The Top 5 Cost Management Trends in 2016
Jan 14, 2016
By Ciro Giue, Voluntary & Worksite Benefits Practice Leader at HUB International Northeast and Joe Torella, East Region President, Employee Benefits at HUB International
The amount of money that organizations spend on their employees’ health care plans can be one of the top three expenditures on their corporate balance sheet. In short, sorting out your benefits plan with a view of one year to the next is not an option for any business that takes its budgeting process seriously. Rather, we strongly advocate a three- to five-year strategic benefits plan that will help keep your organization focused ahead while avoiding, more typically, the annual fire drill.
As HR managers, CFOs and business owners look to 2016 trends and costs related to their plans as part of the wider budgeting process, they are making cost management a priority. With that in mind, they will want to factor the following trends into their strategic benefit planning process for 2016.
1. Voluntary Benefits becoming ’Personalized’ Benefits
Rising employee healthcare costs are now the norm. The Affordable Care Act (ACA) has only exacerbated the situation as reporting requirements have upped the costs of plan management. It has led to a growing popularity of voluntary benefits and positioning employers in a closer collaboration on making plan choices that are good for the employee and more cost-effective for the employer
Traditionally seen as a low-end option for employee healthcare, voluntary benefits options were once considered as likely to trend as shoulder pads or neon tracksuits. But, that’s no longer the case as “personalizing” benefits can now serve as an important strategy for offering attractive supplementary options. That’s especially true for companies that also intend to lower their health care plan costs in anticipation of the 2018 Cadillac Tax (the 40 percent excise tax on plans that exceed certain value thresholds and are thus deemed as being “too rich”).
Even as plan values decrease, employees are being encouraged to adopt “consumeristic” behaviors and scrutinize what health care coverage they really need – and what can be dropped/lowered or personalized – to further help reduce their employers’ costs. Among the voluntary/personalized benefits that may supplement fixed plan options are hospital-stay expense coverage and fixed sum payouts in the event of a serious disease diagnosis (e.g. critical illness or specific-cause policies).
Voluntary benefits will only become more popular beyond 2016 as employees change their mindset when it comes to their health care. No longer will selecting a plan be an annual case of “fire and forget.” Intricate options will be available to cover gaps in coverage as organizations move to higher deductible plans on the whole. As the stigma surrounding voluntary benefits lessens and their true value is realized, employees will appreciate the investment that their employer is making via their coverage. This employer mindset of personalization will lead to greater employee satisfaction – despite a reduction in plan values!
A final note on their appeal? Most brokerage firms will help employers leverage the commissions from voluntary benefits to improve communications, add resources (typically at open enrollment) and even to help offset the cost of technology-based enrollment platforms.
2. Metallic spectrums plans are taking off - and it’s really not rocket science.
“Metallic spectrum plans” sound like something for the attention of NASA rocket scientists, but that isn’t the case. They are related to employee benefits and are very simple to understand. Get familiar with them, because they are the new norm in plan design modeling with where cost savings is the goal.
Put simply, not all of your employees have the same healthcare needs. If you have few plan choices, some of them are going to be over insured since, given today’s multi-generational workforce, some employees are far healthier and more prepared to take on risk than others.
To address this disparity, organizations are setting up a spectrum of plans, each with different values. All that glitters is not gold – there’s a platinum option, too. In fact, the most valuable plan with the lowest-co-pay possible is typically known as a platinum plan, with others in the metallic spectrum – gold, silver and bronze in order of decreasing value, co-pay rates, and therefore, premiums.
The more strategic and personalized an underwriter can be in designing your spectrum plans, the more money you will save in the form of employees who are not over-insured. Senior executives in their 50s or 60s, for example, will typically choose a much higher value plan than a newly hired 20-something who feels invincible and doesn’t want to (and shouldn’t) spend on medical insurance that may only occasionally be used (by the way, neither should the employer). Finally, keep in mind that voluntary benefit options fill the intentional gaps left behind with these plans and replace employer-paid with employee-paid coverage.
