How HR Can Lower Healthcare Costs Without Reducing Coverage

This article was published on August 30, 2019 on the HR Daily Advisor written by Eileen Clark, Senior Vice President of Human Resources, ELAP Services.

Large employers currently pay about $500 more in healthcare costs per employee than they did just a year ago—money every company would love to have back. With healthcare costs increasing yearly, many HR departments are struggling to contain healthcare spending, which has become the largest cost to many companies outside of payroll.

The escalating healthcare costs not only cut into every budget, including HR’s, but also hurt the business’s benefits package—a vital offering in today’s tight labor market—and its ability to retain and recruit employees.

While decoding healthcare’s black box to lower costs might seem impossible or overwhelming, a reference-based pricing model can help self-insured businesses and HR professionals lower healthcare costs without reducing quality of coverage.

How Reference-Based Pricing Supports the Business

Reference-based pricing is a bottom-up approach to containing healthcare costs that offers price protection against variable and inflated charges. Based on the actual cost it takes to deliver a medical service or the Medicare reimbursement rate plus a reasonable profit, reference-based pricing enables businesses to audit and rein in costs. Under the right reference-based pricing model, employers can reduce their total healthcare costs by up to 30%, while employees pay less in out-of-pocket costs.

The model helps HR lift a burden off employees and the CFO. Its cost savings can be allocated back into the business, giving the CFO some breathing room, or into employees’ pockets, either directly or as funding for employee initiatives. Reference-based pricing has empowered companies to lower deductibles for members, raise contributions to employees’ 401(k) plans, increase year-end bonus pools for employees, and more.

By moving to this transparent healthcare model, HR enables employees, the heartbeat of every organization, to take back their health plans and provides them with the flexibility and transparency to go to any doctor or specialist they want. Because reference-based pricing isn’t tied to certain providers, there’s no in-network or out-of-network doctors.

Preparing for Reference-Based Pricing

Before implementing reference-based pricing, there are a few boxes to tick on the checklist.

Self-funded. The first is that reference-based pricing is for self-funded employers only. It’s best for companies with over 100 employees and as many as 3,000, but sometimes, companies with as few as 70 employees can take advantage of this payment model.

Cost-savings analysis. Determine how much reference-based pricing can save the company by conducting an analysis beforehand. This data can help convince the CFO and other stakeholders to support a move to the model.

Broker selection. It’s also important to identify a broker experienced in reference-based pricing. This person will be an important guide and asset for implementing the new model. For one, he or she will know all the right questions to ask to ensure that reference-based pricing is a fit for your company and understand the details related to forming your benefits package, including pharmacy, vision, dental, and more. With the right broker, you’ll have better control over which benefits you provide and for how much.

TPA partner. Another important partner to identify is a third-party administrator (TPA) that has experience administering reference-based pricing. The TPA will handle the claim logistics and ensure your employees have the support they need.

Stop-loss insurance. Lastly, to protect the plan and its members’ assets, select a stop-loss partner that understands the cost savings reference-based pricing provides and will extend coverage at appropriately reduced premiums. Your stop-loss insurance should minimize risk while optimizing the cost of coverage.

The Importance of Education in Reference-Based Pricing

Like many HR initiatives, employee education is key to the successful adoption of reference-based pricing. This isn’t just teaching employees about their new plan—it’s also about educating them on how the healthcare system stands today and how they can be smart healthcare consumers. Reference-based pricing addresses these issues, and an understanding of that helps employee adoption.

Education also helps combat negative impressions of reference-based pricing. A reference-based pricing model gives employees the flexibility to go to any doctor or facility while saving them money on healthcare.

Another misconception about reference-based pricing is that because hospitals are receiving a reduced payment, it’s more common to be billed for the difference, but even with a large healthcare provider, you still receive “balance bills” or “surprise bills.” The difference is how unexpected charges are managed. A good reference-based pricing solution provider will have a methodology for addressing balance bills that provides personalized support and advocacy for members.

Becoming the ‘White Knight’

HR often struggles to be appreciated as a function that directly contributes to revenue. Instead, we’re depicted as the department that always spends.

