Sales & Marketing Support
Today’s insurance consulting marketplace is as tough and ruthless as it has ever been. It seems as if every day there is a new approach and a new competitor to fend off. All the while, your clients expect you to show the skill and knowledge base of an insurance professional, accountant, attorney and quite often a psychologist. Surprisingly many insurance consulting firms navigate their way through this labyrinth, however there is one area it seems almost all firms fall short. Growing new sales!
Insurance Consulting Firms in today’s marketplace have very stark options when it comes to their agencies.
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Have you ever wondered, when you pay a health insurance carrier premiums – where does the money go? Let’s begin by considering a fully insured medical plan. On average, it breaks down like this:
- Premium Tax, on average 4%
- Commissions, approximately 4%
- Insurance Carrier Retention, 20% to 25%
- Medical & Pharmacy Claims, approximately 70% to 75%
Premium taxes and commissions are straight forward charges. Then comes insurance carrier retention which includes fees to cover everything the insurance carrier does from answering the phone, setting up networks and administrating claims. It also pays for the internal risk charges of large individual claims. Finally, the remaining dollars are allocated to medical and pharmacy claims, making up approximately 70% to 75% of your total costs.
With this in mind, where should an employer dedicate their efforts to control costs? The answer is obvious. In order to successfully manage your health plan costs you must focus on where the money is: Claims and Insurance Carrier Retention. From here you begin to use the 6 levers available to you in controlling costs.
Rising employer healthcare costs is concern for nearly all employers, however very few fully understand the levers to control those costs. When all is said and done, there are only 6 levers available to employers for long term sustainable cost control.
Lever 1. Medical Plan Design Changes
This has 2 impacts:
- It shifts some of the cost burden to employees through co-sharing of costs when they have a claim.
- It will change your utilization patterns since employees have more financial skin in the game.
Lever 2. Employee Contribution Changes
An employer contribution increase, which is a pure cost shift to employees, is often necessary. However, adjustments should always be done based upon benchmark data. This will help you avoid contribution strategies that shift the healthy risk away from your plan thus increasing adverse selection. It also will help ensure that your plans stay competitive.
When considering Levers 1 and 2, remember than when you change employee contributions you impact everyone on the plan while changing the medical plan design only impacts those utilizing the plan.
Lever 3. Change Vendors
This is ‘shopping the market’, for various vendors such as insurance carriers, TPAs and disease management companies. Its always important to make sure you have the best deal in the marketplace for the plans you wish to deploy, however be careful because shopping the market too often can have adverse consequences and taint your company’s reputation with these vendors.
Lever 4, Eligibility
Eligibility changes can impact who is eligible to be on your plan, and thus impact your costs. The Affordable Care Act has certainly impacted the options available, but employers should still consider how and if they should offer spousal coverage. Also, conducting dependent audits can remove those dependents from your plan, both spouses and children, who are not true dependents of the employee. Nationally, between 8% and 12% of the health plan dependents are not actually eligible to be on the plan, and removing them is a direct impact to cost savings efforts.
Lever 5, Change The Health Of Your Population
The healthcare cost equation is as follows:
Utilization of Services (X) Cost of Services = Total Claims
Claims always determine premiums, and the healthier your group is the lower your costs will be due to these lower utilization patterns.
The top 1% of employers take this lever seriously, and they have great results to show for it. They focus on identifying high cost plan members, and then use nurses to meet with these plan members each month to help manage their conditions and ensure they receive adequate education and care. The average primary care office visit in America is now 6 ½ minutes. These top employers understand this, and supplement resources in a way to ensure their high risk members receive adequate assistance in managing their conditions.
The net result for the top 1% employers is that they average less than 3% increase to their costs annually.
Lever 6, Change Plan Funding
Funding, or how you pay for your health plan, is a continuum. On the most conservative end you can fully insure your programs. On the other far end would be the largest of US employers who would consider full self-insurance of their risk.
There are many stopping points along the way however between these 2 extremes:
- Minimum premium contracts
- 1 way retrospective agreements
- Use of HRAs and HSAs
- Participating fully insured contracts, &
- Partial Self Insurance
Specifically, partial self insurance has seen a huge growth in popularity after implementation of the Affordable Care Act.
Understanding these 6 levers will help you as an employer to stay focused on where you can make a true impact to the costs of your plans, thus giving you a competitive edge in the marketplace.
Of the 6 levers available to employers for long term sustainable cost control of their employee benefit programs, there are 2 employed more than the others. These are:
- Changes to the employee benefit plan designs, and
- Changes to employee contributions
As you consider these types of changes to your various benefit plans, such as your medical plan, it is important to ensure you are using appropriate data in order to make your decisions.
