Spending on health care accounts for $4.3 trillion annually in the United States, equating to as much as 18.3% of GDP, according to the American Medical Association (AMA).1 It’s no secret that fully insured health plans are getting more expensive for both employers and employees. According to the 2022 Kaiser Family Foundation Employer Health Benefits Survey, coverage premiums for individuals rose 58% between 2010 and 2022. Family coverage premiums rose more than 63%.2
As employers look toward renewal periods, they should carefully evaluate ways to reduce their health care costs. Here are seven cost-saving strategies worth considering.
1. Participating Insurance Policies
Many carriers offer participating insurance policies for fully insured plans that provide rebates or discounts upon renewal if claims are less than anticipated.
This provides an incentive for employers to reduce usage to reduce costs. For example, employers might provide wellness programs and preventative care to promote healthier lifestyles and prevent the chronic conditions that produce the highest expenditures. Many such plans offer extremely low or no cost for preventative care. Employers can also encourage employees to select in-network providers for which carriers have negotiated better rates, resulting in lower costs for employees and carriers.
Rates are typically reviewed at renewal time. If expenses during the previous year were higher than forecast, there is no rebate and rates may increase. If expenses were lower than expected, a dividend is offered under these plans that can be applied toward a renewal, often lowering costs below current rates for subsequent years. However, employers will only receive this benefit if they renew with their current carrier.
2. Tiered Network Plans
Tiered network plans are common in fully insured health plans. By partnering with specific healthcare providers that offer quality care at lower costs, carriers can negotiate better rates. This savings is passed on to policyholders.
By tiering rates, employers can encourage employees to use providers that charge less. For example:
- Tier 1: In-network providers offering the lowest rates, copays, and coinsurance
- Tier 2: Specialists or other carriers within the network, requiring higher copays or coinsurance
- Tier 3: Out-of-network providers that are not covered or require significantly higher cost-sharing from plan participants
3. Value-Based Insurance Design
Value-based insurance design (VBID) is an approach that encourages the use of high-value healthcare services while discouraging unnecessary and low-value treatments. This strategy involves designing insurance plans to provide lower cost-sharing for services with proven effectiveness and cost-efficiency, such as preventive care, evidence-based treatments, and chronic disease management.
Often, employers choose plans that have lower deductibles, copays, or coinsurance to encourage employees to use such services. In some cases, fees may be waived altogether. On the flip side, a VBID approach may include higher cost-sharing by employees for what carriers consider low-value or discretionary services.
Properly designed wellness programs have been shown to improve health outcomes and reduce expenses. Chronic diseases such as cancer, heart disease, and diabetes are leading causes of death in the U.S. yet can often be prevented with lifestyle or behavioral modifications.3 Encouraging employees to actively participate in wellness programs at little to no cost can reduce risky behavior. For example, offering no-cost programs to help employees stop smoking, lose weight, eat healthier, and participate in preventative health screenings can lower overall costs and may help prevent chronic conditions.
VBID plans can sometimes also be personalized. For example, aligning cost-sharing structures with the most effective services for those with chronic conditions can make it less expensive for participants to adhere to treatment plans and manage their conditions more effectively. This can lead to improved outcomes and program cost reductions.
Value-based insurance design may also include high-deductible health plans (HDHPs), which typically charge lower premiums by shifting more of the expense to employees. This option is often attractive to younger and healthier employees who are less likely to use health resources. By making this option available, employers can often reduce overall health insurance costs and provide lower-cost alternatives to employees.
Some employers also offer health savings accounts (HSAs) or flexible spending accounts (FSAs) and make defined contributions to augment high-deductible health plans. This combination reduces overall employer costs while providing employees with money that can be applied to health services without having to pay out of pocket. This strategy incentivizes employees to spend healthcare dollars wisely to avoid higher deductible costs. This also provides an alternative for lower-paid employees who may struggle with their portion of healthcare insurance premiums.
4. Eliminating or Limiting Out-of-Network Benefits
Some employers opt for plans that eliminate out-of-network benefits altogether. Rather than choosing higher-cost out-of-network providers, employees would only be able to access in-network resources at the lower negotiated rates.
Out-of-network providers are not bound by negotiated rates, which means they can charge higher fees for services. Not only does this increase costs for insurance carriers, but it may also increase costs for plan participants, who are subject to balance billing in which providers charge patients for the difference between what insurance carriers pay and their rates.
