Three strategies for employers navigating health insurance

By Andy Billingsley
Employee Benefits Consultant
The Unity Group
Courtesy to The Bellingham Business Journal 

When the Patient Protection and Affordable Care Act, also known as Obamacare or the ACA, was passed, the general tone of those promoting the bill suggested it would make health insurance coverage more affordable for all Americans.

Nearly three years later, with the full implementation of the ACA less than 10 months away, reality is setting in for individuals and employers alike: the use of the word “affordable” in the Affordable Care Act was never directed at those individuals and businesses who already had insurance. Quite the contrary, in fact – this bill actually puts additional financial burdens on those who were already covered in an effort to extend coverage to those Americans who did not previously have insurance, either due to a pre-existing condition or an inability to pay for it.

While many Americans support the idea of making health care more affordable for people with lower income and more accessible for people with pre-existing conditions, the overwhelming majority of people I speak with on a daily basis are more concerned with how they can make the coverage they already have more affordable, without sacrificing the coverages their employees value.

And the initial knee-jerk reaction that many employers had—“ I’m just going to drop my plan and pay the fine”—is, upon further review, not an ideal option either.

Employees value the coverage their employers offer, and for most employers, dropping their coverage will make them less competitive in their efforts to attract and retain good people. If an employer’s health benefits are not a critical component of their recruiting and retention efforts, then my advice would be drop your coverage today rather than wait for 2014.

Health care inflation has increased, and will continue to increase, at a pace that far exceeds the rate of inflation, and employers need be proactive in implementing strategic measures that will help to control and potentially reduce the ever-increasing cost of health care.

The top 3 strategies that employers should be thinking about today and in the future are:

Consumer-Driven Healthcare Plans (CDHP’s)

– Plans that provide an incentive to employees who access health care in a cost-effective way have been, and will continue to be, the most effective mechanism that employers can implement to control costs. 

– Health Savings Account (HSA) plans, for example, offer significant reductions in premium in exchange for a health plan with a high deductible (typically $1,250 to $3,500), where members pay the actual cost for day-to-day medical procedures (as opposed to a traditional plan where members pay a simple co-pay). Most employers who move to an HSA plan give a portion of the premium savings to their employees in the form of a contribution to their Health Savings Account, which is essentially an IRA that members can withdraw funds from on a tax-free basis for qualified medical expenses. Funds that are not used roll over from year to year (as opposed to a “use it or lose it” plan) and can be withdrawn penalty-free at age 65.

– These plans work because they force employees to focus on the actual cost of health care, as opposed to meaningless co-pays. The result is a group of employees who make more prudent decisions when accessing health care, which typically leads to improved loss ratios and easier to manage renewals.

Wellness Programs

– Simply put, the increasing cost of health care is a non-issue for people who don’t have health issues. Nearly 70 percent of every dollar spent on health care in this country is spent on conditions that are preventable (meaning they are a result of poor lifestyle choices, non-compliance with doctor-recommended treatment or an absence of preventive care).

While larger organizations are more likely to see a quantifiable return-on-investment on their health care costs, every organization with employees can benefit in some way by promoting a culture of wellness (for example: increased productivity and reduced absenteeism).

Funding Strategy

– Partially self-funding medical insurance is a strategy that large organizations have used for years. A partially self-funded employer assumes the role of the insurance company for claims incurred up to a specific level (for example, the first $50,000 of claims that an individual incurs) for each individual on their plan, not to exceed an aggregate level for the entire company.

Reinsurance is purchased to cover claims in excess of those amounts, thereby limiting the company’s exposure if there is a large claim or multiple large claims. Several insurance companies have put together programs targeted specifically at smaller employers (in some cases, down to 25 employees) over the last several years.

While there is no guarantee that a self-funded program will work, the risk can be quantified, and there is the potential for reward if the group’s claims run favorably.

– There is the potential that small groups (fewer than 50 employees) will not be able to continue to self-fund their medical insurance plans under the ACA, but there is nothing concrete to point to at this time.

One final thought: this legislation is being re-written by the day, and many of the provisions in the ACA will more than likely look different tomorrow than they do today. Employers should be careful about making decisions today based on what they think may happen tomorrow.

The crystal ball is, at best, murky.

Andy Billingsley focuses on risk-reducing strategies for clients in the areas of human resources, compliance and alternative funding. The Unity Group, an insurance and employee benefits firm with a main office located at 110 Unity St. in Bellingham, offers a variety of services for clients, including a “Pay or Play” calculator and a self-insured feasibility analysis. The company is online at www.theunitygroup.com

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