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June 11, 2020

Cost-Savings Strategies Beyond COVID-19: Keep Benefit Plans Top of Mind

With many businesses turning their focus to reopening, as budgets strain it may be important to consider benefit plan cost-savings strategies.

Cost Savings for All Plans

Generally, all employers offering employer-sponsored health and welfare benefits may save costs with the following ideas.

  1. Plan Design. 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. Make sure to review your pharmacy benefits as there are cost-savings mechanisms and incentives that can save the employer and plan member money.
  2. Contribution Strategy. There is a great deal of free benchmarking information available to understand how your strategy compares to peer employers. Consider defined contribution strategies combined with multiple levels of plan design choice.
  3. Market Check. A market check may be completed at any time but have reasonable expectations for cost savings.
  4. 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.
  5. 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.

Cost Savings by Plan Type

Depending on the size of your organization and/or a willingness to share in the risk financing of the health plan liability, employers have more opportunities for substantial savings in addition to those above.

  • Small, ACA Health Plans

Employers with less than 50 employees are often covered by “ACA plans,” which 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 plans. However, if an employer is willing to consider alternative provider reimbursement models where the provider is reimbursed similarly to Medicare, 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 larger employers with 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, employers may save money when compared to a traditional group health plan.

  • Small to Medium, 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 data. Small employers (less than 50 employees) should complete a market check to measure the financial potential for this approach. Make note that these plans come with additional responsibilities for ACA reporting.

  • Insured Health Plans
    • Cost Shift/Deductible Financing. Insured health plans may benefit from increasing deductibles, then financing the additional risk through tax-favored employee accounts such as health reimbursement or health savings accounts. 
    • Premium Risk Sharing. Many insurance companies have premium risk-sharing models to protect the plan sponsor’s “downside” when claims exceed premium but allow the employer to benefit when claims are below a specific threshold. 
    • Funding Analysis. Larger employers (over 100) should review funding alternatives and determine if it makes sense to retain some risk through self-funding. Self-funded employers may participate in a wider array of cost-savings strategies.
  • Self-Funded Health Plans
    • Network Repricing. Sharing billed and paid claims from your current network with another network may demonstrate savings to justify a change. Simultaneous evaluation of high-performance networks may yield additional savings.
    • Third-Party Care Coordination. These services are highly interactive with employees and provide a “white glove”-type experience for the plan member to navigate the most efficient access to care. 
    • Centers of Excellence. Certain high-cost procedures are steered to high quality of outcome providers, lower cost providers or both. 
    • Pharmacy Review & Alternate Funding. In many cases, plan sponsors can reduce pharmacy spend 10 to 40% by reviewing pharmacy contracts, carving out pharmacy directly to a pharmacy benefit manager (PBM) or group purchasing coalition, or adopting more aggressive measures through alternate funding of specialty drugs. 
    • Reimbursement Model. Sometimes referred to as reference-based pricing, these models may be frictional for health plan members but generate substantial employer 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.

By GREG CALLAHAN | gcallahan@cbiz.com | 816.945.5198

 

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