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Exploring Benefits Cost Containment Strategies

Higher Education: Exploring Benefits Cost Containment Strategies

The Challenge for Higher Education Institutions

Facing unique financial pressures, colleges and universities must have HR departments that operate efficiently and at a high level. There is a unique range of employees in higher education – tenured faculty, adjunct staff, administrators, office staff – all with different viewpoints and needs. And after years of serving their institutions with administrative excellence, they are faced with new challenges:

Doing more with less. As with many departments, HR budgets in higher education have tended to be 50 to 75% lower than those found in other industries. In addition, state budget shortfalls have made it necessary for all departments to cut back.

Managing rising healthcare costs. Increasing health care costs is a top concern for HR departments in higher education. Institutions are looking to lower their benefits costs all while upholding high benefits standards.

Attracting and retaining employees. Institutions will need new generations of faculty and staff to meet their needs.

Improving leadership development. With increased competition for candidates and an aging employee pool, succession planning for leadership will become a top priority.

Every university or college is faced with cost pressure, so HR has to develop operational efficiency and high-performing cultures.

Higher Education and the Employee Benefits Landscape

In recent years the employee benefits landscape in the U.S. 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). Because of the long-term trend of rising health care costs and slow economic growth, universities and colleges are reassessing and redefining their roles as providers and subsidizers of their faculties’ and staffs’ health care benefits. Although most institutions plan to continue sponsoring medical benefits for their employees, they are adjusting their ways of doing so and becoming more innovative with their approach.


Benefits Cost Containment Strategies

Promoting health care consumerism and adopting consumer-driven health plans

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 educate 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.

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.

The use of high deductible health plans (HDHPs) is significant in promoting health care consumerism. Studies indicate that employees enrolled in HDHPs are more likely than others to make sustainable, positive behavior changes, leading to significant reductions in health plan spending year over year. A HDHP typically combines an HDHP with a tax-advantaged HSA or HRA to help enrollees pay for out-of-pocket medical expenses. To lessen the pain of high deductibles while maintaining incentives for cost-conscious spending, employers consider contributing to their employees’ HSAs.

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 fully-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 more liability in exchange for more control over the plan’s administration and funding. Self-funded plans are most prevalent among large organizations; however, new and creative strategies are making self-funding more accessible for smaller companies.

Self-insured plans are attractive to employers because of the greater level of flexibility and the opportunity for cost savings. Due to employers taking on additional financial risk, it important to develop a long-term strategy when it comes to self-funding.

Implementing effective employee communication

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.
  • Communicate in a variety of media. Use both traditional and digital methods.
  • Utilize customized educational pieces. Tailor your communication to the viewpoints and needs of your employees.
  • Provide employees with innovative 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.
  • Encourage employees to evaluate how 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.

Leveraging technology and data analytics

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 holds vast potential. Organizations can use aggregate data to help design plans, improve employees’ health and drive down health care costs.

The process of identifying data patterns and turning that into useful information enables employers to pinpoint potential opportunities for cost savings. These types of analytical tools allow organizations to make decisions based on data, not assumptions. 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 suggests should be included.

Developing a robust employee wellbeing program

As employers continue to look for ways to manage rising health care costs, many are turning to workplace wellbeing programs to improve employees’ well-being and to help manage or prevent chronic conditions. According to a recent study from Health Affairs, a health care policy journal, for every dollar spent on wellbeing, medical costs drop an average of $3.27 and absenteeism costs fall by $2.73. If developed and implemented effectively, your company could achieve a similar return on investment (ROI) on your wellbeing initiatives.

Wellbeing benefits can take many forms, and they can be as simple or as complex as an organization desires. Some wellbeing benefits help employees deal with preventable and chronic conditions such as obesity, high glucose and elevated cholesterol. Other wellbeing 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.

Staying compliant and mitigating risk

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 ACA, HIPAA and COBRA, to name a few. Before implementing a new plan or making changes to an existing one, employers should consult with benefits experts and legal counsel to avoid breaching the laws and regulations regarding the equitable treatment of employees. Employers must avoid practices that could be discriminatory toward individual employees or groups of employees.

The ACA presents some of the most extensive challenges for higher education institutions in managing health care costs. It is directly and indirectly increasing the cost of employer-provided health care through a number of its provisions. Not complying with the ACA can put your institution at risk with penalties on the order of hundreds of dollars per employee per incident. Verifying who should and should not be receiving benefits is central to any compliance effort; failing to identify which employees are no longer eligible for coverage can also lead to inflated benefits costs. Additionally, having these processes in place will aid in avoiding legal fees, costly fines and reputational damage that could affect an organization for years to come. 

For more information, please contact:
Kevin Burns
[email protected]