Cost Management Strategies
Many employers anticipate that health plan costs are likely to increase significantly over the next several years, in part due to the enactment of ACA. A cost increase is particularly concerning at this time given the challenges of the current economy. Not only would it be helpful to explore and address your cost drivers – you might want to start sooner rather than later.
Health plan cost pressures can arise from a variety of sources, including those below. Click on each to explore how the driver may be influencing your costs and possible solutions to help you save.
Understanding Your Cost Drivers and Possible Solutions
- ACA penalties and taxes
- Cost Drivers: New employer responsibilities could increase an employer's costs either directly or indirectly. Click here to use our ACA Calculators to estimate the impact of the Free Rider Penalty and Cadillac Tax on your plans.
- Possible Solution: It is possible to design a benefit program that avoids having to pay a Free Rider Penalty or trigger the Cadillac Tax. The employer will want to review plan design, eligibility, and contribution strategies that could help insulate the employer from having these cost drivers impact its benefits program.
- New ACA eligibility requirements and benefit mandates
- Cost Driver: Requirements to cover additional people and to pay additional benefits translate into higher costs for employer
- Possible Solution: An employer may want to explore what other health plan options may be available. You may want to consider moving to a high deductible health plan (HDHP) which could result in both immediate cost savings and slower year-over-year cost increases. Also, think strategically about how to use those savings, such as an HRA, HSA, or making a variety of supplemental products available to employees.
- Rising health care inflation
- Cost Drivers: Health care inflation has been a significant cost driver for the last several years and most employers are predicting similar growth in the future. You can use our calculator to estimate how health care inflation is likely to increase your costs over the next several years. During this challenging economy, many employers do not have the resources to simply absorb those additional costs.
- Possible Solutions: An employer can choose to reduce plan costs in a variety of ways, such as changing health plan design or, perhaps once the Health Insurance Exchanges become available in 2014, dropping coverage completely.
- Cost of medical services
- Cost Drivers: There is very little that a single employer can do to influence how much a medical service actually costs (such as the cost for an office visit with a physician).
- Possible Solution: A number of employers have implemented on-site clinics to provide direct care for employees. Typically the employer pays a negotiated flat fee for a nurse practitioner to provide care at the employee's place of business. The fees - the majority of which usually include simply the cost of the provider's salary and medical supplies - are often significantly less than what a regular physician would charge to see the same number of patients in a day. Plus, the convenience of having the clinic onsite benefits both employees and the employer due to reduced time away from work, which means greater productivity.
- High medical costs due to an unhealthy workforce
- Cost Drivers: Chronic conditions drive a significant amount of a health plan cost, and the primary cause of chronic conditions is lifestyle choices. Chronic heart disease, stroke, cancer, respiratory disease, and diabetes can all be caused by poor diet, inadequate physical activity, smoking, stress, and alcohol abuse. Click here to understand more about the problem.
- Possible Solutions: The good news is that many chronic diseases are preventable. A growing number of employers have implemented wellness programs to encourage employees make better lifestyle choices. Click here to learn more.
- High medical utilization by plan participants
- Cost Driver: A third party payer system (where the employer or insurer is picking up the cost for whatever services the doctor and plan participant decide would be useful) often creates a situation without checks and balances on unnecessary utilization of medical services.
- Possible Solution: A high deductible health plan paired with an HSA or HRA helps give employees more "skin in the game." A thoughtful transition strategy, an experienced service provider, and quality employee communication all contribute to an employer's successful implementation of this solution. Click here to learn more about American Fidelity's HRA and HSA administrative services.
- Providing benefits to ineligible individuals
- Cost Drivers: Because employers typically pay a much greater percentage of health plan premiums than employees, covering individuals who are not eligible for benefits under the terms of your plan can significantly add to the cost of the plan.
- Possible Solutions: A Dependent Verification Review can help ensure that dependents covered on your company's medical, dental or vision plans are eligible according to your health plan terms. American Fidelity is pleased to offer such a service for our customers. Click here to learn more.
- High Insurer/ TPA Fees
- Cost Driver: It is too soon to know how insurance premiums will be impacted by the new annual fee that health insurers are required to pay (which may increase premiums) or the Medical Loss Ratio (MLR) requirements (which are designed to reduce expenses paid by insurers and, in turn, may help to reduce premiums). MLR could actually create an adverse impact on third party administration fees charged by insurers to manage an employer's self-funded medical plan – when insurers are required to reduce the costs that may be charged for insured plans, they may look to their self-funded business to make up the difference. One final ACA provision worth mentioning because it could influence an employer's decision to sponsor a fully-insured versus a self-funded plan is the requirement for insured plans to cover minimum essential benefits beginning 2014, which do not apply to self-funded plans. Due to those additional mandates on the benefits that a plan will have to cover, an employer may retain more control over plan design long-term with a self-funded plan.
- Possible Solution: An employer may want to periodically assess whether the structure of its plan as insured or self-funded (perhaps with stop loss) is still satisfying the employer's needs. This may be particularly valuable in the wake of ACA provisions that are likely to impact costs of both fully-insured and self-funded plans. In fact, given the uncertainty around how the market may respond to these changes, an employer may want to plan on revisiting this assessment periodically over the next several years.
- High administrative costs (particularly given the new ACA obligations)
- Cost Driver: ACA imposes several new administrative requirements on employer-plan sponsors, such as reporting of health plan costs on W-2s, annual disclosure of plan and enrollment information to the IRS, nondiscrimination testing, enrollment obligations, and notice requirements.
- Possible Solution: An employer may want to explore whether there are ways to reduce expenses and to begin making a plan for how to manage new compliance obligations imposed by ACA. American Fidelity provides a helping hand as a trusted partner. We offer information and/or assistance with an employer's new administrative obligations.
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American Fidelity Assurance Company does not provide tax or legal advice.