Managing Health Care Costs

January 11, 2017
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ScopeThis article examines methods that employers can adopt to help them manage the costs of the health care benefits they offer their employees. Included in the article are many specific cost-management strategies, along with discussion of provisions of the Patient Protection and Affordable Care Act to the extent that they could affect employers’ costs. The article does not address strategies for controlling the costs of other employee benefits such as retirement plans or paid-time-off arrangements.

Overview

In recent years the employee benefits landscape in the United States has been transformed by the escalating costs of health care and other benefits, by changes in employment and benefits laws, and by new initiatives and options in health care benefits, particularly those set forth in the Affordable Care Act (ACA). As a result, employers are exploring various ways to manage the costs of the health coverage portion of their overall benefits programs.

This article provides a primer for HR professionals on varied approaches that employers can take to manage health coverage costs. The article examines the background, the business case and the role of human resources in health cost management. It discusses a number of cost-management methods—from shifting more costs and responsibilities to employees, to introducing high-deductible health plans, to implementing multifaceted wellness programs aimed at improving employees' health and thereby reducing health costs over the long term.

The article provides an overview of how the ACA affects employers' efforts to offer health coverage and manage its costs.

In addition, the article examines other major laws that affect health benefits, and it provides recommendations in other areas, including communications, metrics, technology and global health cost issues.

Background

In the United States, health care insurance has been handled mainly as a benefit of employment. Under the U.S. Internal Revenue Code, employers can generally deliver health benefits to employees as a tax-deductible cost of business, and employees can generally receive such benefits free of tax. The system has remained in place for decades, but the economics have changed. Health costs often rise at rates exceeding inflation and the pace of overall economic expansion, and the trend is expected to continue. Moreover, health spending is on the increase. The Office of the Actuary at the Centers for Medicare and Medicaid Services estimates that aggregate health care spending in the United States will grow at an average annual rate of 5.8 percent from 2015 through 2025, or 1.3 percentage points higher than the expected annual increase in the gross domestic product.1

Because of the long-term trend of rising health care costs and slow economic growth, employers are reassessing and redefining their roles as providers and subsidizers of their employees' health care benefits. Although most employers plan to continue sponsoring medical benefits for their employees, they are adjusting their ways of doing so. Many employers are integrating a pay-for-performance philosophy into their health benefits programs, and they are generally motivating employees to shoulder more responsibility for maintaining and improving their health and for contributing to the costs of their health coverage.

Business Case

Providing health benefits is an important tool for building a competitive workforce. For job seekers, the strength of an employer's benefits package may be nearly as valuable as salary. In fact, for a potential employee who has one or more dependents, benefits may be even more important than salary. Therefore, employers that want to hire the best, most productive employees must be prepared to pay the price in attractive, competitive health care benefits. See Employers Emphasizing Benefits to Recruit Talent.

For many employers, however, the price of benefits is becoming increasingly unaffordable. Health care coverage is the largest employee-related expense for U.S. employers. According to the Bureau of Labor Statistics (BLS), private industry employer costs for insurance benefits averaged $2.59 per hour worked or 8.0 percent of total compensation.2 According to a 2016 SHRM Survey, employers spent an average of $8,669 per employee annually on health care coverage.

2015 SHRM research on employers' strategies related to the ACA found that 77 percent of organizations saw increases in their health care costs, and of those organizations, nearly one-quarter (24 percent) had an increase of 16 percent or more in their overall health care coverage costs. See 2016 Employee Benefits Report (PDF).

HR's Role

The management of health care costs continues to be a top priority for HR professionals. In the 1980s, HR professionals were typically responsible for handling negotiations for the provisions and premiums of their organizations' group health insurance plans. As health plan costs escalated through the following decade, organizations' controller or chief financial officer took over those negotiations. Eventually, in some organizations, the CEO stepped in to try to stem the tide of rate increases.

As financial professionals took over health plan negotiations, reducing costs took precedence over most other considerations, including using health benefits to attract, retain and motivate employees.

Recently, a tighter partnership between corporate finance and HR executives has formed as organizations begin to address the implications of health care reform for their rewards programs and talent management strategies. Experts have suggested that a strong HR and finance partnership can be beneficial in facing the demands—and in taking advantage of the opportunities—of health care reform while balancing an organization's cost objectives and its needs for attracting talent and engaging employees.

