more effectively manage their overall healthcare costs. If you are one of those organizations that delay, you limit your ability to negotiate and evaluate the cost management measures available.
As we experience the consistently increasing percentage of costs that healthcare plan represents, the business case for more proactive employer involvement has never been clearer. Reducing medical costs by just a few percent can mean thousands of dollars to the bottom line. Reducing trend moving forward can mean hundreds of thousands of dollar savings over the long run. Moreover, every portion of premium increase that is passed along to employees puts additional salary pressure on the company. We have seen that improving the health of your current employees can create a more productive workforce. An ounce of prevention can quite literally mean millions spent of the cure.
These challenges leave employers to assume that there are no viable alternatives to the traditional fully insured plan because:
- Current marketplace is skewed to larger employers (e.g., self-insured, better pricing)
- Plan design and cost management programs are one size fits all – little opportunity for employers to tailor the plan to their own needs
- Other third party vendors (wellness, case management, etc.) can be expensive on an a la carte basis
- Alternative funding vehicles have potential exposures to employers (e.g., stop loss lasers, leveraged trend increases)
Finally, competitive pressures are pushing organizations of all sizes to more closely scrutinize the price they pay for products and services and for evaluating professional relationships. The following criteria may help you assess key priorities for external consultants as well as internal staff:
- Individuals who understand your business needs well enough to find creative solutions to your specific issues?
- People who understand your internal benefits philosophy and/or are able to help develop one?
- Individuals with expertise in the marketplace and the legislative framework that affects employee benefits and who will help with implementing changes.
- Individuals who can help with implementation, including delivery of projects on time, communicating complex concepts to different audiences, and implementing plan changes
- Individuals who can manage expectations of cost, services provided and deliverables from all parties
- Individuals who provide support all year round, who are proactive and willing to partner with you to help make the decision the best one for the organization in the current environment and for the foreseeable future.
Our next article will be focused on a deeper dive into the challenges being faced by employers, and how to open up the health care management process for a richer, more option-creative discussion. If you would like to further discuss your options please do not hesitate to contact us.
Allan Phillips is a Managing Principal at UBF and has over 25 years experience as a senior health care and pension consultant. He has worked with Fortune 50, 500 and mid-size companies to assess, develop, and implement integrated benefits programs for global organizations.