When you make the move to aself-insured model, health care starts to feel a lot more likeother parts of your business. (Photo: Shutterstock)

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Benefits are typically the largest expense item in a company's budget nextto payroll. Traditionally, managing the benefitsbudget hasn't been like managing other business expenses, asemployers have had little to no transparency into these costs.While most employers would be averse to accepting annual increases of 10 or 15 percent on otherbusiness expenses, they have never been able to apply the samelevel of scrutiny to their health care spend.

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But things are changing. As health care spending continues torise, maintaining the status quo is simply no longer an option.Fortunately, action steps similar to those you'd take in otherparts of your organization are available for your health plan.

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Related: As costs rise, employers drive change in healthcare delivery

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At Bernard Health's 8th Annual Health ReformLuncheon, our team explained how small and mid-sized companyleaders can think about their benefits like a CFO. Here are some ofthe highlights.

Employers' health care problems won't be solved with aninsurance solution

When faced with a big premium increase at renewal, the naturalnext step for many employers is often to look at other carriers andshop for a better rate. However, moving from carrier to carrierdoesn't address the issues that are actually driving up health carecosts for employers.

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In particular, rising and often inaccurate claims arecontributing to higher costs for employers in fully-insured healthplans.

Are insurers in the best position to drive down claims?

Insurance costs can be broken down into two parts —administrative costs and claims spending. Most employers would liketo do a better job of containing their claims spend, butfully-insured health plans offer little to no transparency as towhere the employer dollar is actually being spent.

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Further, a piece of the Affordable Care Act may actually beincentivizing insurers against helping employers reduce theirclaims spend. The medical loss ratio requires insurers to spend80 percent of all premiums collected on claims, with the remaining20 percent put toward administrative costs, marketing, andprofit.

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In other words, the maximum profit insurers can collect is 20percent of premiums. As a result, the avenue to profit growth is toincrease premiums altogether, especially for those not surpassingthe 80 percent threshold.

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Employers are left to question whether insurers are bestpositioned to help employers lower medical claims, and what reallydrives annual premium increases of 10 percent, 15 percent, 20percent or more.

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To get out of the status quo of premium increases, employers whoare frustrated with rising costs may have to change how they lookat their health plan and how it's financed.

Alternate financing

In order to get better insight to an organization's health carecosts and to deploy strategies to contain them, the group has tomove away from the fully insured model. The major differencebetween fully insured and self-insured plans are that the employerpays the claims up to a certain stop-loss threshold. The benefit ofself-insuring is better control over health care costs and thecost-savings potential of lower-claim years.

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When you make this move, health care starts to feel a lot morelike other parts of your business.

Strategies for lowering claims

There are three main ways to reduce claims spend and “think likea CFO” when it comes to benefits.

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1. Audit: Industry groups estimate 80 percentof medical bills contain errors, and employees are oftenover-billed. Insurers don't always have an incentive to audit thesebills and drive claims down, so this area presents a bigopportunity to reduce cost pressure in the benefits plan. Part ofthe administrative costs in a self-insured plan can includeauditing services to ensure bills are accurate.

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2. Avoid: Employers can take steps to directemployees to lower-cost sites of care by working with medicalmanagement organizations. These groups ensure patients are able toreceive the care they need from the most cost-effective andhighest-quality hospital or doctor.

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3. Negotiate: Increasingly, employers arefinding that they can receive better value in their health carespending by contracting or negotiating directly with hospitals orprovider groups rather than relying on insurance companynegotiations.

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Ultimately, as health care costs continue to eat up largerportions of employers' budgets, many organizations are finding thatthey can recognize significant savings by moving away from thefully-insured model. There are several steps organizations of allsizes can take to obtain more transparency and better value in thehealth plan.


Brian Tolbert is the author of “BreakingThrough The Status Quo” and is Bernard Health Benefits PracticeLeader.

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