Containing Group Health Plan Costs

Posted by [email protected] on Jan. 12, 2022  /  Subscribe 0

Containing Group Health Plan Costs

If you were to rank a list of new year’s resolutions among human resource professionals, executives and business owners, “Contain healthcare costs” – or some variation thereof – probably would come in at No. 1. Every year, healthcare costs go up. And every year, the challenges of providing valuable employee benefits without undermining the bottom line become greater – especially during the era of COVID-19.

The key to achieving a new year’s resolution to contain healthcare costs is to look beyond one year – to forecast the next three to five years and set your employee benefits budget accordingly. Budgeting based on a multi-year forecast enables an organization to average out its projected healthcare spend, taking into account the volatility of expenses from year to year due to unforeseen events.

The ongoing COVID-19 pandemic has exacerbated an environment of uncertainty for companies when it comes to forecasting and budgeting, making it even more difficult to make annual group health plan expenditures cost-neutral. Just as your overall business plan is long-term, your strategic plan for group healthcare should go beyond the current year.

Constructing a healthcare budget should be a methodical process of analysis and financial planning that:

1. Aims to achieve cost neutrality over a period of three to five years; 
2. Takes into account the organization’s Total Rewards program, rather than your group health plan alone;
3. Reduces the impact of changes to the plan on current employees.

Benefits of Financial Analysis and Long-Term Planning

Having a longer-term plan enables an organization to anticipate extraordinary occurrences and, when they happen, place them in a broader context, lessening the impact of a single, costly event on the long-term healthcare budget. Determining the features and offerings of a group health plan based on the goals of a Total Rewards program, meanwhile, enables the organization to make its overall budget cost-effective while offering compensation that attracts and retains a talented workforce.

For an employee benefits plan to be truly valuable, employees must understand what benefits they have and how to go about using them. Doing the complex work of designing your benefits plan helps ensure that when the time comes for employees to use it, they have the features they need and the resources to implement them.

Elements of a thoughtfully designed healthcare program typically include:

• Benefit-level options – Also known as “metal categories,” these range from bronze (lowest monthly premiums, highest point-of-care costs), (highest monthly premiums, low deductibles and point-of care costs), with silver and gold in between.

• Plan type – The most common of these are health maintenance organizations (HMOs), preferred provider organizations (PPOs), exclusive provider organizations (EPOs), point-of-service (POS) plans and high-deductible health plans (HDHPs).

• A savings account component – The health plan you design may offer a flexible savings account (FSA), which the employee can control; a health saving account (HSA), which allows contributions to roll over; or it you may offer employs the option of choosing. Employers who offer an HSA may also offer a limited-purchase FSA (LPFSA), which is applicable only to dental and vision expenses.

• Stop-loss insurance – This provides protection against catastrophic or unpredictable losses for organizations that opt for greater control of healthcare spending by self-insuring their medical benefits programs.

• Use of a prescription benefits manager (PBM) – As the online publication BenefitsPro recently noted, “With robust access to pharmacy data … PBMs can identify opportunities to recover claims, provide education or apply controls to prevent financial loss, improve safety and support claims integrity.”

With prescription drug prices escalating and the COVID-19-driven Great Resignation largely excluding older workers who fear losing valuable benefits, many employers are finding their drug expenditures increasing exponentially. Forecasting may lead you to explore PBM options – a step that could not only lower costs but also provide your employees with better medications. 

Navigating the New Year

Designing a robust yet cost-efficient Total Rewards program – including a valuable group health plan – requires the collaboration of experts from various departments and organizations, including an employee benefits broker who can provide state-of-the-industry products and services. 

About the Author

James D. Schutzer

Senior Partner

JDM Benefits, an Alera Group Company

Jamie Schutzer’s career in health care spans more than 20 years, including leadership roles in employee benefits and insurance sales. A former member of the New York State Health Benefit Exchange Regional Advisory Council, he frequently presents to organizations on topics associated with the Affordable Care Act. In addition, he is the Immediate Past President and current Legislative Co-Chair of the New York State Association of Health Underwriters (NYSAHU), as well as an Executive Committee member and Treasurer of the Business Council of Westchester. In December 2015, he was named in the Employee Benefit Adviser as one of the 14 politically active brokers to know across the U.S. He holds licenses for Life, Accident and Health, and Property and Casualty insurance.

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