But reference-based pricing presents an opportunity to positively influence our company’s bottom line and put money back into employees’ pockets. By introducing an innovative solution that addresses high healthcare costs and advocates for employees, HR becomes a problem-solver.

As healthcare costs continue rising with no end in sight, reference-based pricing offers a cost-saving solution with far-reaching benefits. It’s worth a closer look.

Are You Encouraging Members to Shop for the Best Care and the Best Price?

It can be as easy as handing them a check for a percentage of savings.

In last month’s HCU, we discussed the flexibility that self-funding provides – emphasizing that within regulatory parameters, self-funding gives the employer significant power over plan design, selection of providers, ways to incentivize plan members and much more.

These days, more and more employers are choosing to reward employees who do their homework and find high quality care at more affordable prices. We’ve all heard about joint replacements in major markets ranging in price from $11,000 to $120,000 or hospital charges for baby deliveries varying from $8,000 to $35,000. Or how about the $300 nebulizer that can be found on Amazon for $118 – need we continue?

While naysayers are quick to complain about employees who seem oblivious to the healthcare cost crisis, smart employers are encouraging their members to become part of the solution.

Many incentivize employees to help lower prescription drug costs by waiving copays on generics. Encouraging the use of Telemedicine and Minute Clinics goes a long way to help reduce Emergency Room utilization.

Still other plans are giving a significant percentage of their savings back to every employee who chooses a recommended hospital for a costly procedure. This can amount to hundreds or even thousands of dollars – real money!

These measures are not rocket science. Rather they are good old-fashioned common sense – no different than choosing one credit card over another because it gives you cash back on your purchase. We respond to incentives all the time and so do your employees.

To learn how Diversified Group helps self-funded employer groups turn members into responsible healthcare consumers, just give us a call.

Tell Us How You Feel!

Who says your health plan has to cost 5% more every year?

Done right, self-funding provides the flexibility needed to control costs.

A 2018 Kaiser Employer Survey showed that the cost of employer-based, family coverage rose to $19,616, an increase of 5 percent from the prior year. While this increase may be considered moderate or acceptable by many employers, we work hard to help our self-funded clients raise the bar (or in this case lower the bar).

In contrast to fully-insured plans, partial self-funding gives employers the freedom to write their own plan document. This enables our clients to adopt a totally different mindset – a “take charge” attitude that not only allows a plan to meet employees’ needs but encourages members to do what they can to keep costs in check.

After focusing on plan design and cost management, we turn our attention to claims data. While others may be quick to pay claims, we help clients look closely at claim costs each month. We use the data to identify trends, treatment patterns or chronic conditions that have the potential to result in a high dollar claim. When we see something that raises a red flag, we go to work on it immediately, looking for ways to minimize costs while striving to achieve the best possible outcome.

The bottom line is that sitting back and hoping that healthcare costs won’t increase next year will not accomplish a thing. Managing the rising cost of healthcare takes know-how, expert administration and the ability to act when cost saving opportunities surface. These are the things we do for our clients each and every day. To raise the bar for your health plan, give us a call at your convenience.

Tell Us How You Feel!

3 reasons self-funding is a great option for smaller companies

This article was published on September 10, 2018 on BenefitsPro, written by Darick Bradford.

Why are more small businesses offering self-funded health benefit plans? I see three big reasons.

Source: BenefitsPro

“Wait, what’s a self-funded plan again? And why does it make sense for my clients?”

These are questions I hear from brokers all the time. And I get it. Self-funding can be complex. But it’s time to get smarter about self-funded health benefit plan designs as this type of product could be a game-changer for your smaller clients.

Let’s start with the basics. What is a self-funded plan? Self-funding is an arrangement where an employer sponsors a self-funded health benefit plan and is financially responsible for employee covered claims up to a certain dollar amount. Covered claims in excess of this dollar amount are reimbursed to the employer through stop-loss insurance.

Larger organizations have used self-funding for years as a way to save costs, but more recently we’re also seeing smaller businesses offering self-funded health benefit plans to their employees.

The numbers back it up. Between 2013 and 2016, the percentage of small employers offering at least one self-funded health benefit plan increased from 13.3 percent to 17.4 percent—a 31 percent increase.

Why are more small businesses offering self-funded health benefit plans? I see three big reasons:

1: Self-funding can be a great tool to attract and retain employees.

