Insurance is all about the balance of cost and risk. If I know where my risk lies, then I can better control my costs. This principle is the foundation of how to view your health insurance strategy.
Many advisors focus on the market to control costs. This approach can yield some results – the health insurance marketplace is highly competitive and cost reductions can be achieved by leveraging carriers against one another – however, these results are short-term and are often outweighed by bounce-back increases (often referred to as the “whiplash effect”). Typically, one in every five years will be a “bad” claims year for a company and incur a larger increase for the next renewal.
There are numerous other strategies to consider when trying to take control of your insurance costs. The most obvious of which is by focusing on your own employees. Healthier people with the appropriate amount of insurance tends to flatten out the increasing health insurance cost trend. Healthier people lead to lower claims; lower claims lead to a lower loss ratio (Claims/Premium); lower loss ratios lead to lower renewals.
How do I make my population healthier?
Employee incentive programs through compensation and benefits can be a great part of this strategy. Providing employees with incentives such as reduction in payroll deductions for health insurance or gift cards for
- completing wellness initiatives (i.e. annual physicals, step challenges, etc.)
- quitting smoking/tobacco products, or
- other offerings
It is a relatively easy way to start that journey towards healthy living. It will give employees short-term relief by reducing how much they pay for insurance, or excitement and team building surrounding an employee challenge – and the end result is the Company has longer-term relief in the reduction of future claims.
Here is an example: If an employee controls high blood pressure earlier because the issue was found during an annual physical, a future heart attack may be avoided. Heart attacks can turn into a six or seven digit claim that a Company would absorb through higher premium payments, which could have been avoided through medical maintenance. Controlling costs outside of the market conditions.
Two tools to help you with these initiatives
You do not need to go down this path unprepared. Two primary tools come to mind.
Carrier Resources: Believe it or not, health insurance carriers want lower claims too. While a fully insured Company may absorb claims through future premium increases, the carriers need to front the bill. High claims are not always profitable for carriers (which are businesses too….large ones at that) and they will look for ways to lower claims and improve population health. Most carriers have an arsenal of resources available to their subscribers (employees enrolled), that are unknown to the users. In some cases, carrier mobile apps are built with A.I. to give tips to users based on their health history, medical and prescription claims data. Additionally, in leu of premium reductions, many carriers offer wellness dollars for their clients to pay for wellness initiatives (i.e. fitbits, wellness vendors, and wellness technology). All you need to do is ask.
Broker/Advisor Resources: Brokers are the intermediary between the Company and the carriers; an advocate for their clients. In addition to being able to obtain credits for wellness many brokers have access to resources of their own through broker/vendor relationships. Oswald, for instance, has a longstanding relationship with PeopleOne Health – our primary wellness consultant group. At minimal cost, our teams will come onsite and perform wellness consultations, host wellness fairs, introduce wellness challenges and offer technology to track the status of employees’ wellness initiatives.
A look at insurance funding
Another strategy is centered around how the insurance is funded. If I am willing to take on more risk on the front end, there may be more upside but also more liability. It may be considered a gamble, but by knowing my population, I am more comfortable around the potential outcomes.
The two main types of insurance funding are fully insured and self-insured. Fully insured is when the Company pays the carrier higher premiums up front and, in return, the carrier offers access to their network, takes on full responsibility of the payment for claims, administration of claims and retention costs. Increases or decreases in cost mainly come in the form of annual renewals, based on loss ratio.
Self-insured is a little bit more complicated. At its core, self-insuring is when the Company will take on the responsibility of claims up to a specific dollar amount (per person) and pay a third-party administrator to administer the claims, provide a maximum annual spend limit and pay a carrier for access to their network. In these cases, the Company is assuming more of the claims risk (betting on themselves), paying lower premiums but taking on the burden of claims payment. Typically, groups with under 100 employees enrolled will veer away from self-insuring as the risk pool of employees is too small to justify taking on the risk of claims. A handful of high claimants can have too detrimental of an impact to the risk pool as a whole. As the group grows in size, self-insurance can become a more viable option.
In recent years, middle ground solutions have come to light. For instance, buying a higher deductible fully-insured plan where the Company covers a portion of the employee’s deductible through a Health Reimbursement Arrangement (HRA). This strategy offers the Company a way to bet on themselves somewhat, but taking on part of the deductible liability, while still maintaining a fully-insured plan and capping their risk. The higher deductible offers a lower premium option as well, going back to the theme of if I take on more risk, my upfront costs can go down. Of course in this case – those strategies to keep your employees healthy will certainly be a bonus.
All these choices can be overwhelming to a Company – but it doesn’t have to be. Oswald has expertise in the areas of health insurance/employee benefits. We work with our clients to make informed decisions that can be tough at times – but are backed by data, analysis and market information. We serve over 2,000 clients nationally and are among the largest privately held, employee-owned and independent brokerages in the country.
For more information on employee benefits – https://www.oswaldcompanies.com/employee-benefits/
Brian Stovsky is Business Development Leader, Private Equity, Oswald Companies
Brian Stovsky 