TPA Offers Sage Advice

Managing health-care costs is an ongoing balancing act for Rob Hutchison, CFOof ISEC Inc., a construction company in Englewood, Colorado. Not only is he vyingfor valuable employees in a tight labor market, every dollar the company paysfor insurance affects its ability to bid for jobs at a competitive rate. “Whenhealth-care costs go up, the cost of our labor increases.”

    ISEC has been self-insured for 10 years through a preferredprovider organization (PPO), and shares the costs with employees, who pick upabout 40 percent of the tab. “There’s no exact science to this,” hesays. “It’s the right thing to do to absorb costs and provide the bestbenefits to employees, but the market is hardening and costs went up significantlythis year.” ISEC was forced to raise employee rates by 11 percent, whileits costs went up 20 percent this year. Typically, employees’ rates go up 3to 4 percent annually, he says.

    Besides cost sharing, Hutchison is always searching for ways to stem increaseswithout reducing benefits, and he relies heavily on his third-party administratorto help him make those decisions. “Our broker and TPA provide lots of informationto help us control costs,” he says. “They are invaluable in makingrecommendations and analyzing cost savings.” He meets monthly with hisTPA to discuss how ISEC’s claim rates compare to industry standards, and whatchanges he can make to improve them.

    On advice from his TPA, last year the company switched medical providers, cuttinglarge hospital and doctor bills by 15 to 20 percent, he estimates. The previousprovider had used several plans to cover all of ISEC’s employee locations, whereasthe new plan has total coverage in all areas, which means lower rates.

    It’s the first time ISEC has switched providers since becoming self-insured,but Hutchison says the change was painless. Before making the transition, hesurveyed employees to make sure all of their doctors were in the plan. Someof the 20 doctors not covered were added, and only a few employees had to makeother arrangements. “It was a non-event,” he says, adding that hewould urge caution before making such radical changes too frequently. “Itcreates uncertainty in employees.”

    Giving employees financial incentives to use generic drugs has also been acost-management technique. Offering a mail-order prescription program is another.

    For the future, Hutchison is exploring ways of using online benefits servicesto eliminate paper costs and trim the HR workload so that, as the company grows,he won’t have to add more HR personnel. And he’s considering offering an optionalcatastrophic health plan with a low premium but high deductible. “It’sappealing for younger employees who don’t use their medical insurance much.”

    Finally, his TPA suggested renegotiating the reinsurance package in June insteadof January to take advantage of a lull in the market. “In January everyoneis re-evaluating their health coverage and the reinsurers are less likely tonegotiate,” he says. “But in June they’ll be looking for business.”