Fact: Your Healthcare Costs are controllable!
The sad thing about the healthcare insurance industry is that organizations have been led to believe that they can’t control costs. As they grow, especially in the middle market with hundreds of employees, businesses have more control over healthcare costs than they realize. But the industry wants them to refrain from thinking that they can control those costs because the industry makes a percentage of those increases in fees (so they make more money).
Every year at renewal, it’s rinse, recycle, repeat. We hear from the employer as well as employees, I have my renewal coming in. How bad is it going to be this year? That’s the mindset. So, unfortunately, the culture of the organization can sometimes be negatively impacted unintentionally by things that are unknowingly in their control.
The Affordable Care Act (ACA) has not reduced healthcare expenses. It’s increased them…by design. The ACA incentivizes the increased cost of healthcare. The companies that really can control those cost increases are typically the ones that are good candidates for a self-insured health insurance plan. When a company moves to a self-insured model, it can handle those healthcare costs because it can adjust the plan design for the organization to incentivize healthy, productive behaviors. Those behaviors help to alleviate some of those healthcare expenses.
And one of the other most significant expense issues brokers should discuss with their clients is pharmacy spending. The impact of pharmacy on healthcare costs and how much money the insurance industry makes from the pharmacy are substantial contributors to healthcare costs. And yes, pharmacy spending is also controllable.
From pharmacy benefit managers (PBMs), the insurance industry makes a tremendous amount of money from pharmacy and pharmacy spin. However, when a company enters the self-insured market, there’s a traditional pharmacy benefit manager, where all things, like rebates, etc., are managed. Then there are pass-through PBMs, who get a flat fee to manage that pharmaceutical spending for the client. But all the rebates go back to the group in this model. There is no incentive for a carrier to communicate their pharmacy spending to their client. So the insurance company avoids keeping up with their client and explaining how they make money.
So what is included in your healthcare coverage costs?
- About 10% of the costs are administrative, including commissions to brokers, fees to administer the claims payment, etc.
- The next piece is reinsurance. Reinsurance represents about 20% (on average) of a business’ healthcare spend.
- And the remaining 70% is where the insurance company makes a significant profit. On average, it’s between 7 and 15% plus.
However, when a company moves into a self-insured model, it can control that spending. So that profitability comes back to the group.
And inevitably, it will happen – a group will have a catastrophic or bad claim because we’re dealing with humans. The more people there are in a plan, the larger the risk. The answer is to spread that risk. Look at the trends of the group. When you understand where an organization utilizes its healthcare, you know where costs can be controlled.
Bad things happen. People get injured. That’s why you buy healthcare coverage. But you can proactively educate people about how to use their healthcare coverage, where and when to go when they’re sick or injured, etc. Some of these costs are more manageable in that case. And that’s where the insurance industry has done a terrible job: proactively educating, empowering, and encouraging their clientele to lead better, healthier lives.
At Cogent, we disclose what we make to our clients. And not only do we disclose it, but we explain how we plan to earn it. That is totally aligned with our value of stewardship. We’re changing the game because we’re moving the needle one company at a time. We help businesses understand what they can control based on group size and how we can help them do that.
The Value of Consumerism
Consumerism is a driving force in controlling healthcare expenses and is a big part of employee satisfaction with their plan. It must be built into the plan design, though.
First, we must create the path of least resistance, which must be clear and straightforward. We do our best to help educate our clients and their employees at open enrollment. The biggest thing is educating people, the users of the plan. For example, taking care of your mental health is not a weakness. One of the things that COVID exposed is that we are not mentally well. And mental wellness is a huge issue. That is something that can be solved when you take a proactive stance.
One of the most significant ways to do that is to be able to talk about things. There are so many employee assistance programs that are already included for free that people do not use. They can do telemedicine or teletherapy with a psychotherapist. And if anything, get the head trash out. We take the garbage out of our homes every single week. And if we miss trash day at the house, we freak out! But why is it that, from a health perspective, we don’t take the trash out of our brains? As a result, all this trash is in our heads, is making us sick.
Many physicians agree that 80 to 85% of people could get out of the hospital sooner if they had stronger or better mental. Think what that would do to healthcare costs if 85% of the people in hospitals could get out of the hospital sooner. Or not even have to go in. It’s so important.
It starts with talking about what you can do and what you can control – taking out the head trash and going to psychotherapy or utilizing another tool that most of your employee assistance programs offer, typically that appendix stuff that most people never read at open enrollment. It’s available, but we don’t utilize it because, as a society, it has a negative connotation. But you go to a cardiologist, don’t you? Don’t you go to physical therapy or occupational therapy? Why not go to psychotherapy? There’s nothing wrong with that. It just means you’re taking a proactive stance to become mentally stronger.
Taking charge of your mental health is one of the most significant ways to reduce pharmaceutical spending. We can minimize medical utilization. And there are certain drugs you can take for anxiety and depression, which are not overly expensive, with minimal side effects. But if you haven’t done what you need to mentally, now you run into the more costly treatments. Your brain controls your heart, so if your brain is stressed, then you have cardiac issues. Those are expensive drugs. Cancer treatments are expensive drugs, and on and on. And a lot of that changes the needles of society if we change our approach to mental wellness.
Consumer-driven plan design with strategies like this is a cornerstone to developing a self-funded plan to help businesses manage and control their healthcare coverage costs.
To learn more about consumerism strategies or to see if your business is ready to look at a self-funded health insurance plan, contact Cogent Advisors.