Administering health benefits and group medical plans for employees is one of the most complex and challenging undertakings companies have to grapple with. Understanding the health insurance system is a key strategy in mitigating the risks in terms of time, cost and money for both you as the employer and your employees.
The dynamics of the health insurance system are at the root of the high cost of care. Below you will find an explanation of how healthcare costs became so unruly and what your company can do to control those costs.
Healthcare Costs: The Problem
Since the Preferred Provider Organization (“PPO”) and Health Maintenance Organization (“HMO”) patient-provider models became more prominent strategies for health insurance plans managing benefits around 30 years ago, the cost of administering group medical plans jumped more than 100%. This is faster than wages and inflation – a troubling trend for employers and employees alike.
When the Patient Protection and Affordable Care Act (also known as the “ACA” or “Obamacare”) was passed in 2010, part of the inspiration for this legislation was controlling health care costs for companies and employees. New rules around medical loss ratio, or the premium dollars that a health plan spends on medical claims versus the administrative cost, were meant to curb profiteering. The result, however, was the exact opposite.
Under the ACA’s medical loss ratio policy, companies needed to pay 85 cents of every dollar made to providers, while the remaining 15 cents could be allocated to administrative costs and, ultimately, profit. The idea behind it was that is profits were capped then overall health costs would go down – but that didn’t come to fruition. This did not incentivize health insurance companies to reduce costs. The cost of care is directly tied to profit under the medical loss ratio system, and so it follows that higher costs equals higher profit.
Lawmakers, effectively, delegated the management of costs to a stakeholder whose interests lie with generating profits. It simply is not working the way they intended it would.
Healthcare Costs: The Solution
Luckily, your company can overcome the status quo and eliminate waste all while streamlining administration and ultimately providing smarter, better, lower-cost health care for your employees.
One solution is for your company to assume a self-funded plan model. A self-funded plan is a type of health insurance plan typically found in big companies where the employer itself collects premiums from enrollees and takes on the responsibility of paying employees’ and dependents’ medical claims. You can leverage technology, data and close relationships with service providers to cut out the intermediary. You can directly contract with the providers, hospitals and facilities of your choice. This strategy can help companies save up to 30% in costs while simultaneously increasing and improving health benefits for their employees. Health plans and costs are tailored to each employee specifically based on their circumstances, which is a great benefit.
Working with a risk mitigation service can help you as a company navigate the risks that come with administering a self-funded plan model. Such a service can help you successfully manage your employee’s benefits on your own.