Because they understand the needs of both the business and the employees, HR professionals can and should be organizational leaders in negotiating group health insurance benefits and in managing health care costs. Becoming expert in these areas, particularly in the changing U.S. health care environment since the enactment of the ACA, requires ongoing research and education.

Health Coverage Cost Management Strategies

In recent years, employers have tried many ways to control the ever-rising costs of medical coverage for employees. Steps that can produce cost savings relatively quickly include offering new hires coverage that is less generous than that offered to current employees, requiring increased cost-sharing for all health plan participants, and consolidating third-party vendors or pooling insurance risks to achieve economies of scale. Approaches aimed at containing health costs over the long run include wellness programs and other methods of making employees more responsible for their own health and their health care decisions.

According to a 2016 SHRM survey, the following activities were the most successful in controlling the costs of health care:

  • Offering consumer-directed health plans (e.g., health reimbursement arrangements, health savings accounts).
  • Creating an organizational culture that promotes health and wellness.
  • Offering a variety of preferred provider organization (PPO) plans, including those with high and low deductibles and co-pays.
  • Increasing the employee share contributed to the total costs of health care.
  • Offering a health maintenance organization (HMO) health plan.
  • Providing incentives or rewards related to health and wellness.
  • Placing limits on, or increasing cost-sharing for, spousal health care coverage.
  • Increasing the employee share contributed to the cost of brand name prescription drugs.

Those approaches are discussed in more detail below and demonstrate the many effective tools employers can use singly or in combination to help control their health coverage outlays. 

Offering Consumer Directed Health Plans

Promoting health care consumerism

Increasingly, employers' efforts to manage their health care costs are focused on getting employees to become better health care consumers. Health care consumerism refers to efforts to persuade employees to make healthful choices in daily living and providing tools and education to help ensure that when employees use health care, they are aware of its costs and have an incentive to reduce those costs when possible. Health care consumerism is tied to health plan design, incentives, an effective communication strategy and enabling plan participants to engage in healthful behaviors.

In many ways, efforts to move employees toward greater health care consumerism are similar to the efforts employers have made to persuade employees to save for retirement by using 401(k) and other defined-contribution plans. In health care as in retirement planning, more responsibility has been shifted to employees, and employers are using incentives to reward desired behavior. Just as employers can offer matching contributions to motivate employees to contribute to their 401(k) plans, employers are using incentives, such as contributions to a health savings account (HSA) or a health reimbursement arrangement (HRA), to spur greater employee engagement in their health care decision-making.

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Adopting consumer-directed health plan designs

The use of consumer-directed health plans (CDHPs), particularly high-deductible health plans (HDHPs), is significant in promoting health care consumerism. Because CDHPs are associated with the ability to better manage costs, not surprisingly, the percentage of organizations using such plans in 2016 was significantly higher than in 2012 through 2014. HR professionals report their use as one of their top strategies for keeping costs down, and more may turn to this approach if costs continue to march upward. Studies indicate that employees enrolled in CDHPs are more likely than others to make sustainable, positive behavior changes leading to significant reductions in health plan spending year over year.

A CDHP typically combines an HDHP with a tax-advantaged HSA or HRA to help enrollees pay for out-of-pocket medical expenses.

An HSA is a tax-exempt account set up to pay or reimburse employees for eligible out-of-pocket medical expenses. HSAs must be linked to a high-deductible health plan, and the plan's deductibles and contributions are federally set and adjusted each year. HSAs can be funded by employees, employers or both. An HSA is owned by the employee, and unspent funds are carried over from year to year and are portable if the employee leaves the organization. Employer contributions to HSAs are not taxable for the employee. Employees may make contributions with pretax dollars through a Section 125 salary-reduction cafeteria plan.

An HRA is an employer-owned account funded solely by employer contributions to assist employees in paying for or reimbursing eligible out-of-pocket medical expenses. HRAs are often linked to an HDHP but are not required to be. There are no government-mandated minimum deductibles or out-of-pocket maximums for plans linked to HRAs. The employer may, but is not required to, let funds accumulate from year to year. Contributions are not taxable for the employee.

These tax-advantaged accounts allow employees to access funds to cover higher cost-sharing provisions in exchange for lower monthly premiums. Because employees are more involved in the cost of health care services, they may be more inclined to consider the necessity of high-cost health care in certain circumstances, for example, an urgent care visit versus a visit to the emergency room.

