 Reducing the level of benefits. Limiting who is covered. Shifting a greater share of costs to employees. Picking insurers with the best provider discounts. Most employers have used every one of these familiar tools to try to reduce health benefit costs, with little sustainable success.
As an industry, we have assisted clients with all of these strategies – but they are still searching for cost reductions. So what’s next?
It’s time to try focusing on healthcare instead of health insurance.
Current health insurance products isolate small to middle market companies with no information for decision making. The financing system excludes the consumer and provider, creating an adversarial relationship in all sectors. Rising medical costs continue to drive employers out of the health benefits marketplace and/or shift cost to employees. Those employees have no sense of the true cost of care and no incentive to consume it effectively. Most consider it an entitlement rather than a benefit offered by the employer.
Employers also need to look at the role they have played in the current situation. They often profess that employees are their most important asset and they spend up to 70 percent of their operating budget on salaries, benefits and taxes. However, they treat this valuable asset with less care and accountability than any capital resource. Establishing employee accountability with respect to the “human capital” resource holds the only true promise for bending the long-term healthcare cost curve.
The idea is not as far-fetched as it may sound. Some seasoned health benefit brokers fear employers will balk at the work and risk involved. Many companies are adopting wellness initiatives, but focusing on healthcare takes that a step further. Focusing on healthcare starts when employers require their employees to become part of the solution instead of the problem. Large employers have found that employees for the most part are eager to participate, as long as someone can show them the path. By bringing clients a strategy that integrates wellness with value-based and outcome-based health plan designs, married with an alternative approach to risk management, brokers can help employers take their health benefits into a new era.
Moving Away From the Current Model
Few people doubt that it is time for a new era in health benefits. In almost every other aspect of life, insurance is a system for paying a small amount upfront to protect against the possibility of a large expense in the future. No one expects their automobile insurance to cover oil changes, or their homeowners policy to pay for a fresh coat of paint.
When it comes to healthcare, however, people expect coverage for everything from routine checkups to catastrophic diseases. Instead of paying insurers to only take on the risk of an unlikely future event, we engage in “dollar trading” with them to cover our annual medical care costs. We give them $1,000 to hold on to until we need $700 in medical service; they keep the other $300 for overhead and profit. If the actuarial tables show that individuals in a group are more likely to need $1,400 in care, then insurers simply raise the premium to $2,000, collecting enough to cover the costs while still maintaining the same margin for themselves.
The other aspect of the current model that is different from most types of purchasing is the lack of transparency. A shopper making a decision about a new car or flat screen TV can read reviews to learn about features he wants and how different brands perform, and he can compare pricing by looking at ads, going online, or driving from store to store. Once he has all the information he needs, he can make an informed choice.
In contrast, medical care and insurance coverage work together as an opaque system. An employer almost never sees the claims experience data from the workforce that could help determine risk and guide strategies for changing individual behavior. The insured worker rarely sees a bill that could make him reconsider whether medical service is really needed or if there are better, more economical options. And between them, healthcare providers and insurers offer very little information about either quality or pricing that would allow consumers to do any comparison shopping.
These problems add up to a current healthcare system that leaves both the employer and the worker with little leverage to contain costs.
Alternative Risk Managment One way to manage healthcare costs is to simply pay an insurer full freight to cover the services that employees need – an expensive way to transfer risk. Another way is to self-insure, with the employer picking up the full tab of whatever goes wrong or adding stop-loss policies into the mix. This can be scary for small businesses with limited cash flow, and the complexity can be off-putting when an employer has little in-house expertise in managing health benefits.
An alternative risk transfer strategy is to bring an employer together with a partner that can change the model of healthcare for the workforce. How the care is paid for can be a traditional combination of fully insured coverage, self-funding and reinsurance for identifiable high risks. But what drives the cost reduction is more effective care and more effective consumption.
The model relies on two major strategies that work in tandem: 1) Helping employees make the behavioral changes they need to make, and 2) focusing on the delivery of high-quality care that makes sense for the patient.
The first strategy begins by understanding the health status of the workforce, including chronic diseases, potential health issues (smoking, obesity, high blood pressure), and other factors. Based on identified risks, a program of incentives and disincentives can be created to encourage employees to modify their behavior.
For example, an employer can offer to pay more money into a health savings account for workers who keep their vital statistics (weight, blood pressure, etc.) within certain parameters. Or the employer can require a higher share of premium from those who refuse to stop smoking or fail to participate in wellness activities.
Such programs to change employee behavior are usually most successful when they are implemented as part of a communications effort that presents the choices and enhanced employee benefits. When employees become interested in being healthy, they become partners in the effort to reduce costs through healthy behavior. One tactic that works well is to help employees understand how these costs drive up insurance premiums, which means there are less resources for other forms of compensation.
The second strategy involves improving how care is delivered to those who need it. This can be a combination of several steps, including:
- Identifying the best doctors in a network and paying more to encourage employees to use those doctors
- Identifying centers of excellence where medical procedures are done well
- Searching out the best pricing when quality is comparable no matter where a procedure is performed
- Following evidence-based practices of disease management to lower costs
One example of the latter is experimenting with moving case management models away from nurse managers. Some employers have found that case management models that make use of therapists or counselors may be more successful because the patient is more engaged in the process rather than simply taking direction. Most employees know they don’t take care of themselves as well as they should. They want to lose weight, quit smoking, and eat healthier. Many of those things are a result of issues in their work and personal lives. Compliance with treatment protocols sometimes is improved by someone who will discuss problems with a patient. Expanding Employee Assistance Programs (EAP) to assist in the causes of poor behavior may improve compliance and health.
Another component of the care improvement strategy is to make sure employees have all the information they need to make a sound decision, including second opinions. This is the age of ready information and there are scores of services that provide Medical Decision Support Services free or at very low cost – right to the smart phone they carry with them everywhere. When they have a better understanding of their options, employees sometimes realize that there are lower-cost alternatives to surgery that are a better choice because of their age or other factors.
Making Alternative Risk Management Work
Many employers are already finding success with alternative risk management. Here are just a few examples:
- One major west coast company created an intensive outpatient care company that provided personalized care for patients with chronic illnesses. The company saw a 20 percent reduction in healthcare costs for the pilot group versus the control group, including a 28 percent decline in hospital admissions. Missed workdays declined 57 percent, and participants who reported being satisfied with their care increased 18 percent.
- A major California purchaser of healthcare benefits used the centers of excellence approach and evidence-based care decisions to cut $15 million annually from the bill for covering 41,000 lives.
- A grocery store changed employee behavior by earmarking a set amount of money for elective procedures and requiring employees to pay anything beyond that level if they picked a provider whose prices were higher.
Brokers and their employer clients may worry that making the transition will be complicated and hard work. The key, however, is to partner with one of the specialists that are beginning to emerge in the alternative risk management field. By combining understanding of human behavior with knowledge about best practices and evidence-based medical care, these specialists can help your clients do what is best for their health benefits budget at the same time they are doing what is best of their employees. |
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To learn more about how AmWINS can help you meet the needs of your clients, reach out to your local AmWINS broker or marketing@amwins.com.
Legal Disclaimer: Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.
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