Health care coverage is the single largest employee-related expense for U.S. employers. For HR benefit managers, the burden of making the best decision in allocating these great sums only gets tougher, and a growing number are shifting costs to their employees via consumer-directed plans with high deductibles — also intended to foster cost-conscious decision-making by employees and to reduce unnecessary medical services.
The following interview with Michael McKenna, president of Massachusetts-based Partners Benefit Group, an employee benefits management company, raises some novel approaches regarding consumer-directed plans.
Question: Can you provide an example of an innovative way to control health care costs with a consumer-directed approach?
Answer: Health care benefit plans are moving from traditional managed care, such as health maintenance organizations (HMOs) and other doctor-hospital networks that act as an intermediary between the person seeking care and the physician, to consumer-driven and other high-deductible plans that require out-of-pocket payments by the insured before the insurer covers claimed expenses (except often for preventive care, which might be covered on a first-dollar basis). The dilemma for employers is that most plans with affordable premiums come with a high deductible for the employee, usually between $500 and $3,000 per year.
One solution is to work with a third-party administrator to creatively strategize ways to reduce the impact of the high deductibles. These strategies include offering employers the flexibility to creatively apply some of the insurance premium they save by offering high-deductible plans — such as by helping their employees offset some of their annual deductible expense. For instance, an employer might offer its employees low-premium plans with a relatively high deductible of $1,000 per year. The employer might save enough in premiums to cover the second $500 of the employees' deductible, after employees pay the first $500.
Here's a related approach: Basically, the employer self-insures by “transferring risk to the insured” through an annual $3,000 deductible per employee. Based on a company with 50 employees, the total they would self-insure would be $150,000. With such a plan, the company would pay $700,000 per year for a plan that is equally rich in coverage benefits as an off-the-shelf plan costing $900,000 annually. With these savings, the company is able to cover the employees’ deductible and still enjoy a reduction in benefits costs outlay.
The company is able to cover the employees’ deductible
and still enjoy a reduction in benefits costs outlay.
Q: What is the role of a third-party administrator regarding these approaches?
A: The third-party administrator, as a secondary payer in addition to being an insurance broker, administers payment of the employees’ deductible using a funding account created by the employer — from savings they accrue through purchasing a higher-deductible plan.
Q: How does this impact the plan sponsor’s relationship with the insurance provider?
A: Cost savings can also be used as leverage with insurers to negotiate administrative costs down, provide better data for the employer, or just improve the overall administration of the plan based on better technology and more service-oriented procedures.
Q: How much can these high-deductible plans save?
A: Savings, including the cost of the reimbursed claims, can range from 8 percent to 35 percent, depending on what type of plan is being offered.
Q: Do high deductible/secondary payer plans mean more work for the employer providing the health care benefits coverage?
A: It’s true that if employers want to drive down the cost of health care benefits coverage they have to work at it. But by engaging a third-party administrator that acts as a secondary payer and allowing employees to interact with it, much of the health care benefits administration work is outsourced. They can take care of processing claims, making payments to the medical care providers, handling late notices, administrating COBRA and serving as a resource on compliance. Primarily, the employers’ role will be limited to holding enrollment meetings and funding the reimbursement account.
Q: Why don’t insurance brokers provide these services?
A: Traditionally, employers have purchased health care benefits from insurance generalists who essentially provided transactional service. With the vastly increased costs of health care benefits, legislative changes and the sheer complexity of the products, the industry is moving from generalists to specialists/strategists.
Specialists go beyond the role of the traditional insurance broker and transactional administrator. They create, develop and price out strategic plans based on a thorough understanding of risk, and they have the ability to administer creative and attractive options working with high-deductible health care coverage plans.
Michael McKenna is president of Massachusetts-based Partners Benefit Group, an employee benefit management company that offers creative cost containment strategies for health, dental, life and disability options. He has over 17 years of experience in the employee benefits field and is a member of the Blue Cross Blue Shield and Harvard Pilgrim broker advisory boards. He is also a member of the Harvard Pilgrim ethics advisory council. McKenna is a frequent speaker on issues relating to health care.
Redirecting Health Coverage, HR Magazine, June 2009
IRS Announces 2010 Minimums and Maximums for HSAs and High-Deductible Health Plans, SHRM Online Benefits Discipline, May 2009
Practices Shared for Lowering Costs, Improving Health, SHRM Online Benefits Discipline, April 2009
Six-Year Study of CDH Plans Quantifies Employer Savings, SHRM Online Benefits Discipline, March 2009
Employers Increased Contributions to Consumer-Driven Health Accounts, SHRM Online Benefits Discipline, December 2008
SHRM Online Benefits Discipline