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Developing a robust employee wellness program

As much as 70 percent of health care spending can be attributed to behavioral and lifestyle choices;3 thus, employers are increasingly offering employees health improvement programs. Numerous studies have indicated that employers can contain or even reduce health care costs by implementing wellness programs. See The Real ROI for Employee Wellness Programs.

According to a SHRM survey of employer wellness initiatives, about three-quarters of HR professionals said their organizations offered some type of wellness program in 2014, and more than two-thirds of respondents from organizations that offered wellness initiatives indicated these efforts were "somewhat effective" or "very effective" in reducing the costs of health care. See 2014 Strategic Benefits―Wellness Initiatives.

Wellness benefits can take many forms, and they can be as simple or as complex as an organization desires. Some wellness benefits help employees deal with preventable and chronic conditions such as obesity, high glucose and elevated cholesterol. Other wellness benefits are incentive programs designed to motivate employees to complete certain health and wellness activities such as annual health risk assessments, smoking-cessation programs or weight-reduction programs. According to the 2016 SHRM Employee Benefits Survey, the most common wellness benefits in 2016 provided by more than one-half of organizations were wellness resources and information (72 percent), wellness tips and information sent to employees at least quarterly (63 percent), a wellness program (61 percent), and onsite seasonal flu vaccinations (54 percent).

Before implementing a particular wellness program or initiative, an organization should carefully consider the potential costs, advantages, levels of employee participation and legal concerns. For wellness programs to be effective, employees must know about and participate in the offerings. According to recent research, employers view low engagement as the greatest obstacle to their wellness initiatives. Fine-tuning an organization's benefits communication efforts can pay big dividends in getting employees involved in wellness initiatives.

Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), employers' group health plans are not permitted to discriminate against employees on the basis of health factors by varying premiums, but the law does allow employers to offer wellness programs and wellness incentives.

The law's nondiscrimination rules generally prohibit group health plans from charging similarly situated individuals different premiums or contributions or from imposing different deductibles, co-payments or other cost-sharing requirements based on a health factor. There is an exception, however, that allows plans to offer wellness programs. If none of the conditions for obtaining a reward under a wellness program are based on an individual satisfying a standard related to a health factor, or if no reward is offered, the program complies with the nondiscrimination requirements—as long as all similarly situated individuals can participate.

Examples of programs that would be in compliance are as follows:

  • A program that reimburses all or part of the cost of membership in a fitness center.
  • A diagnostic testing program that provides a reward for participation rather than for outcomes.
  • A program that reimburses employees for the cost of a smoking-cessation program without regard to whether the employee quits smoking.
  • A program that provides a reward to employees for attending a monthly health education seminar.

For details on HIPAA's rules regarding wellness plans, see The HIPAA Nondiscrimination Requirements.

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Shifting health care benefit costs to employees

A major trend in managing employers' health care costs is having plan participants take on increasingly larger portions of the costs of their health care. Methods of doing this include raising the deductibles and co-payments for medical services, having participants pay larger shares of premiums, and increasing the costs of using out-of-network health providers rather than in-network providers. Employers must balance this approach with affordability requirements under the ACA. See What's 'Affordable' Coverage Under Health Care Reform?

A 2016 United Benefit Advisors (UBA) health plan survey showed that families are bearing the brunt of the cost of health insurance. For an employee electing single coverage, the employer covers 71 percent of the monthly premium, but only 54 percent of a family premium. The survey also showed that employers are shifting costs to employees through increased out-of-network deductibles and emergency room co-pays. See Health Benefits Take Bigger Bite Out of Paychecks.

Attaching a surcharge to spousal coverage

Some employers have added "working-spouse" provisions to their health coverage plans. These provisions limit an employee's spouse's access to a plan when the spouse works for another employer that offers health insurance. Working-spouse provisions—also called "spousal carve-out" or "spousal exclusion" policies—generally take one of three forms:

  • A requirement that an employee's working spouse pay a premium surcharge for coverage through the employee's enrollment if the spouse's employer offers health insurance and the spouse has declined it.
  • A requirement that an employee's working spouse purchase health insurance through the spouse's employer's plan before also purchasing it through the employee's enrollment.
  • An outright exclusion of an employee's working spouse from coverage through the employee's enrollment if similar coverage is available from the spouse's employer. This approach is not commonly used.

Before adopting such rules, employers should determine if the savings from the requirements would at least offset the administrative costs and predict possible adverse employee reactions that the rules might entail. Employers must also be aware of the nuances of spousal exclusions, which can determine whether they are effective—and legal.

