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Bootstrap HR 7 Ways to Lower Benefit Costs Without Decreasing Coverage

October 23, 2007
Related Topics: Benefit Design and Communication, Health and Wellness, Featured Article, Compensation

It’s a hard-knock life HR people live.

    By now you’ve read the latest yin and yang of benefits news.Health care premium increases rose at their lowest rate in eight years. But the increase is still more than 6 percent, and that’s still more than twice the rate of inflation. It far exceeds the average annual increase (3.6 percent) for employees in the U.S.

    With that data in mind, the reality remains the same. Your benefit cost structure is increasing, and it remains difficult to shift some, much less all, of the increasing costs to employees. The crunch continues, and you’re in the middle. Your CEO is looking to you, the HR pro, to squeeze dollars out of the overall plan structure without causing a riot. So much so that she walks into your office and asks the following question:

    "You follow these things: What can we do to reduce our benefit costs without dropping coverage levels significantly or increasing employee contributions?"

    Yikes! That’s a creditability call for HR—an opportunity to be at the table. Or to clean the table after the meeting if you don’t have a meaningful response.

    Fear not, my HR brothers and sisters. Here are my Cliff notes for the top seven strategies to drop benefit costs without decreasing coverage. There’s still time to get these in for 2008.

The easy solutions

1. Full coverage for preventive care benefits: This one is pretty simple. Drive intermediate to long-term utilization of your health care plan down by providing a healthy stipend ($500 per year? $1,000?) for preventive care covered at 100 percent. Thinking short-term in this area will drive up your long term major-medical costs.

2. Pit the providers against each other: Another simple one. If you have a contract expiring in any area, don’t be a rookie. Shop around. Areas you may not spend much time evaluating, like dental, vision and disability, are especially ripe for providers who are making pushes for market share. That means that there’s usually a provider willing to beat your current rate to get the contract signed.

More complex solutions

3. Carve out your prescription benefit: "Prescription carve-out" refers to the option for your company to use a pharmacy benefit management company, or PBM, to manage the pharmaceutical component of your medical plans, rather than allowing the traditional PPO or HMO to package it with their services on the medical side. The biggest benefits of the prescription carve-out are volume discounts and formulary design from a big provider like Caremark or Medco. Additionally, if you are a small company on a self-insured PPO/HMO, you may not control the ultimate design of your plan, and as a result may be covering things that aren't ordinarily covered nationally. Control doesn't mean taking benefits away, but it's always good to have options. Formulary design through the carve-out is also the best way to drive up your plan’s generic usage, which is where the real savings are.

4. Phone in the doctor visits: Services like TelaDoc allow your employees (over 12 years of age) to get personalized, non-emergency medical care over the phone without having to go to the doctor’s office. After completing a medical history, services like this allow employees to speak with doctors on an 800 number, receiving diagnosis and prescriptions over the phone for the most common conditions like strep throat, sinus infections or flu. The cost savings look like this: Each call costs roughly $35, versus $85 per doctor’s visit, or a $200 per "doc in the box" visit, or a $400 per emergency room visit. You can do the math.

Solutions that could rankle employees

5. Trust but verify on spousal/dependent coverage: This one’s personal. By doing an audit and forcing documentation that spouses and dependents who are on your plan are actually related to the employee in question, you can drop your total number of covered individuals by as much as 10 percent. Of course, in doing this, you’re presenting employees with a tough message on trust, and the ones who are not being forthright will be the ones with the worst reaction. Related flavors of this intervention include higher premiums for spousal coverage when the spouse is eligible for health care coverage elsewhere.

6. The carrot and the stick, aka penalties for unhealthy employees: With consumerism and wellness programs slow to deliver savings, companies are beginning to replace the carrot with a stick. The only question is the pace of change. The old strategy in this area (the carrot) is to offer financial incentives to employees who have healthy lifestyle habits or who participate in wellness and fitness programs. That’s nice, but it hasn’t always generated the change needed. If you want to be hardcore, you can join an increasing number of companies that take the opposite approach and penalize workers (the stick) for unhealthy choices, such as smoking, by charging them higher premiums. Proceed with caution.

7. Forced mail-order Rx: If you have mail order in place and want to drive up your generic use rate by another 5 percent to 10 percent, gather your courage and force any covered individual with a recurring prescription to use the mail-order system once they’ve made two visits to the pharmacy. You’ll benefit by maximizing your overall percentage of generics under the plan. Warning: While many people think such a move would be welcomed by employees (who wouldn’t want the convenience of mail order, right?), the reality is this option involves employees who ignore your communications being stranded at Walgreens, unable to get their meds. Chaos and escalated calls to your CEO will ensue.

    Lowering your benefit cost structure without decreasing coverage is possible. Drop me a note to tell me the things I’ve missed, or visit and comment. Above and beyond all else, be ready for the million-dollar question from your CEOs. You deserve to be at the table, but you’ve got to have options ready for them when they ask.

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