Over the past decade, the cost of administering group health benefits has increased more than 100% – and most business are unsure of why. Health benefits for employees is typically the second largest business expense behind payroll – meaning waxing and waning health costs can have a significant effect on a business’ bottom line.
Why is it that something that costs so much can get away with being so vague for company leaders? There are three primary reasons why group health benefits are so expensive for employers:
1. Your Sickest 10% Are Responsible for 90% of Overall Health Spend
Did you know that the sickest 10% of your employees actually consume 90% of all dollars your spend in healthcare?
So it follows that if you want to meaningfully lower your health care costs you will have to focus your efforts of reducing spend among the sickest 10%. This is called risk management. Offering benefits and incentives to encourage your employees to pursue preventive care can help them avoid having to consume high-cost care down the road.
2. 50% Hospital Spend
The second reason, the 50% reason can also be solved by investing in employee access to preventive care. People paying more close attention to the health early on through preventive care can help them to avoid having to go to the hospital in the first place. Preventive health care includes things like getting a physical on a timely basis, sticking to medications as prescribed and committing to healthy nutrition and fitness lifestyle.
It is important to note that most visits to the emergency room could be avoided if people took better care of their health earlier on.
3. Costs Vary Wildly From Facility to Facility.
You can receive a service in one hospital and then go receive the same service in a different hospital and pay a wildly different fee. Why? Costs for care vary greatly from facility to facility, and under the current pricing model you don’t find out how much the service cost until its already been administered.
Overall, investing in keeping people healthy and out of the hospital can help you reduce healthcare costs in a significant way. The savings could be so great you could reduce the cost of other health services to be virtually free – including copays for office visits, copays for generic drugs, get rid of deductibles, coinsurance, and costs for physical therapy.
How to Solve the Health Cost Problem
It is all about creating smarter, more sustainable health plans for your employees. Using tech, data and service providers can help you mitigate risk in commercial activities where large private health solutions providers cannot.
One option to consider is to move to a captive insurance infrastructure. A captive insurance model is a model in which an insurance company is wholly owned and controlled by its insureds; its primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. Contact your actuarial partners for more information about this model.