Healthcare consumers and employers who sponsor benefits plans continue to battle rising costs. According to a March 2019 Peter G. Peterson Foundation article, the United States spent roughly $3.5 trillion, or more than $11,000 per person, annually. As a percent of GDP, we currently spend 17% on healthcare, and most economists expect this number to be 25% or higher by 2025.
Between the mandates of the Affordable Care Act and the competitive talent market, employers are almost forced to be in the healthcare benefits game. To combat these trends, you must look to new and creative cost containment strategies. Before we jump into those strategies, let’s quickly go over the cost containment definition.
What is Cost Containment?
Cost containment is an important set of strategies and tools to reduce benefits costs for your organization and employees—regardless of your organization’s size and health insurance plan funding type. Every action you take to reduce costs has tangible value for the plan participants (employees), and each may lead to higher-quality care at a lower cost. While other strategies, such as wellness programs, may indirectly result in cost reduction over time, cost containment tactics can have an immediate impact on your organization’s finances.
Cost Containment Strategies
We commonly see three cost containment strategies in healthcare benefits: eliminating unnecessary spending, optimizing your funding mechanism, and creating better clinical outcomes for your employees.
Eliminate Unnecessary Spending
Your organization can reduce unnecessary costs in a couple ways.
- Conduct a dependent eligibility audit. According to BMI Audit Services, up to 10% of dependents on an organization’s health plan are ineligible to receive benefits from the company. By reducing the number of ineligible dependents on your plan and mitigating a potential high risk, your company can save thousands of dollars each year and increase ROI on your current plan.
- Be intentional about what you include in your policies. Before determining plan design (e.g., PPO versus HSA, copays, deductibles, etc.), be sure to consider current utilization statistics, salary and demographics. Healthcare is complicated and plans should be designed specific to the population to optimize appropriate utilization and behavior, which will help mitigate spend over time.
Optimize Your Funding Arrangement
Another key to cost containment is to optimize your funding mechanism. The type of funding you choose depends entirely on your organization’s unique needs and situation. Here’s a quick overview of ones we commonly see, though not an all-inclusive list.
Flexibility with Fully Insured vs. Self-Insured Plans
The main difference between fully insured and self-funded plans is who carries the risk—insurance carriers for fully insured and the organization for self-funded. In fully insured plans, employers pay monthly premiums to the insurance carrier for limited plan options. Likewise, self-funding offers you more freedom to design and administer the plan; however, your organization pays the claims, fees and stop-loss premiums.
Balance with Level-Funded Plans
Level-funded, or partially self-funded, plans combine the strengths of self-funded (i.e., personalized healthcare choices) and more stable cash flow of a fully insured arrangement. This type of funding also incorporates individual and aggregate stop-loss coverage to cap claims and control costs. For many smaller employers (<100), this is a way to gain more control of their plan and costs.
Shared Costs with Association Health Plans
Association health plans (AHPs) allow small businesses and entrepreneurs who are similar in geography or industry to act as a single large employer to guarantee coverage for their employees. When these organizations come together, they can more easily obtain economical coverage that aligns closely with their employees’ medical and financial needs.
Create Better Clinical Outcomes
Help your employees obtain better care at a hospital or clinic by encouraging preventive health measures, introducing prescription programs, and implementing population health management strategies. Here are a few things you can do to help facilitate better clinical outcomes for your employees:
- Engage your employees in wellness programs, both inside and outside your organization. Recommending frequent visits to the physician, exercise regimens and healthy competition between coworkers can help employees avoid sedentary lifestyles, reducing healthcare costs for both your employees and your organization.
- Implement internal education programs. These types of programs can help employees save money on their medications. By recommending generic brands that provide the same benefits as name brands, employees can save thousands of dollars each year.
- Use data available through population health management. With extensive data and information about your employees, your organization can identify what you need to provide a better health plan experience while cutting costs. It also informs decision-making around programs and policies that could positively affect the overall health of your employees.
With the cost of healthcare benefits continuing to rise, it’s never too late to pause and evaluate the cost containment strategies you could use to help you and your employees save money. The three cost containment strategies outlined here are a great place to start. Our team of benefits experts take it a step further by digging into the data, understanding your goals, and advocating on your behalf with carriers to achieve results