When it comes to health care, employees want choice and affordable options. Self-funded health benefit plans can give your employees both. From comprehensive medical to preventive-only coverage, your employees will have a variety of options. And, they’ll have those choices at affordable prices. That can be a key tool to attracting and retaining employees in an increasingly tight labor market.

2: Self-funding provides flexibility.

Employers can customize their self-funded health benefit plans with different deductibles and coinsurance choices to fit their needs, whether it’s a preferred provider organization (PPO) plan design, consumer-directed health plan (CDHP) design, or a reference-based pricing or preventive-only plan design.

3: Self-funding can help lower employer costs.

There are a variety of ways self-funded health benefit plans can help employers lower costs. First, employers can receive refunds if there is a surplus of claim dollars in their prefund account at the end of the plan year. Second, claim dollars are not subject to state health insurance premium taxes, which can help lower costs (premium taxes average around 2 percent). And finally, self-funded health benefit plans give employers access to aggregate health claims data and demographic information. This data — available exclusively under a self-funded arrangement versus traditional health insurance — allows employers to better manage costs and encourage cost-savings measures their employees can practice, such as switching to generic medications, using in-network providers, and selecting a different level of care.

In the end, better understanding the ins and outs of self-funding will mean more choices for your small employer clients—and more success for you.

With some research and education on how self-funding works and the carriers/TPAs that offer administrative services, self-funded health benefit plan designs and stop-loss insurance, you can become well-versed in what’s available in the marketplace and learn if and when a self-funded health benefit plan design could be a potential fit for your smaller clients. Having a solid knowledge is a good start to have the advantage over another broker who didn’t evaluate self-funding as a viable option.

Small Groups Move to Self-Funding

The Employee Benefit Research Institute (EBRI) reports that while the number of mid-sized businesses self-funding their health benefits actually declined slightly during 2015 and 2016, the percentage of smaller employer groups, those with less than 100 employees, increased from 14.2% to 17.4%.

Want to tackle rising health costs? Consider self-funding ancillary lines

This article was published on February 05, 2018 on Employee Benefit News, written by Liisa Granfors-Hunt.

If your medical plan is fully insured, switching to self-funding (and covering catastrophic claims) can be downright intimidating, even with stop-loss insurance. That’s why many employers are sticking a toe in the financial risk pool by self-funding one or two ancillary lines of coverage.

The most commonly self-funded ancillary benefits are dental and short-term disability, followed by vision. These benefits are relatively low risk: Chances are, your employees don’t typically use dental services much beyond bi-annual checkups and a filling here and there. Short-term disability is a popular benefit for employees needing maternity leave. However, if you plan accordingly, these claims won’t drastically affect the benefit spend.

Self-funding can save money and provide a greater level of transparency into how a benefits plan is performing. Here’s where you can save money: When insurance companies price products, they determine the premium by reviewing actuarial data, setting aside a portion to pay current claims, reserves to pay future claims, plus a profit. Why let the insurance company hold your reserves? By self-funding, employers hold that money.

Photo Source: Employee Benefit News

If you’re interested in trying self-funding for dental or short-term disability coverages, you’ll need some claims data to work with. When you self-fund a benefit such as dental care, an underwriter will review your claims history, taking into account the number of people covered under the plan, and determine what your expected claims will be based on past data and future trends. You’ll set a budget that includes your fee for plan administration, based and your expected claims. We don’t recommend self-funding the benefit the first year you offer it.

What to consider

When self-funding short term disability, depending on your comfort level, there are varying levels of help to administer the plan. Third-party administrators can handle the full range of managing a self-funded plan, such as adjudicating the claim, calculating the amount to pay and actually paying the claim. This takes some of the pressure off of plan sponsors who are completely new to self-funding, but, as with anything that conveys value, TPAs come at a cost. Therefore, you may choose to handle most of this responsibility yourself, including calculating the benefit and drawing the check. But before you make that decision, assess the availability and knowledge of your internal resources.

For both dental and short term disability, compliance is key. Depending on how your plan is structured, you may be responsible for complying with state and federal regulations that your carrier handled previously. When setting up your plan, it’s vital to ensure that you understand where responsibilities lie so you can remain compliant.

