There is no silver bullet to harness increasing health care costs. However, some companies are taking successful shots at minimizing their increases. By making a couple of changes to your plan, you can successfully change the direction of your company’s health care costs.
One local organization, Alexian Village of Milwaukee, used both a Section 125 health reimbursement arrangement (HRA) plan and a wellness program to achieve an 8-percent reduction on its insurance renewal increase. Alexian Village’s renewal still rose 15 percent, but it would have been 23 percent if the organization had not implemented changes. Ultimately, the company saved more than $200,000 without increasing employee expense.
This is a case study of how Alexian Village curbed its cost increases.
Step #1:Increase deductibles
Alexian Village covers approximately 150 employees on its health insurance program and had a traditional health insurance plan with no deductible and a minor co-pay. Knowing that insurance companies price plans based on the levels of benefits covered, Alexian Village introduced a high deductible of $1,000, with $1,500 coinsurance maximum thereafter, hence a total of $2,500 out-of-pocket annual maximum, provided people were seeking care within the insurance companies network of doctors and facilities.
The company decided to self-insure a large portion of the $2,500 annual maximum. This is what enabled the company to reap significant savings through the insurance premiums.
Step #2: Use Section 125 health reimbursement arrangements
Alexian Village did not simply pass the new higher deductible onto employees. The company used its Section 125 flexible savings plan, whereby each employee could use pre-tax dollars to pay for medical expenses. The company provided the first $500 of the deductible and all $1,500 of the coinsurance. Those exceeding the $500 deductible would be responsible for the remaining $500, but Alexian Village expected that this would only impact a small portion of employees. The Section 125 plan also enabled the employees to set aside money of their own, pretax to pay for their portions.
The idea is to encourage people to sock away money of their own in the Section 125 program to cover their portion of the expenses. This in turn will reduce both the employers and the employee’s taxes. Using an outside vendor to administer the reimbursements allowed the employees to maintain privacy. No one at Alexian Village would see the claims or medical bills for a co-worker.
Unlike a health savings account (HSA), the Section 125 HRA plan allowed the company, not the employee, to control the money. With HSAs, the money goes directly to the employee, whereas with these Section 125 HRAs, the company only incurs expense if an employee incurs a claim. While the employee had access to the entire $500 deductible and $1500 coinsurance from day one of each year, if no claims materialized, the company did not need to spend the money.
Step #3: Help cover part of the cost of co-pay
To encourage routine and preventative care, the company decided to reimburse $10 of a $30 co-pay toward doctor’s office or urgent care visits. On the flip side, the insurance program was increasing the emergency room co-pays from $100 to $150. This way, employees are encouraged to visit the less-expensive doctor’s office or urgent care verses the significantly more expensive emergency room.
An interesting nuance of the Alexian Village program is that employees need to submit a claim form for reimbursement to the Section 125 Flex administrator. By completing these claim forms and submitting receipts and explanations of benefits, employees become aware of the costs of certain health care procedures. The goal is two-fold – reimburse people for high-cost procedures but also allow them to become better consumers by being "engaged" in the process.
Step #4: Encourage good health
Many companies realize that health costs are driven by the actual claims experience. By improving the health of employees – especially the small portion of employees facing high-cost acute care – you reduce health care costs overall. Health insurance renewals can improve drastically by simply encouraging healthy lifestyles. I always tell clients, "You are never gong to be penalized for lowering your claims…"
Alexian Village implemented a wellness program and took the additional step of introducing health risk appraisals for all employees and offering an incentive for those who completed them. These appraisals help employees become more aware of their health risks and take steps to address problems. Alexian Village offered incentives to encourage people to complete the appraisals. The next step will be to roll out wellness programs to address the top three areas of concern.
In sum, there is no standard answer for every company, but increasingly, companies are finding a quiver full of options to attack health care costs.
Alexian Village pre-empted a large premium increase by self-funding deductibles and attacking health care costs through an aggressive wellness program. By introducing an element of consumerism to its program, Alexian Village engaged employees to help them manage their health care benefits.
Scott Schultz is the client relations manager for Burkwald & Associates in Pewaukee.
May 13, 2005, Small Business Times, Milwaukee, WI
