Economic times are tough. Cutting costs is critical for businesses striving to survive this economic climate. Health care costs are getting much attention because they are one of the largest expenses employers deal with. Combine an aging workforce, poorer health trends among Americans, and Medicare cost cutting and we have a challenging landscape. So what can be done?
As pointed out in a 2007 study by the Kaiser Foundation, employers dealt with higher health plan costs by raising deductibles, increasing employee premiums, raising co-pays for physician and prescription services. While these strategies deliver short-term relief, employers need to take a very different approach. Traditional employer sponsored medical plans need to look and feel different. There are alternative ways to lower costs and improve long term health care costs, but it is a shared responsibility between employer and employee. Employers must understand that very few employees drive all the costs; and employees must be willing to take responsibility for better health care consumption. Let’s consider some ways to change your results and the dynamics behind them.
Cost Share Increases
A simple approach to lower costs is to lower the employer paid portion of premiums. While most employers no longer pay for dependents, most still pay most of the employee premium. Decrease the employer cost to 90, 80 or 75% of the employee premium will reduce the impact of annual inflation and gives employees ownership in the cost impact of the medical plan increase.
Raise deductibles
Raising deductibles has the single greatest “initial” impact to costs. Raising a deductible from $500 to $1,500 can decrease health premiums by more than 25%. A recent study of employers nationally showed that between 2007 and 2008 the average deductible increased from $500 to $1,000. While a good first step, it is vitally important to study the value of increasing deductibles to higher levels such as $2,500, $5,000 or even $10,000. All of this is dependent on how much risk the employer can and should take as well as concern for building a safety net to protect employees from too much financial exposure.
Offer Tax Advantaged Accounts
More companies are moving to government created, tax advantaged tools that increase employee ownership in health care. The industry knows them as health savings accounts or health reimbursement accounts. HSAs are employee owned accounts that allow money to be put away tax-free for health care needs now or later in life. HRA is a company owned account that allows employers to set aside tax-deferred dollars to off-set employee exposure in high deductible health plans. Structured right, both accounts offer cost effective strategies to deal with health care inflation, giving more ownership to employees so they can be better consumers, and employers have tools to combat cost increases.
“Avoiding Illness:” Wellness Strategies that Work
Useful tools to measure, encourage and monitor personal health are increasing. A good strategy will identify the overall health of employees and then offer employee friendly tools to encourage participation. Many national studies show significant improvement to employee health and ultimately employer costs will reflect the value of improved employee health. It isn’t just about shifting costs to employees but giving them resources to affect personal well-being.
While insurance companies are and will continue to develop new plans and services to address health care inflation, inflation is not the problem but a bi-product of the problem: not enough personal responsibility. These solutions are designed to encourage personal responsibility, and open opportunities for non-traditional solutions to address health care cost increases.
Exploring these solutions well before your next renewal is a good strategy. If we can expound on these solutions, contact Steve Herman @ 425-457-7763 or Steveh@bellevuefinancial.com.