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Changing prescription drug benefits

Prescription drug benefits are fast becoming a larger, more complex and integral component of an employer's total approach to managing health care costs. Pharmacy benefit costs have increased at an alarming rate rising from 20 percent of an organization's overall health care spending in the early 2000s to 30 percent in 2016. Over the past several years, prescription drug cost-increase trends have outpaced medical cost trends. In addition, more expensive specialty drugs are entering the market, and trends for these drugs are forecasted to have twice the cost-increase trends of retail drugs.

According to the National Business Group on Health (NBGH), prescription drug costs are expected to increase 7.3 percent overall in 2017. But most of this increase is due to specialty drug costs, such as biologics that require special handling. Specialty pharmacy costs are projected to surge 16.8 percent in 2017.4

To manage all drug costs, employers plan to use a variety of tactics, such as requiring:

  • Prior authorization before filling a prescription.
  • Quantity limits.
  • Step therapy, requiring less expensive drugs to be tried first.
  • Having the member pay the difference between generic and brand prices.
  • Closed formulary excluding certain brand name drugs.
  • Integrated medical and pharmacy data for more effective cost management.
  • Mandatory mail order for maintenance medications.
  • Four-tier or higher pharmacy plan design.
  • No co-pay for select generic medications.

Techniques focusing on specialty drugs include:

  • More aggressive use of management protocols for specialty medications.
  • Requiring specialty medications to be obtained through a specialty pharmacy.
  • Pharmacy plan designed with a specialty tier with greater cost sharing.

Although managing pharmacy benefits costs serves a worthwhile and necessary goal, employers should keep the larger picture in mind when developing strategies. Cost-cutting that denies individuals access to necessary medications or that makes purchasing prescription drugs a financial hardship may have negative effects on an employer's long-term health care costs and workers' health and productivity.

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Additional Options

Additional options that have potential for significant savings in employers' health care costs include:

  • Auditing family-member eligibility and other aspects of the plan.Including telemedicine access.
  • Establishing tiered health insurance plans.
  • Offering health risk assessments.
  • Negotiating better benefits contracts with vendors.
  • Self-funding the health plan.
  • Scaling back or eliminating retiree benefits.
  • Eliminating employee health care coverage altogether.

Auditing family-member eligibility and other aspects of the plan

Plan sponsors have a fiduciary duty to administer their health plan in the interest of eligible participants and their eligible dependents. If an employer is providing health plan coverage for nonqualified participants, the employer not only is wasting money but also is at risk of violating federal requirements and the Internal Revenue Code. Organizations can avoid such negative outcomes by carefully managing dependent eligibility. Providers of dependent-eligibility audit services have reported in recent years that more than 12 percent of covered dependents have been found during audits to be ineligible.5 Removing ineligible persons from the plan can ultimately save the employer substantial sums.

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Telemedicine

Virtual doctor visits are a trending health care savings strategy. Telemedicine, in which individuals contact a health care provider through videoconferencing or phone to obtain a diagnosis and treatment, was offered by nearly one quarter of employers in 2016. This arrangement is often less expensive than an office visit and more convenient to individuals who are seeking care after hours or who cannot easily go to a doctor's office. Major health insurance carriers are more frequently offering telemedicine, or employers can contract directly with third-party vendors that provide this type of service. Employee education and communication are necessary for making effective use of telemedicine benefits with employers often promoting the convenience factor to working parents or traveling employees. See Telemedicine: An Emerging Health Care Trend and The Doctor Is In—On Skype.

Establishing tiered health insurance plans

Given that the ACA requires employers to expand their health benefits programs to employees' adult children, some employers are looking for ways to share the increased costs of this requirement. Under the law, health plans that offer dependent coverage—as employer-sponsored plans routinely do—must allow participating employees' unmarried adult children to remain on their parents' plan until age 26. One way for employers to share the new requirement's cost is to charge health insurance premiums on a per-participant basis.

Employers have always differentiated premiums based on types of coverage. What has changed is the detail involved in structuring premiums. Instead of offering family coverage with one premium no matter how many children are covered, employers are creating tiers of premium rates. A common four-tier strategy is:

  • Employee only, generally called individual coverage.
  • Employee plus one, which can mean employee plus a spouse, a partner or a child.
  • Employee plus child or children without a spouse or a partner.
  • Employee plus spouse or partner and child or children—often called family coverage.

