Health Cost Containment Options for Small Employers
Large employers often have the cash and bargaining power to reduce health care insurance premiums.
You only have to look at the joint affordable care partnership between Amazon, Berkshire Hathaway and JP Morgan or look at the individual efforts of Walmart, PepsiCo or General Motors, and you'll see that large employers are pushing for innovative, cost-effective changes.
Some of these innovations already have been implemented, are trickling down and are being adopted by smaller employers who self-fund their benefits — resulting in a winning situation for both employer and employees.
Here are some of the more innovative changes by large employers that may be available to small employers right now or in the near future:
Self Insuring Group Health Benefits
Large employers: Employers with a few hundred employees or more can avoid the expenses associated with a fully insured plan by paying employees' medical claims with the company's own money. However, self-funding can present cash flow concerns.
Small employers: Small and mid-size employers can self-fund their health benefits if they purchase stop-loss insurance to cap loss. Any unused money in the claims fund is returned to the employer. Most small employers work with third-party administrators to handle the details and do the negotiation with providers for better deals.
Pegging Reimbursement to Medicare Rates
Large employers: Tired of high prices, some employers are insisting they will only pay the Medicare rate for health services. CNNMoney estimates that the government program typically pays only 80 percent of what private insurers pay.
Not all providers are pleased with the move, though. North Carolina State Treasurer Dale Folwell is trying to get hospitals and doctors to accept Medicare rates for the 550,000 employees and dependents who are part of the state's employee health plan — but is getting strong pushback from the providers.
Small employers: Small employers can self fund their health care benefits using stop-loss insurance which protects employers against unexpected claims. When they self-fund, they have the option to set a fixed price on the amount the plan will pay for certain health care services; this is called reference-based pricing. While some employers set their own prices, many are beginning to use Medicare prices or Medicare "plus" prices to determine what they will pay. Depending on the plan, employees may or may not have to pay the difference between what the provider wants and what the employer will pay.
International Pharmacy Options
Large employers: Several county governments — such as Schenectady County, N.Y., and Flagler County, Fla. — are encouraging their employees to purchase brand-name medicines from pharmacies in Canada and overseas. Overall savings range from 10 to 20 percent. Utah state government pays its workers to travel to Mexico to fill prescriptions. Even with transportation costs, the state is still saving 40 to 60 percent on drug expenses.
Small employers: Some pharmacy benefit managers are rolling out an option to import specialty drugs from Canada. Countries, such as Canada, control the price of drugs that are sold and distributed in their territories. This practice allows governments to negotiate the costs and keep prices low.
Onsite Medical Clinics
Large employers: According to Mercer, a unit of Marsh & McLennan Cos., a third of large employers had primary-care clinics at or near workplaces. Goldman Sachs and Capital One are just two large companies offering onsite medical clinics. Goldman Sachs gives employees access to an emergency physician during the week and primary-care physicians and specialists on a rotating basis. Capital One has full-service care for employees and telehealth access for employees' beneficiaries.
Small employers: Marathon Health, which operates workplace health centers, says that a general rule of thumb is that organizations with more than 1,000 employees can usually justify a full-time medical staff, while smaller organizations should instead employ a part-time or shared-services model. Small employees also use telehealth to provide onsite consultation with a doctor.
For employers who believe that a part-time option is still outside their budget, many are looking at Direct Primary Care (DPC) wrap plans. DPC doctors don't work with insurance companies. They contract directly with their patients. Because they don't need a staff to handle paperwork, their overhead is lower and they can make a good living with fewer patients; therefore, employees get more face time with their doctor. And, if the employer self-funds health benefits, they can add a plan that will handle employees' emergency services costs.
Contracting Directly with Facilities
Large employers: To lower costs, many large employers are bypassing insurance companies and cutting deals with facilities to lower costs. Technology company Intel reported that it saved 17 percent on healthcare costs for its 38,000 employees by negotiating directly with a hospital system. Walmart developed a similar plan and consistently has expanded the number of procedures it can offer at reduced costs.
Small employers: This option is slowly becoming available to small employers through third party administrators.
Drug Coverage Deals
Large employers: Companies, such as PepsiCo and Exxon Mobil Corp., are making deals for pharmacy benefit managers (PBM) to pass through all rebates and other payments from drug companies back to the companies. Some PBMs allow pharmacies to get extra payments from employers if they hit goals for patient outcomes and financial savings.
Small employers: Third party administrators who work with self-funding employers are starting to structure their PBM contracts as 'pass-through' contracts where employers get the full benefit of the negotiated prices and rebates.
To discuss cost containment strategies appropriate for your business, please contact us.
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In this issue:
This Just In ... Auto Portability Earns Thumbs Up from DOL
Health Cost Containment Options for Small Employers
Why Generics are Good for Your Pocketbook (and Health Insurance Premiums)
Benefit Planning Strategies for 2019-2020
Trending: New "Instant" Payroll App