Risk should be your primary concern. Sure, this may seem obvious — for ancillary benefits such as dental and short-term disability, the risk is relatively low. Self-funding an insurance benefit means you should watch how the plan is performing more closely than you would if it were fully insured.

One example of potential savings

For companies who weigh the risk and begin self-funding dental, the savings can be very real. One company offered an employer paid dental plan to its 420 eligible employees. The plan averaged 394 enrolled members over 18 months. During that same 18-month period, the employer paid $567,474 in premiums. The insurance company paid $481,617 in dental claims, equaling a difference of $85,857. Even after adding a $4.50 per employee per month administration fee to the claims cost, the employer would have saved nearly $54,000, or 9.5% of the total cost.

Medical costs continue to rise steeply; self-funding some of your ancillary cove rages can give you greater insight into how your program is performing and help you save money.

Is It Time to Self-Fund Your Benefit Plans?

After reading the article included below, we couldn’t help but agree that the question every employer should be asking this year is…Should I self-fund my employee benefit plan?

As the article discusses, this is a great time of year for companies to review their status, evaluate changes that have been made and consider new items for their 2018 benefit to-do list. The article includes 8 questions benefits managers should be asking themselves this year. But, we’d like to help you address one key question – Is Self-Funding Right for You or Your Client?

Whether you’ve been asking this question for some time or you’re new to the concept of self-funding, we’d be happy to explain the flexibility and potential for savings that a self-insured plan can offer. Gain control over your group health plan, eliminate the high costs of insurance premiums and obtain access to monthly claim reports – all with help from Diversified Group!

8 benefit management items to evaluate in 2018

This article was published on January 24, 2018 on Employee Benefit News, written by Zack Pace

Even 20 years into the benefits business, I still can’t always immediately remember details about my clients’ benefits plan — a given employer’s standard measurement period, affordability safe harbor or health savings account trustee, for example. That’s why I track all of these details across 32 columns in a simple spreadsheet.

While I use this reference tool most every day, I find that January is a great month to go even further with the employers I work with, carefully reviewing each company, considering how the employer’s circumstances have changed, and proposing items of consideration for our mutual 2018 benefit to-do list.

Employers are wise to have a similar benefit to-do list when it comes to their 2018 planning process. Here are eight common questions that benefits managers may find wise to ask.

1. For calendar year 2018, is your organization a “large employer” subject to ACA employer shared responsibility? Meanwhile, is your organization a “large employer” per your state’s fully insured group health plan market?

Generally, employers that averaged 50 or more full-time employees + full-time equivalents in calendar year 2017 are subject to ACA shared responsibility for all of calendar year 2018. Importantly, penalty risks generally now begin accruing in January, not when the plan year begins (if the date differs).

However, confusingly, in most states, the threshold to be considered a large employer for group health insurance contracts is an average of 51 or more full-time employee + full-time equivalents in the previous calendar year. How do the rules work in your state?

Now’s the time to finalize your 2017 calculation and determine your 2018 status for both employer shared responsibility and your state’s group health insurance market. And, yes, I’ve seen several employers average exactly 50 and be deemed a large employer regarding ACA employer shared responsibility and a small employer in reference to their fully insured group health plan contract. Talk about bad luck.

2. Is it time to self-fund the group medical plan?

The financial headwinds faced by fully insured plans have never been greater. Fully insured premiums are laden with the roughly 4% ACA premium tax (aka the Health Insurer Annual Fee), state premium taxes, the cost of various state-mandated benefits, and often robust retention and pooling point charges.

Thus, employers sponsoring group fully insured health plans should consider if moving to a self-funded contract (including so-called level-funding contracts) could be advantageous. Given the varying state regulations, state stop-loss minimums, organizational risk tolerance, reserve requirements and other variables, there is no one-size-fits-all answer to this question. Especially good times to perform a comprehensive self-funding evaluation are when your company crosses over from small group to large group and/or when meaningful claims experience becomes available from your fully insured vendor.

3. Is it time to self-fund the dental and short-term disability plans?

For most employers of size sponsoring plans that are not 100% employee paid (aka not voluntary), the answer to this question is simply “yes.” Run the math and make your decision.

