A Different Lens to Managing Employee Health Care CostsPrincipal, Advisory Consulting at Mercer Marsh Benefits
No two organizations are the same. Each has different employees, strategies and business objectives. The same principle applies to managing health care costs. What works for one employer may not work for another.
The health care ecosystem is made up of four groups—employers, providers, employees, and government. Employers provide medical insurance and protection to employees and their families. Providers include doctors, clinics, hospitals, and vendors. Businesses have the least control over providers, except when it comes to health care costs. Employees are an important part of the ecosystem, as the everyday users of the health care plan. Finally, there is government, the regulators of the health care ecosystem.
In a perfect health care ecosystem, all groups work hand in hand. But in reality, the system is fragmented and complex. Across Asia, there are many imperfections, as medical costs outstrip inflation. In the region, we are expecting to see a 10 percent spike in medical costs over 2018, compared to a general inflation rate of about 2.7 percent.
Make Health Care Relevant
In this environment, how do we ensure that health care costs are affordable to both employers and employees? Employers bear a lot of the medical costs of their employees, so there is a need to choose the right cost containment measures. Companies should start by looking at the data they have. This includes studying employee demographics such as age, gender and family. HR should also have data on employee absence—how much sick leave they take and length of time they’re away from work. Wellness data can be gathered from any wellness or lifestyle program the company has in place, such as an annual checkup, maternity program or biometric testing. Beyond this, companies have medical claims data.
All this data provides companies with a comprehensive medical record of employees, giving them a 360-degree view of their health and risk profiles. When all of this data is linked together, it allows companies to design targeted programs specific to employees’ needs. This is the key to benefits-spend management. But how does one get to the point of effectively managing health care spend?
Meet Employees’ Needs
You have probably tried the more traditional approaches, such as looking at cutting your plan design, remarketing your plans or squeezing your insurer to reduce premiums. However, with medical costs rapidly rising, these tactics are not sustainable in the long run. What can we look at instead? Does it make sense to offer one plan for all employees when their needs and behaviors are different? One size does not fit all, so consider customizing your plan design.
Here are five customization solutions that are gaining popularity. The first is providing plans that offer reduced benefits for those who might not need generous coverage. Second, offer different benefits for employees and their dependents. Third, employers should consider copayment or coinsurance for high-cost hospitals or clinics. The idea is to hold the employee partly responsible should they choose to go to a more expensive provider. Fourth, they should leverage a deductible plan. For such plans, before the insurance begins, the employee pays for the first portion of medical claims based on a fixed amount. This, in turn, promotes employee responsibility and awareness. And finally, pharmacy and drug spend should be controlled by exploring different benefit limits for various types of medication, for example, generic versus branded medication, and monitoring and managing doctors’ prescribing behaviors to avoid potential abuse.
Fund Your Medical Plan To Manage Your Risk Exposure
The traditional approach to financing is to fully insure the plan—that is, pay the insurer upfront premiums. The insurer then pays out all of the claims and takes on the risk. At the other end of the spectrum is the self-insured model. In this scenario, employers are responsible for paying all claims. They are not tied to the insurer’s administration or retention costs. By self-insuring, employers have the flexibility to decide the terms and plan the design of their medical scheme.
In between these two extremes is the hybrid approach. Here, some employers place high-risk groups under a fully insured scheme and self-insure the rest of the employees. For example, a high-risk group could be expatriate employees who prefer more expensive hospitals due to language or culture constraints. Another approach is to place benefits with higher claims volatility, like inpatient coverage, under a fully insured scheme while self-insuring other coverages‚ such as outpatient, dental and vision, that are more stable in terms of claims volatility. This method manages companies’ risk exposure and helps control overall costs.
Another growing trend in Asia is premium co-sharing, where companies partially subsidize employees’ medical insurance costs, typically in the range of 20 to 50 percent. These alternatives are all part of a shift away from the employer taking a paternalistic approach to a facilitator approach. Employers are still providing a safety net for employees, but with a focus on defining minimum standards of care. For this to happen, they need the right vendors who share their vision and can execute on this plan.
Employees carry risks with significant financial implications. The solution lies in prevention and education.
Funding Solutions That Are Gaining Popularity
There are a number of funding solutions that are becoming increasingly common among companies in Asia. These are:
Preferred providers/narrow networks: The employer manually selects hospitals, clinic providers and networks; and quality standards are established from the outset.
Value-based model: Payments are made to providers based on clinical results rather than individual services, so the provider is held accountable.
Onsite clinics and vendors: Ranging from standalone programs like physiotherapy or psychologist consultations to super-clinics, onsite clinics and vendors act as gatekeepers, controlling costs and direct use. Onsite clinics can also help to link all health programs and allow analytics on integrated data, while making the employee experience seamless.
Center of excellence: For example, a cancer center—these help direct employees to quality care for major health issues.
Expert medical opinions: Allow members to have cases reviewed by experts, which provides peace of mind and eliminates unnecessary costs.
Telehealth: A virtual alternative to an onsite clinic, providing access to quality care 24/7. Employers have control over which doctors participate in the program.
Provider audit: Providers can get complacent if service costs and delivery are not regularly reviewed. Incorrectly adjudicated cases can lead to incorrect payments to employees and inaccurate premium rates. It’s important to actively manage vendors and frequently review what they are charging.
Niche vendors and health apps: Partner with vendors specializing in fertility treatments, vision and wellness programs that use the latest technologies and encourage employees to take responsibility for their own health.
Employees are also an integral part of the health care ecosystem. Three common risks employers face from their employees include utilization, that is the increasing use of medical schemes leading to higher costs; health care, that is, the risk of poor health and illnesses; and productivity, which refers to the loss in productivity at work due to illness.
All three carry significant financial implications. The solution lies in prevention and education. So when you roll out your health care programs, the key is to inspire and convince employees that well-being is their responsibility. Not just physical, but emotional and financial wellness, too. There are hundreds of vendors, web-based programs, apps and tools that aim to deliver wellness solutions and incentivize people to change their behaviors for the better. Once again, use the data you have to select a few that resonate with your employees’ needs and that can link to cost drivers in your claims experience or health screening.
To successfully care for your employees’ health while managing your costs, it is important to work with and across the different stakeholders within the health care ecosystem. It is only then that you will bring about change in the way medical protection and care is provided to your employees.
A version of this piece first appeared in Voice on Growth.