Other options for employers include expanding tiers to require higher premiums for three or more children or having uncapped tiers under which the employee's premium is based on the number of individuals the employee enrolls in the employer's plan. Some employers limit the number of tiers to avoid making coverage too expensive for larger families.

Alternatively, to deal with the affordability of employees' premiums, employers are showing interest in basing premiums on employees' salaries by charging lower-wage earners less for health insurance. See Earn Less, Pay Less.

Offering health risk assessments

As wellness programs become more prevalent in efforts to keep health care costs under control, more employers are having health risk assessments conducted in their workforces to gain better understanding of their employees' health risks so that they can choose the health issues on which to focus their wellness programs. Employers are increasingly becoming convinced that employees will be more informed and engaged in health-improvement efforts if they learn their health risks through confidential personalized health risk assessments and if they are given tools to improve their risk behaviors.

A health assessment can provide a wealth of data cost-effectively, and the data can be used to tailor the wellness experience for each individual. Research has shown that when wellness programs are well designed and offer a health assessment with relevant follow-up and options customized to meet individuals' needs, the programs have a positive impact on population health and financial outcomes.

However, employers that conduct risk assessments need to be aware of limits established for such assessments by the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA). The ADA requires that health- and disability-related inquiries and employee medical examinations be completely voluntary unless they are specifically job-related and consistent with business necessity. Similarly, under GINA, risk assessments that request genetic information must be completely voluntary. GINA also stipulates that no rewards can be provided for the completion of risk assessments that solicit genetic information. Accordingly, employers cannot impose any penalties on an employee who declines to complete an assessment that solicits such information.

Nonetheless, employers can offer bonuses or reduced health insurance premiums to employees who voluntarily take health-risk assessments or enroll in recommended disease management or behavior risk management programs. See Meeting the Health Risk Assessment Challenge and Encouraging Health Risk Assessments? A Few Cautions.

Negotiating better benefits contracts with vendors

Many employers, particularly smaller businesses, could be more aggressive in negotiating contracts with health insurance vendors. Benefits experts indicate that health insurance providers have a generally accurate sense of an organization's "pain" threshold—the level of premium increase an organization will tolerate. A current carrier will likely keep raising rates year after year because it knows most organizations do not want to take on the difficulties of re-enrolling an entire employee group with a new provider.

Insurance providers often bundle costs for administration, network access, wellness programs and reinsurance into one total cost figure. When services are bundled, however, employers may have difficulty comparing the costs of individual services from provider to provider. But employers can achieve comparisons and thereby stimulate competition by requesting that services be unbundled and then by negotiating each piece. This approach can lead to better control of health insurance costs.

Self-funding the health plan

Concerns that implementation of the ACA would drive up employers' health insurance costs prompted greater interest in self-funding. In a traditionally insured plan, an insurance company assumes the risk, controls the plan's administration, establishes reserve capital levels and manages other major decisions concerning the health care coverage provided to employees and dependents. Under a self-funded arrangement—also called self-insured—the employer assumes the liability and risks of providing health coverage in exchange for more control over the plan's administration and funding. Self-funded plans are most prevalent among organizations with 500 or more employees, although self-funding can work for smaller companies also.

With self-funding, an employer takes the money it would otherwise pay to an insurer and establishes a special bank account to pay for claims. A broker or benefits consultant is hired to develop a customized medical plan for the group. A third-party administrator (TPA) is hired to receive and manage claims, and the employer authorizes the TPA to draw money from the bank account to pay claims. Typically, the TPA arranges to have preferred PPO networks, wellness programs and other managed care elements in place. The TPA issues employee ID cards, too, and thus from the outside the employees appear to have traditional medical insurance.

Self-funded plans are governed by the Employee Retirement Income Security Act (ERISA) and are attractive to employers because of the greater level of flexibility that comes with being able to tailor the plan to their needs. Although employers take on additional financial risk, they are able to limit total risk through the purchase of a stop-loss policy, and they benefit from the increased cost savings typical of the self-funded model.

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Scaling back or eliminating medical benefits for retirees

Similar to the reduction in traditional pension plans, a decline in retiree health benefits has taken place over the past decade, mainly to cut costs. Only 20 percent of employers continue to offer a retiree health plan, according to the 2016 SHRM Employee Benefits Survey. For suggestions regarding reductions to retiree health benefits as cost-saving measures, see Retiree Health Care Alternatives Gaining Steam and The Future of Employer-Sponsored Health Insurance.

