by Jason Koelling
Vice President, Relationship Manager Enterprise Bank & Trust
The rising cost of health insurance has been well documented. Employers’ health care costs started small. In 1950, health benefits amounted to only 0.50% of total compensation, according to the 2018 Willis Towers Watson report, “Health Care USA: A Cancer on the American Dream.” Since then, health insurance premiums have risen faster than total compensation every decade. By the first decade of the new millennium, health care costs increased 3.4 times faster than employee compensation. According to the more than 230 small and midsize business owners surveyed for Enterprise Bank & Trust’s new report, “ The Rising Cost of Health Insurance and the Battle for Profitability,” the top three business concerns related to the cost of providing health insurance are:
- The impact of the cost of health insurance on my company’s profitability (79%)
- An increase in premiums would make health insurance coverage for my employees unaffordable (59%)
- The cost of health insurance limits my ability to award bonuses or give raises (47%) Beyond actual costs, much of the health insurance cost challenge stems from the fact that smaller businesses don’t have the buying power of larger ones – and often little time and resources to spend figuring out this complicated puzzle.
Reducing Costs: Three Big Levers
With healthcare costs rising and no end in sight, what are leaders of small and midsize businesses doing to minimize cost? And what new ideas are emerging that might help impact profitability.
1. Benefits Plan Design
The first opportunity to manage and potentially reduce health insurance cost is at the time a company’s benefits plan is being developed.
Reducing premiums is where many organizations spend the most time, and there are several ways to do that. The first is to choose self-funded insurance, which provides health benefits using a company’s funds rather than a fully insured plan where the company contracts with an insurance provider for coverage. In this scenario, the employer pays for health claims out of pocket rather than a fixed premium to an insurer.
Self-funded insurance can lower premiums for employees and potentially save companies money through reduced operational costs. But it also comes with the possibility of facing huge bills if something catastrophic happens to an employee.
An increasingly popular choice to reduce premiums is to move to a High Deductible Health Plan (HDHP), which lowers premiums by increasing deductibles over a traditional plan. HDHPs are popular with organizations who tend to have more young and single employees since they are more likely to be in better health and do not seek coverage for spouses and families.
2. Preventative Care Incentives
Programs focusing on employee wellness and preventative care first emerged in the 1980s as a way to create a better work environment and reduce health care costs by minimizing health care utilization and providing negotiating leverage for better benefits.
The appetite for these programs has grown tremendously since, with several studies showing over 50% of American businesses offering some form of a wellness program. According to a study by the National Small Business Association and Humana, 93% of small business owners say that employee well-being is critical to their bottom line.
Yet despite their popularity among larger companies, the study revealed that only 22% of small businesses have a wellness program in place.
These programs include things like getting checkups and biometric screenings, providing smoking-cessation programs, and offering health education training programs – to name a few.
While they are often popular with employees and yet another option for businesses to reduce the cost burden, there are mixed reviews when it comes to the effectiveness of those programs. Be sure you evaluate the effectiveness of your wellness programs.
The third primary opportunity to lower overall costs comes from understanding what is driving the cost of what your company is actually paying for medical care.
Research shows that one of the biggest drivers of health care expenses is the cost of prescription drugs. One opportunity that many smaller businesses don’t often take advantage of is determining if their employee is eligible for a Patient Assistance Program (PAP) . Drug manufacturers were forced to set up foundations to help people pay for drugs, and if employees are eligible, they can be moved over to a PAP – meaning the employer no longer pays for that drug for that employee.
To help address the ever-present challenge faced by owners of startups and more established small and midsize businesses – lack of time to focus on health insurance and costs – there is an emergence of buying groups where small businesses band together to increase their purchasing power.
12 Things You Can Do to Control Costs
- Ask employees to take a more active role in the financial responsibility of their benefits. This can be done through cost sharing, such as adjusting copayment amounts or considering a high-deductible health plan.
- Lower employer costs and increase employee savings by offering a Health Savings Account (HSA)
- a HDHP is required.
- Offer – or increase – wellness and preventative care programs. A huge part of the success of these programs is communication. Evaluate what works.
- Switch to a self-funded insurance plan – but be aware of the risks.
- Offer less access for a lower premium by choosing a plan with a narrow network of providers –an option that offers lower outof- pocket costs and monthly premiums in exchange for a smaller provider network. But keep in mind, this can mean that employees may not be able to see a doctor they’ve gone to for many years, and not all doctors accept these types of plans.
- Outsource your plan design and management to a broker, who can try to get you the best combination of benefits and pricing available.
- Pay more attention to your actual cost of use, including pharmacy benefits.
- Find out if any high-cost employees are eligible for a Patient Assistance Program offered by pharmaceutical manufacturers.
- Boost your buying power by joining a buying group or purchasing network.
- Opt out of providing insurance directly, but boost other benefits.
- Consider partnering with a third-party provider to identify ways to save money during plan design and after care.
- Be as tough as possible on price during review and final negotiations.
Download Enterprise’s “The Rising Cost of Health Insurance and the Battle for Profitability” to learn more about how to reduce costs.