Employer Health Plans: Keys to Lowering Cost, Boosting Benefits
In May 2018 U.S. unemployment reached 3.9 percent, a low not seen since 2000, and not sustained since the late 1960s. Joblessness is hitting its lowest rates in decades, giving potential new hires a lot of career options and challenging employers to rethink their strategies for finding, hiring, and retaining a great workforce.
To attract talent and keep them on board in this competitive job market, employers must look for tactics to increase the value of their opportunities to job candidates. Employers can make their offers standout by offering low-cost employee healthcare with extensive benefits.
Managing Employee Health for More Benefits, Lower Cost
To manage healthcare costs over the past 50 years, executive teams have slowly pared down benefits each year to meet annual cost goals, rather than addressing employee population health management. Historically, health plan success has meant receiving only a 5 percent annual increase in healthcare insurance premiums, instead of a 7 percent increase. Executive teams, however, who continue to employ a benefit-cutting strategy are reaching its boundaries. If they continue to take away benefits, employee retention will plummet; if they maintain or raise benefits without managing employee health, the costs will be too high for a sustainable business model.
To improve healthcare benefits for team members while lowering the costs of those benefits, organizations must understand and accept one key fact: to manage the healthcare costs of an employee group, employers must get involved in the health of that employee group. Historically, executive team have avoided health management of employee groups for two main reasons:
1. Aversion to Unpredictable Costs
Healthcare is complicated, and most business owners and leaders view it as a necessary but costly expense that’s unpredictable and hard to control. Business leaders dislike unpredictable costs, especially those that are a material part of their business and show no signs of stabilizing. Healthcare costs make up a large percentage of an organization’s fixed costs, as employers must provide health insurance for team members; but without a good way to understand, rationalize, or reduce healthcare costs, these costs are unpredictable.
2. Lack of the Right Data, Data Infrastructure, and Analytics Tools
Most leaders don’t know how to articulate the process of building a sustainable and attractive health plan that addresses and minimize challenges. Until the last five or so years, the right data strategies haven’t been around to effectively address employee population health and the consequent challenges of employer health plans. However, new technologies and attitudes toward managing healthcare in the corporate setting continue to grow and evolve.
Shifting Workforce Attitudes Towards Benefits
Employee attitudes towards benefits and the work environment are shifting as younger generations enter the workforce. Millennials think about the workplace differently from Gen Xers, who think differently from Baby Boomers. In a 2014 survey by Bentley University of 1,000 Millennials, 96 percent rated healthcare benefits as a key factor in deciding between two otherwise equal job opportunities. Glassdoor reported in 2015 that 89 percent of employees aged 18–34 would prefer new or additional benefits over a pay raise, and the most highly valued perk was additional or enriched healthcare.
Millennials will comprise 75 percent of the workplace by 2025, making their outlook an important consideration for employers today. The obvious solution for employers is increasing employee benefits with an emphasis on enhanced healthcare. Carrying out this strategy isn’t so straightforward, however, as healthcare tends to already be a top, and rising, expense for employers.
For employers with more than 200 employees, healthcare insurance premiums increased, in absolute terms, by 329 percent over the past 18 years (1999–2017)—or by a compounded average annual (CAGR) rate of 6.8 percent each year. Healthcare expenses are typically among the top three highest expenses for a business. Meanwhile, the demand for qualified talent under low unemployment rates means that workers can afford to selectively choose a place to work based on aspects beyond salary, such as the organization’s mission, environment, and benefits. To attract and retain workers today and moving forward, businesses must invest in new and better benefits and ways to sustain them.
Transforming Employer Health Plans with a Cultural Shift and Data-Driven Process Change
Some of these enhanced benefits are cultural (mindset) shifts that require little investment; others require real dollars to work. For example, by crafting thoughtful changes in plan design (such as providing free visits to a primary care physician [PCP] and charging more for non-emergency visits to the ED), organizations can drive tangible savings by directing employees to more appropriate, lower cost alternatives. However, educating employees to think about whether they truly need the ED when a PCP or urgent care will suffice is a mindset shift that can take a lot of time and energy.
Moving a company from a traditional fully insured coverage plan to a self-funded plan will require careful analysis of the downsides, as material dollars will now be in play and potentially at risk. An executive team must balance these real market forces against the material investment needed to implement the change, while still running an efficient, sustainable business. Businesses need vital understanding of how their workforce uses healthcare services—understanding they can find in corporate healthcare data.