An alternative is to offer multiple plans to employees, such as a basic plan with lower costs for only in-network providers and a buy-up plan that includes out-of-network employee benefits at a significantly higher cost. For example, offering:
- A health maintenance organization (HMO) plan, which typically restricts use to select providers except for emergency care
- A preferred provider organization (PPO) plan, which provides some coverage for out-of-network claims at a higher expense-sharing rate
Learn More: HMO vs PPO: Choosing the Best Health Insurance Plan
5. Offering Telemedicine
Telemedicine can be an effective alternative for non-emergency care. The ease of use encourages employees to seek treatment earlier to potentially catch health issues before they become more serious. It’s estimated that employers could realize a net savings of between $19 and $121 per virtual visit depending on where employees would have otherwise sought care.4
Studies show that telemedicine participation reduces unnecessary visits to physicians, urgent care, and hospital emergency departments. Employers also see benefits from reduced employee absenteeism in addition to cost savings.
6. Requiring Prior Authorization
Another strategy for reducing health insurance costs is to add a gatekeeper to prevent unnecessary and excessive utilization of healthcare services. Utilization reviews and prior authorization can help ensure medical services are appropriate and necessary.
Most commonly, health insurance plans require referrals from primary care physicians before patients can see specialists or prior authorization from carrier health specialists before approving more expensive treatments. By reviewing treatments, insurance carriers can evaluate alternative care that may be effective but more cost-efficient.
Prior authorization also encourages cost-consciousness among health insurance plan participants and physicians. Providers are encouraged to consider lower-cost alternatives or conservative treatment options.
Employers should be aware of potential state regulations that may limit the use of prior authorization. For example, laws in New York limit it during some inpatient admissions for mental health while Michigan requires standardized prior authorization and reporting.5,6 Other states have considered “gold card” laws that would require health insurance plans to waive authorization requirements based on provider track records.7
7. Conducting Utilization Reviews
Working together with health insurance carriers, employers can identify the utilization of services. Analyzing the data can help determine which services are overused or underutilized. Employers may be able to eliminate services from coverage if employees are not using them, reducing costs. Conversely, premiums and shared costs can be increased in areas where overuse is noted.
A study published by the National Institutes of Health (NIH) indicates that between 10% and 30% of diagnostic tests, procedures, and hospital admissions are unnecessary.8 Utilization reviews and utilization management programs can lower total healthcare costs by up to 8%.8
Employers may want to participate in utilization reviews to identify potential cost savings as well. For example, if insurance carriers are raising rates at renewal based on past claims, employers may be able to identify areas where similar claims are unlikely to occur in the future. If an employee requiring chronic care or serious health complications retires or otherwise leaves the company, such costs may not be incurred in the future.
Using a Professional Employer Organization (PEO)
There’s one other solution employers should consider: Using a professional employer organization (PEO) can provide significant cost savings.
Individual employers lack the buying power to negotiate significant cost savings with health insurance carriers. This is true for both self-insured employers and fully insured health insurance plans.8 Resourcing Edge is a professional employer organization (PEO) that helps individual employers by pooling together customers to significantly increase group buying power with insurance carriers. Resourcing Edge leverages scale to provide rate reductions for plans, including:
- Major medical insurance
- Dental and vision insurance
- Wellness programs
- Long-term and short-term disability insurance
- Employee assistance programs (EAP)
Contact Resourcing Edge today to discuss your health insurance plans as part of your employee benefits package.
Citations
- https://www.ama-assn.org/about/research/trends-health-care-spending
- https://www.kff.org/health-costs/report/2022-employer-health-benefits-survey/
- https://www.cdc.gov/nceh/tracking/topics/LifestyleRiskFactors.htm
- https://businesspress.vegas/columns/experts-corner/telehealth-helps-lower-health-care-costs-30276/
- https://omh.ny.gov/omhweb/bho/guidance-memo-on-14-day-no-um-for-under-18-inpatient.pdf
- http://www.legislature.mi.gov/documents/2021-2022/publicact/pdf/2022-PA-0060.pdf
- https://www.texmed.org/Template.aspx?id=59701
- https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4195135/
- https://www.ajmc.com/view/large-self-insured-employers-lack-power-to-effectively-negotiate-hospital-prices
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