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Businesses Can Control Their Health Insurance Costs

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Employer-sponsored health insurance costs have risen significantly over the past decade with no end in sight, and the rate of increase is predicted to accelerate even faster over the next decade. Small businesses bear the brunt of this, but—contrary to popular belief—small businesses can control their healthcare costs.  The time has come for employers to control their destiny and implement strategies that will reduce and control healthcare costs.

Roger Kirtley

Why do health insurance rates continue to rise?

As benefits advisors, we are continually asked why healthcare costs continue to skyrocket. Most increases are explained by the rising cost to administer care and provide services rather than increased utilization. Ironically, Americans are using less healthcare than they were a decade ago, and this increased cost has translated into decreased utilization. This large percentage of Americans who are delaying or avoiding healthcare because they cannot afford the high deductibles contributes to the rising costs. But, delaying doctors’ visits exacerbates the employee’s health situation down the road because good healthcare prevents many conditions and early detection makes diseases more treatable and ultimately less expensive for everyone.

Inflation is another primary factor impacting cost.  Inflation is easing nationally, but it is still affecting healthcare in the form of higher labor costs and prescription drug prices. Currently several high-cost treatments and gene therapies exceed $1 million.  While these miraculous treatments are improving quality of life and curing debilitating diseases, most of their enormous expense is paid for by employers.

Who is impacted the most?

As we continue to deliver double-digit rate increases year-over-year, we note that it is our small businesses who bear the brunt of these increases. The rate of increase for small business is much greater than for larger employers.

What are effective strategies employers can utilize to control rising healthcare costs?

Traditionally businesses have controlled costs by increasing copays and deductibles on their health insurance plans.  Although this is effective on the balance sheet, it merely shifts the burden onto employees who are already struggling financially to access healthcare.  Furthermore, in this tight labor market this can impact your ability to attract and retain employees especially if your benefits package is a key component compensation.

The first step to effectively control healthcare costs long-term is to leave the fully insured market. For small to midsize businesses, the best solution is often a group self-funded program whereby you band together with thousands of other employers, and work together to control your healthcare costs.

Group self-funding has several distinct advantages. The first is that you eliminate the profitability from your health insurance plan and greatly reduce your health insurance taxes. Health insurance carriers, like all other businesses, have a goal of achieving maximum profitability. However, when you are self-funded, you dramatically reduce a carrier’s profitability, and those savings are passed directly on to the employer.

Another significant advantage of a group self-funded program is that you will finally receive detailed claims data. One of the primary adages in business is that you can’t manage what you can’t measure. When you begin to analyze your claims data, it helps you make much more informed and financially sound decisions.

With prescription drug cost increases outpacing other healthcare costs, it’s time to introduce healthy competition into your benefits package.  When you are self-funded, you have the opportunity to utilize an independent pharmacy benefit manager (PBM) who will compete for your business by offering more cost-effective prescription drug programs.  The cost savings generated by PBMs are significant allowing you to pass much of that savings onto your employees so they can access the treatments they need.

As employers, your goal is to provide a robust benefit package to the employees who make your business function.  However, with costs rising much faster than inflation it is becoming more challenging to accomplish these goals.  The time has come to implement different strategies like those listed above that will control your health insurance costs long-term.

Roger Kirtley is Vice President of The Safegard Group specializing in Employee Benefits Consulting for Mid-Market Employers.

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