No Insurance Product Will Solve the High Cost of Employer Sponsored Health Plans
In the mid 1800s, people were fearful of traveling via “modern methods.” Train and steamship travel was treacherous. Even floating across a river on a barge could result in loss of life and limb – just ask the snake oil salesman traveling with Josie Wales.
Well, this was problematic for companies with traveling salesman. The goal was to alleviate the financial burden on the employee and their family if something were to happen to the salesperson on the way to their destination. If you’ve every wondered how Travelers Insurance Company got its name, now you know!
The first group health and welfare benefit was introduced in 1912 by Montgomery Ward as an expansion of their workman’s compensation policy. Thus, group health and welfare plans were born.
For nearly 150 years, health and welfare benefits have been intertwined with employment in some form or fashion. History shows the evolution of these policies from basic indemnity plans to the major medical programs we know today. In that time, despite the evolution of the original indemnity plans to major medical insurance to the network HMO, POS, PPO, ACO, based programs we know today, costs continue to rise.
New Shiny Objects
Despite the desire to buy a product that solves the cost problem, let’s face the reality of the situation. There is not an insurance product in the world that will solve the high cost of group health plans.
We see strategies designed by insurance carriers and vendors and subsequently distributed by brokers that are based on the latest industry buzz phrase, such as:
- Level Funding
- Alternative Funding
- Reference Based Pricing
- Wellness Credits
- Shared Savings Contacts
- High Performing Network
Despite these catch phrases, not one of them will provide long term predictable results of keeping costs in check, while providing a valuable benefit to employees. These are gimmicks. The health insurance industry, for the most part, strives to to develop and sell products that are profitable to the company and easy to use for customers which is a virtual impossibility given our current healthcare system.
It is not hopeless. It is certainly possible to get a firm handle on desirable benefits and control costs. It’s just not going to come from an outside solution. It has to be derived from within a company based on the human resources goals and objectives, not from an outside company with the latest shiny object that an industry claims will solve all that ails a struggling employer.
Remember What Your High School Guidance Counselor
So what is the solution? How do you design a sustainable plan?
It is no different than what we are told in school: do what you love and the money will come. Well, when designing a group health plan, decide what you want to offer, and the solutions to accomplish it will present themselves. Ask yourself what you, as an employer, believe you need to offer your team to retain your existing employees and attract even more desirable employees to grow and expand your business.
- Is it $0 primary care and generic drugs?
- Is it simply catastrophic insurance with out-of-pocket limits that employees can afford?
- Are most of your employees younger, or maybe requiring affordable options for child birth?
- Is diabetes a problem? Is it valuable to offer progressive diabetes management to your team?
Whatever the case may be, think BIG. Design a plan that will address those areas of needs and what your company might want to get from your plan. Then, decide how much financial risk you are you willing to take to fund that plan ON YOUR OWN rather than through a third party payer. Obtain the appropriate level of financial protection to cover the risk of the dollars you are willing to put up for any such program.
This may sound crazy, but what we’ve seen after 150 years of group health plans is that the scale has tipped. The costs of just paying for a care plan for employees directly when they need it are, in a lot of cases, can be less than pushing those funds to an insurance company, for them to reimburse for the costs of such needs at a greatly inflated price.
Real Life Example
Know your objective: Let’s take the case of a small group with 8 employees. They knew exactly what they wanted to offer in the form of a plan design. They knew what value-added programs they wanted to offer to protect employees in the case of a catastrophic event. And they had an idea on the culture they wanted to create.
Know your budget: Once these objectives were identified, we turned to their budget. How much risk were they willing to take on before they tapped out? Once that financial risk was identified, we went to market and found an insurance product that would essentially pick up (start covering the costs) where the company felt they no longer could do so.
What has been the result? The company has a financial reserve of funds that they continue to fund, even when times are good. They have a plan, with 8 employees, that would be the envy of a company that has 800. Because the “insurance” is not being used for day-to-day medical expenses, the projection is for a nominal, if any, increase to the employer rates. And supposing there is an increase, the reserve of company funds will be there to absorb whatever that increase might be.
And unlike level funded arrangements, funds are held by the employer rather than a third party agent or large insurance company. This employer has the ability to fund expenses for employees that are not “covered” by the insurance policy. They just cash flow the expenses, much to the appreciation of the beneficiaries, to the point where it brings the beneficiaries to tears when discussing what the company is doing for their families.
Is This Easy?
No, far from it. Success only comes before work in the dictionary. But I was taught that nothing easy is worth doing. It requires relentless discipline and fanatical focus on empirical evidence on the costs of caring for their team. “Productive paranoia”, a phrase borrowed from Jim Collins, is applicable here.
When adopting this approach, one must naturally always be cognizant of the worst case scenario, much like Bill Gates used to obsess over what could derail Microsoft’s accession into a successful company.
I think the discipline, focus, and paranoia required to manage a successful program are what prevent employers from taking the step to a non-commoditized solution. HR is usually stretched thin as it is, so who wants to add the burden of managing costs? I mean, isn’t that what caused the massive growth in size and value of the health insurer?
There is good news. There are advisors that will act with the relentless discipline, focusing on the empirical evidence and being productively paranoid on behalf of their employer clients. Those who have said “enough is enough”, and are committed to working on behalf of employers, working as an advisor for THEM, rather than working as a broker on behalf of the insurance industry.
I caution those buyers out there against those brokers who will present them with the next shiny product to “solve their high cost of healthcare” problem. If 150 years of precedent teaches us anything, when it comes to traditional health insurance, there is no such solution.