Eliminating employee health care coverage altogether

Until recently, the question of whether to offer employees health coverage—and how much to offer—hinged largely on the effects that such coverage, or the lack of it, might have on an employer's ability to recruit and retain employees.

Since the enactment of the ACA, that question, like many other considerations in health care cost strategizing, has taken on new dimensions. This is particularly true given that employers are faced with potential penalties based on the level of health care benefits they provide. Many employers must decide whether to offer health benefits at all or to decline to offer them and likely pay penalties for not offering them—the so-called play-or-pay decision.

It may be relatively easy for employers to determine the difference in costs between paying for health care benefits for employees and simply paying the penalties imposed by the health care reform law. But other considerations will come into play. Although eliminating health benefits might save money initially, it could have substantial ramifications in other areas. For instance, it could have a profound impact on an organization's ability to attract and retain employees, on its organizational culture and on its competitiveness. See Small Businesses Are Dropping Health Coverage; Large Employers Hold Steady and Should Employers Pay or Play Under PPACA? Factors to Consider.

The Affordable Care Act Impact

The ACA presents some of the most extensive challenges for employers in managing health care costs. The ACA is directly and indirectly increasing the cost of employer-provided health care through a number of its provisions. According to a 2014 American Health Policy Institute survey, direct costs in the ACA include the following:

  • "Patient Centered Outcomes Research Institute fee;
  • Temporary Reinsurance Fee;
  • General ACA implementation and administrative costs;
  • Excise tax on high-cost plans;
  • Mandate to cover adult-children up to age 26 as dependents; and
  • Other benefit mandates including covering 100 percent of preventive care services."

As such, employers will likely be implementing more and more of the cost-saving measures outlined in this toolkit in response to the impact of the ACA on health care spending. For a full overview of the impact of the ACA on employers, see Complying with and Leveraging the Affordable Care Act.

Legal Issues

Many of the approaches that employers can take in managing health coverage costs are subject to various requirements of major employment laws. Employers should be familiar with the general purposes of laws such as ERISA, HIPAA and COBRA, to name a few. Before implementing a new plan or making changes to an existing one, employers should consult with health coverage experts and legal counsel to avoid breaching the boundaries of laws and regulations regarding the equitable treatment of employees. Employers must avoid practices that could be discriminatory toward individual employees or groups of employees.

Communications

Effective communication to employees is critical for success when rolling out health care cost-control measures. In communicating about health care benefits, employers should consider the following recommendations:

  • Communicate early and repeat the message often. Even though open enrollment is an important time for employers to educate employees about cost-conscious health benefits choices, health care communications experts recommend that organizations provide ongoing communication activities rather than concentrate only on open enrollment season. More employers now believe they need to engage employees continually in health consumerism because the results it can produce derive from day-to-day decisions.
  • Communicate in a variety of media. Use both traditional and electronic methods. Traditional methods include open enrollment, payroll-stuffers, posters, a table outside the cafeteria where people explain the program and one-on-one benefits counseling. Electronic methods include intranet communications, e-mail, and mobile-device and social-media access to health benefits information.
  • Provide employees with tools to help them make cost-effective health care benefit choices. These choices include selecting appropriate health plan options, treatments and providers based on available cost and quality information. With cost information at their fingertips, employees are able to make more insightful decisions about their health care and the care for their families. They can learn to balance cost, convenience and quality in a manner that meets their budgets. That process can lower the overall cost of health care for both employees and employers.
  • Encourage employees to evaluate how they and their family members used health care in the previous 12 months. Suggest that they consider how much they spent out-of-pocket on deductibles, flat-dollar co-payments, and percentage-of-cost co-insurance and review the number of doctor visits and the cost of ongoing medications. Employees who have an HSA or an HRA should determine what remaining balance they might be able to apply to the subsequent year's expenses.

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Metrics

As each fiscal year draws to a close, an organization's HR leaders and benefits professionals look for ways to save money and control health care costs in the coming year. As part of this process, they should gather and analyze data that can give them a clear picture of health plan enrollees and total health plan costs. Some key metrics in these areas include:

  • Enrollee information, such as the numbers of employees, spouses or partners, and dependents enrolled and using the health coverage.
  • Direct costs such as paid claims and administrative costs.
  • Indirect costs attributable to health issues, such as lost time because of disability.
  • Use of benefits trends.
  • Benchmark data on the cost of health care and employer cost-sharing trends.

See Health Care Benchmarking Reports Hit the Mark.