4. Does benefit eligibility for life and disability vary by class?

For start-up companies, it’s not uncommon to offer better group life and disability benefits to certain classes, including management and executives. However, as employers grow, the budgetary and cultural reasons for doing so can quickly diminish or go away. A quick litmus test is simply asking yourself if the continuing benefit discrimination still makes sense.

Regardless if these benefits vary by class, is your group life plan compliant with the Section 79 nondiscrimination rules? Double-check with your attorney, accountant and benefits consultant.

5. Who is the health savings account trustee (i.e., the bank)? Is it linked to the health insurer?

If your organization sponsors a qualified high-deductible health plan, you likely allow employees to contribute to an HSA pre-tax through your Section 125 plan. Is the bank you selected still the best fit? Is the bank tied to your fully insured group health vendor? If yes, if you change your group health vendor, are your employees allowed to maintain the HSAs with this trustee with no fee changes? Should you consider moving to a quality stand-alone HSA vendor?

6. Does your firm employ anyone in California, Hawaii, New Jersey, New York, Rhode Island or Puerto Rico?

Most employers headquartered in these states (and territory) are acutely aware of the state disability requirements. However, given the advent of liberal telecommuting policies, it’s becoming more common for employers without physical locations in these states to employ individuals in these states. If you answered yes to this question, double-check your compliance with the state disability requirements. Your disability insurer or administrator can assist.

And, please note that, just this month (January 2018), New York became the latest state/jurisdiction to require paid family leave.

7. For firms offering retiree health plan benefits, are benefits for Medicare-eligible retirees and spouses self-funded?

While retiree health benefits have generally gone the way of the American chestnut tree, these benefits remain fairly common among certain sectors, such as higher education, government and certain nonprofits. Historically, most employers simply allowed Medicare-eligible retirees to remain on the employer’s active health plan, with the employer’s plan paying secondary to Medicare for Part A and Part B expenses and primary for prescription drug costs.

This arrangement was just fine when a really high annual prescription claim was $15,000. Now, $90,000 claims are not uncommon and $225,000 claims are possible. Does it still make sense to self-fund this retiree risk? In states where it is permissible, would it be prudent to transfer the risk by adopting a fully insured group Medicare Advantage plan or supplement program?

Regardless, all employers self-funding retiree health benefits should double-check that their individual stop-loss policy includes retirees.

And, regardless if retiree benefits are offered, all employers sponsoring self-funded health benefits should double-check that their individual stop-loss policy covers prescription drugs.

8. Is your firm required to file health and welfare Form 5550s? If so, who is handling the filings?

Generally, employers subject to ERISA that sponsor benefit plans that, at the beginning of the plan year, cover 100 or more participants, are required to file health and welfare 5500s and the related schedules. Some smaller employers must also file. Most multiple employer welfare arrangements (MEWAs) must file.

It’s very easy for health and welfare Form 5500 filing requirements to fall through the cracks. While U.S. Treasury’s penalties for non-filers are substantial, Treasury doesn’t keep track of who is required to file and thus doesn’t individually remind employers of this requirement. Further, this requirement doesn’t seem to be on the checklist of most auditors and accountants.

Employers should review all enrollment counts of all plans at the beginning of each year and consult with their accountant, attorney, and benefits consultant on the filing requirement and next steps.

I recommend avoiding the shortcut of saying “5500” in these discussions. Always say “the health and welfare 5500.” This practice will mitigate the risk that someone hears “5500” and thinks retirement plan 5500.

Congress Must Preserve CT Employers’ Right to Self-Insure

This article appeared on HartfordBusiness.com on December 18, 2017 from Brooks Goodison, President of Diversified Group.

Connecticut health insurers recently announced their 2018 premiums. Employers won’t like them. Rates for some small business plans will rise more than 25 percent. That follows an average increase of 5 percent last year.

Many Connecticut firms are understandably looking for ways to avoid these premium hikes. Some are opting to “self-insure,” or pay their workers’ health claims directly instead of turning to traditional insurers for coverage.

Unfortunately, officials in some states want to effectively ban self-insurance. The U.S. House of Representatives has passed legislation that would counteract those efforts. But it’s stalled in the Senate.

