How HR Can Lower Healthcare Costs Without Reducing Coverage

This article was published on August 30, 2019 on the HR Daily Advisor written by Eileen Clark, Senior Vice President of Human Resources, ELAP Services.

Large employers currently pay about $500 more in healthcare costs per employee than they did just a year ago—money every company would love to have back. With healthcare costs increasing yearly, many HR departments are struggling to contain healthcare spending, which has become the largest cost to many companies outside of payroll.

The escalating healthcare costs not only cut into every budget, including HR’s, but also hurt the business’s benefits package—a vital offering in today’s tight labor market—and its ability to retain and recruit employees.

While decoding healthcare’s black box to lower costs might seem impossible or overwhelming, a reference-based pricing model can help self-insured businesses and HR professionals lower healthcare costs without reducing quality of coverage.

How Reference-Based Pricing Supports the Business

Reference-based pricing is a bottom-up approach to containing healthcare costs that offers price protection against variable and inflated charges. Based on the actual cost it takes to deliver a medical service or the Medicare reimbursement rate plus a reasonable profit, reference-based pricing enables businesses to audit and rein in costs. Under the right reference-based pricing model, employers can reduce their total healthcare costs by up to 30%, while employees pay less in out-of-pocket costs.

The model helps HR lift a burden off employees and the CFO. Its cost savings can be allocated back into the business, giving the CFO some breathing room, or into employees’ pockets, either directly or as funding for employee initiatives. Reference-based pricing has empowered companies to lower deductibles for members, raise contributions to employees’ 401(k) plans, increase year-end bonus pools for employees, and more.

By moving to this transparent healthcare model, HR enables employees, the heartbeat of every organization, to take back their health plans and provides them with the flexibility and transparency to go to any doctor or specialist they want. Because reference-based pricing isn’t tied to certain providers, there’s no in-network or out-of-network doctors.

Preparing for Reference-Based Pricing

Before implementing reference-based pricing, there are a few boxes to tick on the checklist.

Self-funded. The first is that reference-based pricing is for self-funded employers only. It’s best for companies with over 100 employees and as many as 3,000, but sometimes, companies with as few as 70 employees can take advantage of this payment model.

Cost-savings analysis. Determine how much reference-based pricing can save the company by conducting an analysis beforehand. This data can help convince the CFO and other stakeholders to support a move to the model.

Broker selection. It’s also important to identify a broker experienced in reference-based pricing. This person will be an important guide and asset for implementing the new model. For one, he or she will know all the right questions to ask to ensure that reference-based pricing is a fit for your company and understand the details related to forming your benefits package, including pharmacy, vision, dental, and more. With the right broker, you’ll have better control over which benefits you provide and for how much.

TPA partner. Another important partner to identify is a third-party administrator (TPA) that has experience administering reference-based pricing. The TPA will handle the claim logistics and ensure your employees have the support they need.

Stop-loss insurance. Lastly, to protect the plan and its members’ assets, select a stop-loss partner that understands the cost savings reference-based pricing provides and will extend coverage at appropriately reduced premiums. Your stop-loss insurance should minimize risk while optimizing the cost of coverage.

The Importance of Education in Reference-Based Pricing

Like many HR initiatives, employee education is key to the successful adoption of reference-based pricing. This isn’t just teaching employees about their new plan—it’s also about educating them on how the healthcare system stands today and how they can be smart healthcare consumers. Reference-based pricing addresses these issues, and an understanding of that helps employee adoption.

Education also helps combat negative impressions of reference-based pricing. A reference-based pricing model gives employees the flexibility to go to any doctor or facility while saving them money on healthcare.

Another misconception about reference-based pricing is that because hospitals are receiving a reduced payment, it’s more common to be billed for the difference, but even with a large healthcare provider, you still receive “balance bills” or “surprise bills.” The difference is how unexpected charges are managed. A good reference-based pricing solution provider will have a methodology for addressing balance bills that provides personalized support and advocacy for members.

Becoming the ‘White Knight’

HR often struggles to be appreciated as a function that directly contributes to revenue. Instead, we’re depicted as the department that always spends.

But reference-based pricing presents an opportunity to positively influence our company’s bottom line and put money back into employees’ pockets. By introducing an innovative solution that addresses high healthcare costs and advocates for employees, HR becomes a problem-solver.