Technology

Employers can use technology to provide employees and their health plan dependents with information and tools to manage their health and health care costs. Technology can also help employers understand the vast amount of data in their health plans, which can enable them to pinpoint potential areas of escalating health costs and identify opportunities to control health costs. A health plan's data hold vast potential. Organizations can use aggregate data to help design plans, improve employees' health and drive down health care costs.

Among the various ways that organizations can help employees improve their health is a tactic that many plan sponsors still overlook: data mining, the process of identifying data patterns and turning them into useful information. Data mining uses analytical software to examine a health care plan's raw data. Plan sponsors can use data patterns to make plan design decisions. Key information in this context includes the health services being used, the services available but hardly or never used, and the benefits or services currently not incorporated in the plan but that the data suggest should be included.

Medical data management companies collect such information from health insurers, third-party administrators, HMOs and pharmacy benefits managers. The data companies organize the information into specific clinical use and financial data sets. Sophisticated software allows analysts to sort, combine and contrast key data elements to help decision-makers and clinical managers take effective corrective actions. Individuals' information is not disclosed; the data are aggregated, and thus the information does not violate the privacy protections mandated by HIPAA.

Another tool for helping employers control health costs is predictive modeling, which uses claims data and lifestyle analytics to identify potential catastrophic claims and illnesses. Predictive modeling can sort a population according to its risk of nearly any outcome. This means identifying subsets of employees who are likely to need high-cost health care of one type or another within six to 12 months. Organizations can then offer particular subsets services such as health coaching to better manage their health and reduce the likelihood that they will need avoidable, costly care.

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Global Issues

The cost of employer-provided health insurance continues to increase around the world. Given the variety of health systems and market practices globally and the significant differences in costs for employers to sponsor health plans, the need for a global workforce health strategy has never been greater. Multinational organizations that have a clear strategy can better coordinate local health activities to improve their overall workforce health and increase the efficiency of their total spending on health care.

Multinationals in various regions have different health plan needs and goals. Corporations in the Americas, for example, are much more focused on medical cost containment, whereas European corporations are concerned with disability, lost productivity and absenteeism. Most national governments, even in the developing world, are far more involved than the United States in providing or mandating health care services. In countries where government-provided benefits are extensive, HR executives may find little need to add to them. In many countries, however, governments provide only very basic health care services. In less developed parts of the world, quality of care is often a problem.

Notwithstanding these differences, some common issues and trends have emerged globally with respect to managing health care costs. Many of these mirror cost-control measures being adopted by employers in the United States. These global trends include:

  • Reform of pension and health and welfare systems. Such reforms, prompted by an aging population and the increasing cost of providing adequate retirement income and health services, are gathering momentum in numerous countries, including France, the United Kingdom, Australia and Canada. Without action, as the reforms progress, multinationals risk being hit by unsupervised and escalating costs and might violate regulatory requirements.
  • Use of incentives tied to wellness program participation and behavioral change.
  • Discounts for using networks of high-quality medical care providers that do not charge above-market rates for their services—for example, requiring employees to share the cost burden if they select a provider charging $3,000 for a colonoscopy when in their locality the same procedure is available for under $1,000 from a provider with a demonstrated record of high-quality outcomes.

When managing benefits for a widespread international workforce, HR managers should first establish a global corporate benefits strategy. The most common strategy is to design a plan that complies with applicable local laws and matches the benefits of local competitors.

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Endnotes

1Centers for Medicare and Medicaid Services. (2016, December 2). NHE fact sheet. Retrieved from https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nhe-fact-sheet.html

2Bureau of Labor Statistics. (2016, December 8). Employer costs for employee compensation. Economic News Release. Retrieved from https://www.bls.gov/news.release/ecec.nr0.htm

3National Association of Heath Underwriters. (2015, June). Healthcare cost drivers white paper. Retrieved from http://www.nahu.org/legislative/policydocuments/NAHUWhitePaperCost.pdf

4National Business Group on Health. (2016, August 9). Large U.S. employers project health benefit cost increases to hold steady at 6% in 2017, National Business Group on Health survey finds [Press release]. Retrieved from https://www.businessgrouphealth.org/pressroom/pressRelease.cfm?ID=281

5PSA. (2013, April 30). Dependent verification audits: potential savings for your health care plan. PSA Perspective [Blog]. Retrieved from https://www.psafinancial.com/2013/04/dependent-verification-audits-potential-savings-for-your-health-care-plan/


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