Data Unlocks Lower Employer Healthcare Costs and Better Benefits for Employees
Unleashing corporate healthcare data, learning from it, and implementing against those learnings can lower the cost of employee/employer healthcare while increasing the total benefits value for employees. This is how Health Catalyst moved from a fully insured/unmanaged organization to a self-insured/fully managed organization in less than five years. During this period, Health Catalyst also reduced its healthcare spend by more than 20 percent, while increasing the offered benefit in real and significant ways.
Health Catalyst started its move to a self-insured organization by aggregating employee health data in a formal and governable way. With this data, even the most basic analysis work (such as comparing various slices of the data on a per-member-per-month cost basis, both to historical performance and national benchmarks) drove real insights into areas of improvement.
For example, Health Catalyst used the data to confirm its intuition on a couple of hypotheses about its population:
- Relative to benchmarks, its employee population was much healthier, with fewer chronic conditions and fewer large claims, as a percent of total spend relative to other companies of its size. (The Health Catalyst workforce trends young and professional, versus manual labor or manufacturing.)
- The majority of team members (65 percent) were paying for an insurance plan (a traditional PPO) that they underutilized because they were basically healthy.
Health Catalyst decided to encourage team members to take part in its HSA plan and made the plan cost very favorable over the traditional PPO. In one year, utilization of the HSA went from 35 percent to 93 percent. Team members were able to put the dollars they would have spent on a traditional PPO into their HSA accounts.
The next year’s cost review showed lower expenditures than Health Catalyst had anticipated and budgeted for, giving Health Catalyst the confidence to include some additional benefits for the coming year without an increase in rates. From a team member retention standpoint, the organization was able to send the powerful message to its workforce: thanks to cost savings from the year before, healthcare premiums wouldn’t increase, and the organization would add five new benefits to the plan.
The Right Data at the Right Time
To access accurate data in an appropriate way at an appropriate time, Health Catalyst moved from doing most of its employee health data work on an ad hoc, manual basis to incorporating its strategy into a broader data platform. The organization leveraged its full suite of relevant applications against its Data Operating System (DOSÔ) solution, with particular emphasis on a shared claims data mart for a holistic view of which procedures, treatments, and pharmacy costs drive spend within the employee population.
This data helped Health Catalyst make more informed decisions about introducing financial incentives to drive better behavior and cost-effective solutions that didn’t sacrifice quality, while maintaining the same overall level of benefit for team members. Two key methods emerged for reducing health plan cost while enhancing benefit.
Two Ways to Reduce Benefit Cost While Raising Benefit Value
Employers can reduce benefit cost while raising benefit value in two ways:
Manage Easily Fixed Cost Issues
By managing easily fixed cost issues, employers can lower their expenses more efficiently. Using a flashy user interface is a tempting way to get employees to buy into new policies, but the best cost savings are generally simple, such as driving more people to lower cost providers.
Use Healthcare Cost Savings to Fund Expanded Benefits
Many executive teams are happy to use cost savings to fund richer benefits (e.g., lower deductibles, higher contribution matches to HSAs, stronger wellness programs, etc.). For example, over four years, Health Catalyst dropped its annual spend by more than 20 percent. It invested those savings into areas such as improving the benefits in certain aspects of its health, dental, and other healthcare plans. The positive cycle helped the organization better manage its collective health, which translated into lower costs and a return its collective investments that exceeded expectation.
Lower Employee-Related Costs: A Reality with Data-Drive Health Management
With data-driven analytics and leadership that actively manages the health of employees, organizations can effectively manage the large and growing expense of employee health plans. Rather than using gains in this area simply as cost reductions, many forward-thinking organizations put cost savings back into richer employee benefits. This creates a positive cycle of employee reward (more benefits) that will position employers to attract and retain talent in this competitive job market.
Would you like to learn more about this topic? Here are some articles we suggest:
- Employee Wellness: A Combination of Personal Accountability and Corporate Responsibility
- Three Essential Systems for Effective Population Health Management
- Build a Mission-Driven Culture in Healthcare
- Healthcare Analytics Platform: DOS Delivers the 7 Essential Components
- How to Assess the ROI of Your Population Health Initiative
Would you like to use or share these concepts? Download this presentation highlighting the key main points.