The upper chamber must stall no longer. Scores of Connecticut businesses, nonprofits, and municipalities — not to mention their workers — are counting on Congress to safeguard their self-insured health benefits.

When employers buy health plans from traditional insurers, they typically pay far more than their employees’ care actually costs. Their premiums cover insurers’ overhead, administrative costs and profits.

Insurers also have to protect themselves against a potential worst-case scenario, where multiple employees face huge medical bills. That pushes premiums even higher.

But if an employer has a good year, with low medical costs, his insurer doesn’t send him a rebate. That insurer keeps the excess, perhaps to cover another employer in its risk pool that wasn’t so lucky.

Self-insured organizations, by contrast, pay only for the care their employees consume. According to one study, employers can cut their health expenses by about 10 percent over the first five years following a switch to self-insurance.

Self-Funding Keeps Growing

With time running out on an opportunity for Congress to repeal and replace the Affordable Care Act and open enrollment season approaching, thousands of small and mid-sized businesses are likely bracing for another round of premium increases. A growing number of employers, however, will choose to avoid the uncertainty plaguing traditional group insurance markets by moving to a self-funded health plan – an option that provides an opportunity for savings and far more plan design flexibility.

Healthcare benefits continue to be perhaps the biggest obstacle facing small and mid-sized businesses. The Self Insurance Institute of America reports that between 2011 and 2016, the average annual deductible for employer-sponsored plans increased by 49% and the percentage of firms with fewer than 200 employees still providing health benefits fell from 68% in 2010 to 55% in 2016.

Self-funding on the other hand, has proven to be a far more responsible alternative for employers, enabling thousands to not only use their health benefit plan to attract and retain high quality employees, but to do so at an a affordable cost. While self-funding has long been a staple for the nation’s largest employers, nearly a third of companies with 200 or more employees now offer at least one self-funded option.

SPBA Releases Industry Update & 2018 Forecast for TPAs & Self-Funding

The article below was published on October 17, 2017 by PRWEB, written by Chevy Chase, MD.

The Society of Professional Benefit Administrators (SPBA) has released its State of the TPA Industry & Forecast for 2018. Developed annually for the last 37 years, this report shares current happenings in health benefits and self-funding along with projections for the future.

In preparing for the year ahead, the Society of Professional Benefit Administrators (SPBA) has released its State of the TPA Industry & Forecast for 2018.

Fred Hunt, SPBA’s active past president, has been writing this report annually for the past 37 years with the intent to shed light on what is happening with third party administrators (TPAs) and the self-funded industry.

As with years past, the 2018 Forecast shares a candid perspective on current issues affecting the health benefits landscape as well as projections for the future. In it, Hunt describes the state of the TPA industry as “very good” amid the uncertainty in health care regulation the U.S. is facing and the ever-changing compliance requirements.

Some of his main projections include:

• TPA growth – TPAs are positioned for a growth expansion as employers will continue to move to self-funding for the ability to design and fully customize health plans that fit their specific work populations.
• State-level health care – With solutions for health care being debated, there will be more interest in exploring a state-centric approach as the 2018 Congressional and 2020 Presidential elections draw closer. Education will become key as careful consideration must be taken to address the many complications that would arise for the large number of companies with multi-state operations and plan participants.
• Increase in “well-being” services – Employees will be looking for more benefits that enhance their well-being – things like wellness solutions (whole health and niche), student loan assistance, pension management, work-schedule management, etc. They will also rely on employers for help in overseeing these solutions.

“Fred has become such a trusted source for these forecasts based on his many years of experience in the self-funded industry and the fact that he stays so well-connected to regulators, policymakers and TPAs,” explained Anne Lennan, SPBA president. “He has a unique vantage point as he sees what is happening with health benefits from so many different angles.”

In sharing the 2018 Forecast, SPBA also includes background on the history of self-funding, why these health plans have become so widely adopted among companies of all sizes and formats and how ERISA serves as the main source of regulation. It also provides definitions of TPAs, including comprehensive service, specialty, minimal, ASOs and TPAs-of-convenience.

“Year after year, these forecasts provide a helpful, insightful look at the big picture for TPAs and self-funding,” Lennan said. “SPBA is happy to make them available to the public.”