Benefits Best Practices: What are your 3 tips for budgeting for rising health care costs?

The days of cost-shifting are long gone, so much of what people may once have considered tried-and-true no long works. While cliche, it's equally true that one size does not fit all. In order to create and fund a plan that makes sense today, businesses must find ways to bend the medical care cost curve downward. Here are three ideas that executives can consider:

1. Explore self-funding your health plan: Self-funding has reached the middle market, with some insurers willing to create self-funded or modified self-funded arrangements for employers with as few as 26 employees. Self-funding offers the ability to eliminate much of the administrative expense required by an insurer and gives you as an employer direct control over your claim costs. A recent mid-sized client saved more than $200,000 over its expiring health policy. However, self-funded health insurance does not come without some risks and needs to be considered with a view longer than a single year.

2. Find and work with a TPA that has the capability to provide early identification of major medical cases: The driving costs for many plans are the result oh high frequency of use, prescription costs, and large claims. In many instances, a TPA with an effective monitoring system can identify potential large cases before they occur. Recently, a TPA with which we work noticed an increase in the number of physician visits and medications commonly used for a heart condition being used by an employee. A review found a developing heart condition the carrier helped address through case management at costs far below what otherwise could have developed. The cost savings was well in excess of $40,000 on a direct basis and enabled the employee to continue working, rather than require a far more complicated surgery that would have required months of recovery away from work. In a second situation, the medical condition was diagnosed by the employee's physician who recommended treatment at a nearby hospital. With the TPA's involvement, the employee decided to seek care at a center of excellence that offered reduced costs and generally better surgical and recovery outcomes.

3. Add a destination medical care/center of excellence network: As in the example above, a center of excellence network that has better than standard negotiated pricing arrangements is a great way to bend the cost curve downward. Sometimes, these networks involve use of international facilities (what some call medical tourism, though we dislike the term). During 2010, Lowes implemented a center of excellence arrangement with Cleveland Clinic for its employees for heart-related conditions. The best networks offer both domestic and international center access. These networks offer substantially better pricing and often have preferred admission arrangements that can bypass wait times for specialists that now average 11 weeks in the US.

For companies interested in spending their limited financial resources wisely, it's no longer a matter of increasing deductibles or copayments, reducing coinsurance and benefits and shifting more of the premium dollar to employees. The last year in which wages increased at a greater percentage than health insurance costs was 1996. Innovation has provided the solutions. Now it's business' time to take advantage of them.

David, I am quite impressed with your answers and obvious knowledge of the field. But the solutions you mention generally are not available to small business where the owners and managers are pretty much living day to day and only have time to pay the benefits bills. Are there suggestions you can make that would apply to firms of under 10 employees or perhaps more broadly 1 to 25, that will not have the time or knowledge to look for centers of excellence or have the money to engage TPA's?

Rick, thanks for the follow up question. For the smaller groups you mention, high deductible health plans with an HRA can be a very good option. Because HRA's have carry-over provisions, they provide some incentives for good health care consumer behavior and allow employees to save on a tax-preferred basis for future major medical situations. A second option is a combination of a high deductible health plan with what some call "gap insurance." I confess that I am not closely familiar with gap coverage, so my bias is for an HRA approach, because it provides more flexibility for use by the employee and can be funded based on use. Gap insurance looks too much like dollar trading with an insurance company for my tastes.

Our firm has a great affinity for small business, in part because we are one. We are working today on a plan that will provide the benefits I mentioned originally that will reach down to five employee firms. Since we're still negotiating some of the agreements, I'm not at liberty to disclose the details yet. We hope to be able to share information within 60 days, if all goes well.

Hope this helps a little. Please feel free to reach out if you want more.

1. Look at the demographics of your workforce and identify models for different levels of enrollment, for example, employee only, employee plus family, employee plus children and employee plus spouse.
2. Identify and communicate an annual expenditure threshold. This should then include an increase percentage that you are willing to cover. When renewing benefits plans communicate these expectations to brokers from the start and seek ways to save premium dollars, offer a lower cost option, or pass on costs to employees.
3. Carefully audit plans to ensure that billing and enrollments are correct. Employers routinely spend additional dollars covering employees who are terminated because they were not taken off the plan and ineligible dependents.
See The Employee Benefits Answer Book for an entire chapter on Cost Control. http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470525150.html

Good tax planning can help. Purchasing wisely depends on whether a business owner is an active manager or passive investor, number of employees and family member employment.

I have a short informational slidecast on the small business page of my website http://taxplanningstl.com/small-business-tax-planning/ for further research.