The industry ‘best practice’ is to use benchmarking data to assist with these types of decisions. Using good data can help you better understand if your plan design is not sustainable over the long term. It can also help you avoid benefit plan design changes which would cause you to suddenly become uncompetitive in your marketplace.
Benchmarking data is also important when making employee contribution changes, thus ensuring you do not attempt a strategy which would simply shift the healthy risk away from your plan and in the end increase your adverse selection.
It is also important for employers to balance between the use of these two levers in an intelligent manner.
To assist employers with this process, we have developed a proprietary employee benefit survey. For employers willing to participate, we will provide you the full results and how your company matches up to the data collected.
So how does it work? Simply complete the survey with the details regarding your company. Once the survey concludes, we will compile the data and deliver the results to you as a participant.
In 1996 at the City of Asheville (Asheville, North Carolina) a ’new model’ of healthcare was emerging which involved identifying high-risk health plan members and conducting one-on-one meetings with healthcare personnel. The goal was to get the high risk plan members to become compliant with the medical norms for their specific health condition or disease. These efforts ultimately received national notoriety and became known as the Asheville Project and later through national grants as the Ten City Challenge.
In the years that followed, over $2,000,000 was spent studying the effectiveness of the program. In the end, it became the most independently researched, peer reviewed, and published disease management program in existence! The results speak for themselves.
A recent study of the total medical claims of our employer clients versus that of a major, national insurance carrier revealed our claims were 17% less than their norms. These results were achieved through our nurses meeting one-on-one with high risk participants, every month.
We aim to deliver highly measurable and identifiable data showing actual claims savings to employers. These efforts have been so successful that we have developed preferred reinsurance contract offerings with preferred renewal calculations and risk pooling.
Risk Identification. Our proprietary risk reduction process begins by identifying current and potential high risk members within your group.
Risk Stratification. Once the risks have been quantified, our medical staff will begin their review to identify the high risk members whom will be targeted for ongoing monthly meetings. On average this will be 10% of your health plan population, with the remaining 90% considered ‘under control’ after this risk assessment, and nothing will be required further of them for the given calendar year.
One-on-One Meetings. After the stratification of risk has taken place, our nursing staff will begin coordinating one-on-one meetings with the identified high risk participants. During these meetings, we will be assisting plan members to become compliant with evidence based medical norms.
This type of focused effort goes directly to the sources driving your claims costs in a highly targeted manner.
Employers are beginning to become savvy to the risk pooling affect, and understand that their ability to control healthcare costs is strongly determined by their ability to have access to the best pools of risk.
A powerful way to managed group medical plan expenses it to ensure you are using the correct funding mechanism. Funding , or how you pay for the plan you offer, is a continuum from fully insured to fully self-insured. There are many other stopping points along this continuum based upon your risk tolerance. Choosing the correct funding for your plan can save your company 10% or more on your total annual costs. These options include:
- Minimum premium contracts
- One way retrospective agreement
- Participating fully insured
- Partial Self Insurance
In the post Affordable Care Act World, we are beginning to see a large shift in the market away from the traditional fully insured plans and toward other types of funding alternatives. In fact, today nearly 60% of all US employees are covered under partially self-insured plans.
There are many reasons this is occurring, including the following:
- Tax Avoidance. Partially self-insured plans avoid a number of different taxes which can add up to 6% of traditional fully insured premiums (State health insurance premium taxes, Health insurance provider fee, Risk adjustment fee, Federally facilitated exchange user fee, etc)
- More Available Claims Dollars. Under alternative funding methods you begin to experience the benefits of good claims experience. Also, on average 80% of the dollars you spend will go to fund actual claims rather than insurance carrier profits.
- New and Better Contracts. Reinsurance carriers have developed new and more enhanced insurance contracts which are attracting employers with as few as 20 employees to consider being partially self-insured.
- Cost Control. When using various alternative different funding method such as partial self-insurance, employers immediately begin to understand the importance of their medical and pharmacy claims experience. They then are able to implement many proactive programs to help reduce the claims.
- Reporting. Alternative funding of your medical plan will also give you access to much more data than you have ever had before. You will be able to drill down and understand the true drivers to your costs. Also, these reports can be used to help you budget and project future costs well in advance of when you would receive a fully insured renewal.
Ultimately it is important to remember that over the long haul no one will pay your medical and pharmacy claims except or you. This realization will help you to focus on cost containment efforts which will truly work to turn your long term trend of costs.