3. Embracing (or incenting) a culture of consumerism with high deductible plans (and smart contribution strategies)
Perhaps at the very core of the trends meeting the 2016 cost management imperative will be high-deductible plans. As the name indicates, these plans will be focused on getting the employee to pay up to cover the first few thousand dollars of their medical expenses.
The rationale? When employees have skin in the game, they will start to act “consumeristic” and put some real thought and time into whether they really need the most expensive options when getting certain medical procedures – such as an MRI scan at the most expensive hospital or physician-owned imaging facility or the brand name prescription drug that’s 99.98 percent similar to the generic that’s typically much less than half the cost. But the strategic-thinking employer will align employee/employer contributions so that these plans make financial sense on a total out-of-pocket cost basis – especially when combined with funding associated with HSAs or HRAs.
Like most big organizational initiatives, high deductible plans require pushing through some change in workforce culture. And 2016 is likely to be a year when workforces embrace, or are forced to adopt, consumerist attitudes towards their healthcare. The key? Communicate effectively and often!
4. The gloves are coming off – a possible left hook –right jab combo with reference-based pricing.
One of the most disruptive, and at the same time cost-saving strategies that is likely to accelerate in 2016 is increased adoption of reference-based pricing.
Under a reference-based pricing policy, two different strategies can be considered. The more aggressive approach (the left hook) is working through your broker/consultant with a service provider that will start with an employer claims audit. Using market data as a reference point that sets an average cost per treatment or service that can be expected, claims that come in too “hot” are disputed.
Encompassing a typical range of 30 types of medical services, this is strategy can work for adventurous employers who are driving a culture of health care consumerism, and, at the same time would prefer to apply the real pressure to healthcare providers, rather than employees.
With this aggressive approach, however, can come litigation. When and if it happens, the pressure falls on the service provider to manage that work for the employer, and the rates of success are in the high 90 percent range. The result can be savings of up to 20 percent on your benefit plan costs.
A second, more subtle approach (right jab) that can be extremely effective is where a reference-based model applies the same underlying theory – identify services where charges have been significantly higher than the reference-basis established. For example, the MRI noted above might price in a region between $800 and $3,500 with several employees magnetically drawn to the high end of the scale (or nudged in that direction by the physician).
In this approach, advisor and employer work together to identify the services, set a price for each and then structure the benefits so that the plan/employer pays up to that (reference-based) price; and employees pay the difference for any balances left behind (again, Voluntary Benefits can help).
5. Pharmacy Management – ‘Raiders of the Lost Caremark’
Your pharmacy contract might possibly be the oldest, dustiest and longest-untouched relic of your existing benefits plan. The good news is that focusing on this contract can prove to be a case of picking low-hanging fruit that delivers you savings of as much as 20 percent of your pharmacy plan costs.
Most organizations have not marketed or negotiated their contracts in some time – if ever. When an expert looks into a typical pharmacy contract, compares it to what the market is bearing, and then negotiates new terms, considerable savings can result. This may be one of the hottest areas of cost management in 2016 – and one of the easiest to realize. It doesn’t mean you should carve out your pharmacy benefits from your medical plan . . . but it will help make that type of decision much easier.
And while there’s more, start with this group of five trends and get ready for a year that should see a rapid rise in consumerist culture, disruptive pricing practices and policies, shiny new metallic plans and trendy voluntary benefits that just might grab the attention of the C-Suite. Please keep in mind that much of what I’ve described will apply best – or only – in a self-insured environment . . . and that’s perhaps the most important underlying trend of all. Self-insuring something you should be doing, if you’re not already.
Whatever way we look at it, 2016 promises a lot in store for ways to keep rising costs under control. We like what we see – and are sure that you will too, especially if you apply a little more strategy to the equation.
About the Authors
Ciro Giue is the Voluntary & Worksite Benefits Practice Leader at HUB International Northeast and Joe Torella is the East Region President of Employee Benefits at HUB International.