Every employer is looking to cut employee benefits costs, but it can be difficult to do so without compromising employee satisfaction. Employers therefore need to be careful when restructuring their benefit offerings.
Of course the most common way to reduce employee benefits costs is to alter medical plan design, since medical coverage makes up a significant portion of benefit expenses. That said, it's not the only way to tame costs.
Here are some of the most popular areas for cost savings for employee benefits.
Medical Plan Design
One of the most popular ways for employers to control the cost of employee benefits and healthcare costs these days is switching to high deductible health plans (HDHPs). Making this switch reduces the cost of medical premium while pushing up deductibles. It should be noted, however, that HDHPs must be introduced with a great deal of employee education, since out-of-pocket expenses flow very differently than with those of traditional health plans.
For example, if offered multiple plan choices, some employees may elect an HDHP (in absence of any education), simply in an effort to save on premiums, when another plan was perhaps more appropriate for their particular situation. These employees may then experience buyer’s remorse as the plan year unfolds. This contributes to the negativity surrounding HDHPs, which is undoubtedly one of the reasons these plans come with mixed reviews.
HDHPs are not for everyone. Employees with chronic conditions or extensive health histories may not be satisfied with this type of plan because it can cost them more in the long run. On the other hand, employees with little to no health problems may prefer these plans. They may seem more desirable because the premiums are lower and they’re unlikely to max out the deductible through their usual medical needs. Likewise, employees who experience catastrophic medical events may also like these plans because they often offer the same or similar annual deductible and out-of-pocket maximums as other plans for less premium cost.
What's important for employers to consider is that HDHPs be introduced with a good amount of education. Done right, the move to HDHPs can oftentimes be seen as a positive, rather than a negative.
One-thing cost containment is NOT, is a one-time, annual event at the time of benefits renewal. It’s also not a quick-hit solution. Learn more about The JP Griffin Group's Cost Containment Strategies.
Pharmacy Plan Design
Pharmacy benefit costs are one of the very fastest growing segments of our national healthcare expenditures. The trajectory of these increases is not predicted to subside anytime soon due to trends in the marketplace — most noticeably in the explosive cost increases of specialty drugs and the additional increased cost of generic drugs.
Brokers and pharmacy benefit managers (PBMs) can work together to bring down costs by adjusting formularies, which are the categorization and tiered pricing of prescription drugs included in insurance plans. They can also help bring down long term employee benefits costs by helping patients achieve better outcomes through greater access to the appropriate medications.
PBMs can also cut employee benefits costs through diligent claims processing, rebate reimbursements, policy adjustments, clinical programs (such as prior authorizations, quantity limits, and step therapy), and finally, drug utilization review, which can not only save money, but lives.
As with HDHPs, however, employee education is critical with pharmacy benefits. It's very important to notify employees of any formulary changes well in advance, as it will affect people’s medication regimens. If they have access to the new formulary early, they can discuss possible changes in medication with their doctors to make sure they’re making informed decisions that will not negatively affect their health.
Switching Medical Carriers
Employers are often under the impression that “shopping their plan” every year through a bidding process is a good strategy for finding the most competitive medical coverage at the best rates. Bidding out insurance plans on a semi-regular basis can be a great strategy for encouraging competition and striving for best price — and sometimes this must be done if the current medical carrier is being unreasonable with their renewal quote. That being said, putting plans out to bid too often can have considerable drawbacks as well.
The Drawbacks of Putting Plans Out to Bid Too Often
For starters, many plans work best when allowed to run for multiple years. Switching too soon may negate potential future value the employer could have realized. Additionally, employers may be able to manage “rate creep” by negotiating multi-year contracts, and employers who demonstrate some degree of loyalty to their current carrier should be able to extract some level of value from that.
Besides the hard costs associated with changing medical carriers, switching plans too often can create employee dissatisfaction and affect morale. Employees may be forced to switch healthcare providers, pay more for medications, and become generally confused with different plan policies in terms of what’s covered and what’s not. Starting over with a new carrier can also introduce administrative burdens on your HR Department.
Putting plans out to bid with the goal of finding the lowest cost can be problematic if the process ignores the other hidden costs of change. However, it can pay off to keep carriers on their toes, competing for your business and holding them accountable for showing their value each and every year.
Ensuring Employee Satisfaction
If you’re worried about employee satisfaction, we recommend trying to keep a similar network structure. Why? Because every time we’ve helped clients shift their benefits from one carrier to another, one of the first concerns employees express is whether or not they can keep their doctors.
Offer Voluntary Benefits
Voluntary benefits are a great way to add value to your benefits package without increasing your share of employee benefits costs. Because voluntary benefits are typically funded in their entirety by the employee, the employer is only coordinating the benefit by connecting another carrier to the workforce — they’re not sharing in the cost.
Voluntary benefits can also be an effective way to plug the holes left by high deductible health plans. This can offset some of the frustration employees might feel by being forced into HDHPs, or can increase satisfaction for those who selected a HDHP, but would like to supplement their healthcare. If you’re offering HDHPs, we highly recommend also offering voluntary benefits such as accident insurance, critical illness and hospital indemnity, to name just a few.
Institute Disciplined Wellness Programs
While some wellness programs (especially those involving behavior modification such as weight loss and smoking cessation) can sometimes cost an arm and leg, there are some wellness initiatives that offer better returns.
While perhaps not as flashy as other ways to cut employee benefits costs, subscribing to a disciplined wellness program is a great first step to warding off large claims escalation. We are proponents of wellness programs rooted in early detection, prevention, and care adherence. These wellness programs focus first on preventative care, including age appropriate screenings and immunizations. They focus next on medication and care adherence for chronic conditions, and finally they work to reward healthy lifestyles while modifying unhealthy behaviors.
While the cost savings from wellness programs won’t materialize immediately, they will deliver sustainable, long term savings when done properly.
What strategies are you using to cut employee benefits costs without compromising employee satisfaction? Contact us for a complimentary benefits review. We’re happy to provide answers!