The pandemic confirmed that the manufacturing sector can call “innovation” a survival skill. “Making changes in something established, especially by introducing new methods, ideas, or products” or “introducing something new” . . . that’s the Oxford Language view of the term innovate. And that is exactly what U.S. manufacturers have done to stay operational in spite of COVID-19’s impact and to meet new production and market demands produced by the pandemic.

Innovation is a dynamic that manufacturers understand. Not all industries have embraced that concept. For many years, the insurance industry found innovation conflicted with the established processes of health care delivery, particularly for employer health care benefit programs. Increasing benefits led to increased spend. Reducing spend was entirely a function of reducing benefits. No question, this was a paradigm in need of innovation.

As markets have evolved, however, there are now, finally, innovative ways to manage cost without sacrificing the quality of this critical employee benefit. In much the same way a manufacturer sources raw materials and negotiates the procurement process, creative procurement of health care for the highest cost claimants (85% of the spend) will have significant impact, while permitting benefits and plan structure to remain the same at the employee level. The potential savings to employers can be more significant than imagined.

Sound too good to be true? Let’s review two real-life examples of how re-exerting control over the supply side of health care can reduce spend and maintain quality health plans.

Case Study 1

The company had seen large increases in costs from 2017-2019 with no end in sight. They have a total workforce of about 1,500 (1,050 participating in the health plan) and are growing quickly through acquisition (unfortunately, carrying heavy risk).

Management had a strong desire to improve employee satisfaction with the overall benefits, while controlling future costs. The company’s benefits consultant was able to focus on purchasing health care cheaper and at a higher quality by (1) identifying the 3-5% of the population that was absorbing 60% of the costs, (2) then putting in place a health care advocacy approach and steerage mechanism* structured around a higher quality provider or facility, and (3) designing a drug program that drove down costs of the specialty spend by almost 70%, while still allowing every member to procure their medication. The company realized significant reductions in annual spend. The full results at the end of 2020 were as follows:

Case Study 2

A 4,000-employee organization needed to manage significant financial issues toward the middle of the 2019 fiscal year. To address the situation, a new three-year benefits program was developed with incremental changes, returning corresponding savings each year. The CFO immediately turned to year three of the strategy and stated, “This is where we want to be today!”

A more aggressive program similar to Case Study 1 was developed, including health care advocacy and claim steerage* with both medical and pharmaceutical benefits – but with a focus on the 80% of the population incurring 100% of the spend. While the organization’s leadership recognized the possibility of disruption in a traditional health care model, in the end, fewer than 5% of the claims had a “second touch” with an eventual 100% resolution rate. This program resulted in an amazing $8.35M in savings – $2.5M better than original projections.

Innovation’s Win-Win Factor

Employee benefits cost containment no longer has to be painful; in fact, it can be a key feature of a company’s overall operating strategy, returning real benefits in employee recruitment, retention and satisfaction. In both case studies, the employee plan designs were unchanged. In other words, employees saw no change to deductibles, co-pays, out-of-pocket maximums, pharmacy copays, etc. Savings were achieved through steerage mechanisms on how employees received their care. Supported by effective employee communications, satisfaction among the employees post-year-one was far greater than in the previous traditional model.

* A steerage mechanism works to direct members to high-quality, affordable providers, rather than just leaving members to blindly choose from a list of in-network providers.

Additional Resources

• Re-exerting Control over Supply Side of Health Care to Control Costs (article)
• 2021 Employee Benefits Benchmark Report (download)

Your Team

Cole Harris is the Vice President of Sales and Marketing for CBIZ Benefits & Insurance of Tennessee. He sits on the advisory board for all of the major medical carriers. Cole specializes in the consultative approach to analyzing current corporate strategies. Don’t hesitate to reach out to Cole if you have questions about the concepts in this article or to discuss other aspects of employee benefits planning. You can reach him directly at charris@cbiz.com or (865) 251-5149.