As organizations look at their balance sheets this year, one area that will undoubtedly undergo intense scrutiny is the cost of employee benefits. It is a notoriously difficult item to manage due to the increasing cost and utilization of health care, not to mention ACA compliance burdens.
Human resource and finance managers need to take a longer view and commit to developing a multi-year strategy, instead of relying on short-term tactics to contain costs. You will no doubt leave money on the table if you bounce from one renewal to the next without a strategic benefits plan.
Our recommended approach of a three to five year plan incorporates plan design, administration, funding, contribution, and health management strategies (to name a few) in delivering savings of up to 10 to 25 percent or more.
It all Begins With the Three C's
Depending on your organization's goals, you may focus on a specific aspect of cost management when re-aligning your benefits plan. With the multi-year strategic approach as your guidepost, an easy way to think about it is the three C's of cost savings:
Consumerism -It isn't about 'whether' you should enable your employees to be smarter health care consumers, but 'when' you'll position them to make better informed decisions that bring down the total cost of the benefits; a path that needs to be planned out in your multi-year strategy document.
Choice - Attracting and retaining employees without increasing your total benefits costs by offering more choice and possibly considering a defined contribution private exchange approach is a matter of 'when', not 'if'.
Control - Applying increased financial control and mitigating risks sits at the heart of creating long-term, sustainable cost savings.
Building a Cost-Effective Benefits Plan
Once you have determined your overall cost-saving goal, there are a number of ways to redefine the structure of your employee benefits plan to better manage costs. Consider the following ten strategies:
1. Multi-year strategy - Potential savings: While all the savings projections noted below are not additive, the reality is that your best tool in driving cost savings is in developing a strong, smart three to five year strategic benefits plan where you can identify the areas that will work best for your organization, prioritize them and set definitive dates for execution so that you can take advantage of some very powerful tools.
2. High deductible - Potential savings: Can be five to 15 percent or more through lower annual premium increases. The high deductible health plan allows employers to reduce costs while motivating employees to carefully consider how and when to access health care services.
3. Self-Funding - Potential savings: Depending on the current plan design and funding methodology savings can be five to 20 percent or more through lower annual cost, avoidance of 'premium/ACA' taxes and greater flexibility in plan design.
Growing increasingly popular, even with smaller organizations, self-funding allows businesses to create a more cost-efficient employee benefit program. Baby steps toward a self-insured model can begin with risk sharing arrangements at the employee level by offering HRA and HSA funding alternatives.
4. Telehealth - Potential savings: Five-to-one return on investment. Telemedicine enables the delivery of care at a lower cost than the traditional health care model and reduces unnecessary emergency room visits and urgent care services
5. Reference based pricing - Potential savings: Up to 20 percent of total medical claims. Reference-based pricing promotes comparison shopping by establishing caps for selected services that have a wide-range of prices from providers.
6. Voluntary benefits - Potential savings: When developed as a 'bundled' or 'integrated' solution with higher deductible core medical plans, the annual nine to 12 percent premium increases can be cut in half or reduced to flat. When voluntary benefits come as part of a bundled solution, they can supplement fixed plan options and can include hospital-stay expense coverage, dental, vision, disability, life insurance and more. It's a great way to offset gaps in employee coverage and is typically funded by the employee.
7. Pharmacy benefits management - Potential savings: Twenty percent of overall pharmacy costs for an expense that typically comprises 20 percent of overall health care costs. To curb the steep rise in pharma costs in recent years, a pharmacy contract management company can re-negotiate new terms, including better contract provisions, discounts and rebates.
8. Narrow networks - Potential savings: Six to 17 percent annually versus a total network of providers. Under narrow network plans, the vast majority of health care costs are covered when in-network providers are utilized. These providers have track records for the highest quality of care and have proven over time to deliver it at a lower cost.
9. Defined medical contribution - Potential savings: Five to 10 percent savings on annual premium increases. This strategy allows organizations to directly manage costs and encourage employee plan selection and ownership. It can be coupled with an employer exchange shopping technology solution.
10. Metallic spectrum product plan - Potential savings: Avoid the $3,000 per eligible employee penalty the IRS will levy on non-compliant affordable plan options. Multi-plan benefits options or a metallic spectrum of plans - silver, gold, platinum - is a way of serving a wide range of employee needs, budgets and concerns and reducing the potential of over-insuring the healthiest employees.
Ultimately Better Benefits Management
While each of these strategies holds the promise of lowering the cost of your benefits plan, the key is finding the ones that best suit your organization's culture and employee needs. #LetsDoSomething
About the Author
Joe Torella, President of HUB International Northeast Employee Benefits division, holds over 25 years of industry experience. He is responsible for the overall management of the Employee Benefits operation throughout HUB Northeast's regional offices.
