While some businesses, depending on location and industry, are turning their focus to reopening, it is still (and always will be) important to consider benefit plan cost-savings strategies. These can be particularly important now as COVID-19’s continue to evolve rapidly.
Cost Savings for All Plans (approx. 1 to 5% savings)
Generally, all employers offering employer-sponsored health and welfare benefits may save costs with the following ideas.
- Plan Design. Plan design changes are often reviewed by plan sponsors at renewal time, although, often, the cost impact of increasing deductibles and coinsurance is small. In some cases, where employers have not yet adopted consumer-driven plans, such as high-deductible health plans paired with health savings accounts or health reimbursement accounts, the savings can be greater. Further, make sure to review your pharmacy benefits. There are often cost-savings mechanisms and incentives to shift prescriptions to mail order and 90-day supplies to save the employer and plan member money.
- Contribution Strategy. This is something that can be changed mid-year, but there are implications for Section 125 and ERISA notifications, which should be discussed with your benefits advisor. There is a great deal of free benchmarking information available on the internet to understand how your strategy compares.
- Market Check. A fully insured contract generally comes with a guaranteed rate for a specific period of time. For health plans that is almost always 12 months. Employers are not locked into a contract for 12 months, simply guaranteed a rate. So, a market check may be completed at any time, but like contribution strategy and other changes related to benefits off plan-year renewal, ERISA notifications and Section 125 considerations should be reviewed. At a minimum, any employer seeking relief should work with their benefits advisor for a market check at renewal time.
- High-Performance Networks. More and more insurance companies are providing access to high-performance networks, sometimes referred to as narrow networks. In these cases, higher cost hospitals and physician practices are eliminated from the network in favor of lower cost, high quality of outcome providers. In some instances, savings reach double-digit percentages, but usually it is half that amount.
- Non-Medical to Voluntary. Non-medical benefits are important, but the priority should be preserving medical insurance. An employer may shift dental, vision, medical, life, disability, etc. to employee paid; however, before doing so, consult the plan contract to make sure this is allowable and work with your advisor to execute this appropriately.
Cost Savings by Plan Type (approx. 5 to 40% savings)
Depending on the size of your organization and/or your willingness to share in the risk financing of the health plan liability, employers have several opportunities for more substantial savings then those already discussed.
- Small, ACA Health Plans
Small employers with less than 50 employees are often covered by “ACA plans.” These plans offer guarantee issue and age banded rates. But for a few cost-shifting opportunities through plan design and contribution strategy, there are not many cost-containment opportunities for these employer-sponsored plans. However, if an employer is willing to consider alternative provider reimbursement models, where the provider is reimbursed similarly to Medicare, albeit, a more profitable rate for the provider, then there may be significant cost savings available.
Tax law changes have allowed more flexibility for employers to drop group health plan coverage and provide tax-favored dollars for the purpose of purchasing individual health insurance coverage on an exchange. In truth, any size employer may adopt this type of health reimbursement account strategy, but for large employers, more than 50 employees, affordability as defined by the ACA should be factored into your decision or you will risk exposure to certain non-deductible tax penalties. By dropping coverage and providing employees with a tax-favored stipend for the purpose of accessing insurance on an exchange, the employer may save money when compared to a traditional group health plan.
COVID-19-related benefit and employment matters are changing rapidly. To help you stay current, check out our “Employer Compliance Handbook,” which provides a review of COVID-19-driven employment laws and regulations, includes charts of state law actions relating to state and local leave laws, and much more.
- Level-Funded Health Plans
These are typically available to employers seeking relief from ACA health plan rates, pricing methodology or, in some cases, employers looking for more access to claims driving plan expenses. Small employers with less than 50 employees should complete a market check, as outlined above, to measure the financial potential for this model. If your plan does not have a high-deductible option, there may be an opportunity to create additional savings through deductible financing. This is yet another type of health reimbursement account, sponsored by the employer, allowing the employer to benefit from unused member deductible dollars, all while disbursing monies for qualified expenses to health plan participants on a tax-favored basis.
- Insured Health Plans
- Cost Shift/Deductible Financing. Larger, fully insured health plans may also benefit from deductible financing as mentioned above.
- Premium Risk Sharing. Many insurance companies have premium risk-sharing models that protect the plan sponsor’s “downside” when claims exceed premium but allow the employer to benefit when claims are below a specific threshold. These contracts are often attractive to employers because there is no downside risk and they may remain fully insured.
- Funding Analysis. Larger employers, as a rule those with more than 100 employees, should go through a funding analysis and determine if it makes sense to participate in the risk with some degree of self-funding. Employers who are self-funded or become self-funded may participate in a wide array of cost-savings strategies.
- Self-Funded Health Plans
- Network Repricing, or sharing billed and paid claims from your current network with another network, may demonstrate savings to justify a change. Make sure to consider high-performance networks as previously discussed. In many cases, changing networks does not mean you have to change your administrator if you are using a third party not affiliated with an insurance company.
- 3rd-Party Care Coordination must be utilized through an independent third-party administrator (TPA). If your TPA is an insurance company, this service is not available as it supplants the role of the insurance company for care coordination and more actively directs members to high quality of outcome providers, lower cost providers, more appropriate care or all of these. These services are highly interactive with employees and provide a “white glove”-type experience for the plan member to navigate care. We routinely see six- and seven-figure savings from this strategy.
- Centers of Excellence. Organizations adopting this model typically identify certain high-cost claims within their population and steer them to high quality of outcome providers, lower cost providers or both. Doing so results in a lower frequency of recurring claims associated with the care and saves self-funded plan sponsors tens of thousands of dollars per year.
- Pharmacy Review & Alternate Funding. In many cases plan sponsors can reduce pharmacy spend 10 to 40% by reviewing pharmacy contracts, carving out pharmacy directly through a pharmacy benefit manager (PBM) or group purchasing coalition, or by adopting more aggressive measures through alternate funding of specialty drugs. Work with your benefit advisor’s pharmacy consulting team to identify savings. There are typically substantial dollars to be saved.
- Reimbursement Model. Larger self-funded employers have been reimbursing providers alternatively for years. Sometimes referred to as reference-based pricing, these models have proven frictional for health plan members but generate substantial savings, often reducing medical claims expenses by 20 to 30%.
Be sure to work with your benefits advisor to test and navigate these strategies to determine which will most benefit your organization. If you do choose to make any mid-year changes, always keep Section 125 and ERISA notifications in mind. For more information, please contact us.
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