Health insurance is a very big part of a company’s expenses, usually #2 after salaries, and the implementation of the Affordable Care Act, or ACA may only confuse matters. With many businesses being forced to provide health care coverage to their employees, it is important to find ways to control these costs.
Many CFOs. CEOs and HR Directors rely on their company’s health insurance Broker to provide them with the best coverage to meet their legal obligations while minimizing health care costs for the company. However, there are a few things that your health insurance Broker doesn’t want you to know. What are these things, and how can not knowing these things cost you and your company?
Here’s a short list:
1: Your Health Plan Broker Has Different Priorities Than You Do
When it comes to health care, your priority is generally to get the best coverage possible for your employees at the lowest cost. Unfortunately, your Broker has a different set of priorities. Rather than minimizing your costs, your Broker’s main goal is to keep his or her commissions flowing.
Well, let’s compare health care brokers to 401(k) plan advisors for a moment. Most 401(k) plan advisors serve as fiduciaries to the plan’s participants (the good ones, at least) and are required to represent your employee’s best interests. A health care Broker, on the other hand, does not have to represent your employee’s best interests because they are not fiduciaries.
Brokers are salespeople who make money by keeping you on as a client while earning a percentage of your health insurance premiums (4%, 5%, or even 6%). They do not have an obligation to represent your interests, though many do try. This is what makes a percent of the commission and additional bonuses and overrides on fully insured plans. Ask your broker if ALL his or her commission (i.e. bonuses and overrides) is disclosed on the 5500 form? If he or she is transparent they’ll tell you “no” we are only required to report “commissions” we do not report additional override and bonuses. This misaligned incentive keeps most businesses on a fully insured plan and keeps lining your Brokers pockets.
The problem lies in their toolbox. Most health plans that these Brokers sell are cookie-cutter in design, offering no flexibility and few if any, ways to save the client money, so their hands are tied. They are placed in an unpleasant position each year at the renewal of presenting an increase in premium with almost no cost-saving tools except cutting benefits or shifting the insurance cost to the employee.
If you, as the employer, become frustrated, you may ask another Broker who will bid it out to the same insurance companies (and come back with the same pricing) or will try to pitch you on what may seem like a new approach but is the same or a cut in benefits when scrutinized. Sadly, the role of a health insurance Broker offers little value-added.
2: You Should NEVER Buy Dental Insurance
Lots of health insurance Brokers will offer your company dental insurance, short-term disability, and vision plans once you have decided on which health plan to offer, almost as an after-thought. They do this because it’s easy to sell, most employers want to offer it, and they get paid a small, steady commission for doing nearly nothing. What they don’t offer is a cost-saving alternative to dental insurance—self-funded dental insurance.
Why would you want self-funded dental insurance?
First off, you can save up to 20% on costs to your employees or the company itself—depending on who is paying. Second, as reported by a colleague who runs hundreds of partially-funded plans, in 20 years, he has NEVER had a client lose money on a self-funded dental plan. What’s the reason? With dental, there’s a very well-defined annual liability that usually amounts to about $1,000. The reason you buy insurance, of course, is to share or pool the risk for big liabilities. When the liability is small (and capped), there is no need to buy insurance because you are paying for protection you do not need to have.
3: There are Sensible Alternatives to Fully-Insured Plans
The way that many health insurance Brokers tell it, you might think that buying fully insured health care plans would be your company’s only viable option. However, there is an alternative to fully insured health plans, one that could save you roughly $1,000 per employee per year, if you have a minimum of 50 employees: partially self-funded health plans.
Let’s compare fully insured health plans to partially self-funded plans:
Under a fully-insured plan, you pay a flat premium each year and have ZERO participation in your claims experience. If several of your employees get sick, actually (goodness forbid) USE the plan and incur a lot of claims, your premiums shoot up the next year. If your employees stay healthy and don’t use the plan, your premiums probably still go up anywhere from 1% - 3% at renewal!
So, you either see a big premium increase or a little premium increase. Either way, your rates are going up, not down. Partially self-funded health plans, like fully-insured plans, have you pay a premium. However, a portion of the self-funded premium goes directly into a claims budget that is used to pay for a set portion of health claims made against the plan. If your employees’ claims exceed that pre-set dollar value, then the insurer takes over payment (unlimited). If you don’t use up the money in your claims budget, you get it back at the end of the year. You can apply this money to next year’s health care plan, or accept the refund. This actively rewards your company for having a good health year, while providing protection against an abnormally high-claims year.
This approach to paying for health insurance is picking up popularity among companies with 20 – 50 employees. Why? With potential savings of $1,000/employee, a company with 50 employees can save $50,000/year, and a company with 100 employees can save $100,000/year!
4: Fully Insured Plans Can’t Really Help You Minimize Health Costs
A cookie-cutter plan design for fully-insured health plans typically gives you NO insight into what the nature of the claims against your plan are. Because of this, there’s no way to address the issues that lead to higher costs. For example, say you had five employees who had heart conditions but weren’t taking their heart medications, this could cause extra emergency room visits to stabilize events or even major heart attacks, which would drive up costs.
With a partially-funded plan, you would know about the five employees with heart conditions (not personally identified, of course), and could change your plan’s benefits by offering free heart medications to the plan’s participants and having nurses schedule follow-up calls with patients to make sure the patients take their medications. This preventative care would be much cheaper than paying for emergency care or an extended stay at the hospital, lowering health plan costs.
5: Fully Insured Brokers are biased against Partially Self-Funded Plans
As one veteran insurance Broker admitted, he didn’t offer partially self-funded health plans for two reasons:
- They were more work for him.
- They earned him less money.
Brokers have little reason to promote partially self-funded plans because it goes against their best interests by taking more resources (time & effort) while providing less reward. This leads to some Brokers loudly denouncing partially self-funded plans as often as possible, even to clients who might benefit greatly from such plans.
While partially self-funded plans might not be for everyone, in our experience, the numbers make sense for businesses 70% of the time, and we would still encourage the rest to explore this option annually since employees’ health will change. The partially self-funded approach to health plans isn’t about whether or not you buy insurance, but how and how much insurance you buy. It’s about only paying for what you actually need.
As your company prepares for your benefits renewal this year, what are you doing differently this year to break the status quo? How are you managing your healthcare supply-chain? Do you have the same level of transparency as you do any other part of your business?
Please consider these options that WE brought to your attention, not your current broker. Visit: www.BlackrockBenefits.com.