As healthcare costs continue rising with no end in sight, reference-based pricing offers a cost-saving solution with far-reaching benefits. It’s worth a closer look.

Fewer Spouses Covered on Employee Benefit Plans

This article was published on August 5, 2019 on IFEBP.org written by Lois Gleason, CEBS.

More and more employers are seeking cost savings by discouraging or blocking employees from enrolling a spouse in the employer’s health plan. Here’s what you need to know about the growing trend of spousal carve-outs:

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Image Source: IFEPB.org

Employers often use one of the following four methods to reduce the number of spouses they cover:

  1. Charging employees more to cover spouses who have access to employer-sponsored coverage through their own jobs.
  2. Charging employees more to cover spouses whether or not they have access to other coverage.
  3. Choosing not to cover any spouses who have access to their own employer-sponsored coverage.
  4. Choosing not to offer coverage for any spouses under any circumstances.

Recent survey data reveals a clear trend:

  • The 2018 International Foundation Employee Benefits Survey showed that 20.1% of responding health plan sponsors imposed spousal surcharges or exclusions.
  • The June 2019 PWC Health and Well-being Touchstone Survey results showed that 38% of survey respondents apply a spousal surcharge if the spouse has access to coverage through another employer. The median surcharge is $100 per month.
  • The December 2018 issue of AYCO Compensation & Benefits Digest reported that just over 25% of its survey participants are imposing a spousal surcharge in 2019. The most commonly used surcharge amount is $100 per month.
  • The 22nd Annual Willis Towers Watson Best Practices in Health Care Employer Survey shows that 27% of companies used a spousal surcharge in 2017.

At least three factors are driving this spousal carve-outs trend:

  1. Plan sponsors are looking for new ways to stem the rising tide of health care benefit costs.
  2. Employees, especially those on single-only coverage, may view spousal surcharges as a more equitable way for an employer to allocate health benefit costs among single and married employees.
  3. As more plans impose surcharges or exclusions, plans that cover spouses without a surcharge could be at risk for adverse selection.

In an effort to save costs, health plan sponsors are increasingly nudging (or pushing) spouses of employees to obtain coverage somewhere else.

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Is Direct Primary Care the Future?

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A fee-based model that gives individuals unlimited access to a primary care physician without their insurance being billed is being heralded as the right prescription for healthcare. Most patient needs, such as consulting, tests, drugs and treatment are included, and no insurance billing is involved.

Sources estimate there are about 1,000 direct primary care practices in the continental United States. While most patients pay for the service out-of-pocket, more and more employers are choosing to offer this as a benefit and sharing in the cost.

TPAs and advisers supporting the trend caution that direct primary care is not a replacement for insurance, but rather a great supplement to an existing health plan. By removing the barrier of costly copays and deductibles, employees can forge a much closer relationship with their doctor, making them far less likely to choose a costly emergency room or urgent care clinic when the need for medical care arises. Direct primary care is an option that is growing and one we’d be happy to talk with you about at your convenience.

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Flexibility Means Retention

dgb-millennialsResearch reported by the Execu Search Group shows that flexibility may very well be the key to keeping millennials engaged. Allowing more vacation time, better training and a more flexible work schedule, including the ability to work at home when needed, are keys that will make young people happier and more productive. The SHRM says that more companies are offering these benefits in order to retain young workers in today’s competitive labor market.

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House Votes to Repeal the Cadillac Tax

On July 17, 2019, the U.S. House of Representatives voted across bipartisan lines to repeal the ACA’s Cadillac Tax. The final vote in the House was 419-6 in favor of repeal. The tax was designed as a penalty tax on high-value health coverage, to convince health plan sponsors to reduce benefits and keep costs down by discouraging overly generous plans. However, both employers and union groups opposed the tax.
 
This repeal is good news for plan sponsors but the measure still has to pass the Senate. One of the challenges to Senate passage is that the tax was originally included to help finance the ACA. Repealing the tax without replacing it with some other revenue source arguably leaves a sizable hole in the federal budget. It is estimated by the Congressional Budget Office that repealing the tax will cost the government approximately $196.9 billion over 10 years. 
 
The Cadillac Tax, originally slated to go into effect in 2018, has been delayed by Congress repeatedly. After several delays, the 40% excise tax on the cost of health coverage that exceeds predetermined threshold amounts goes into effect in 2022. Currently, those thresholds, which will be updated prior to 2022, are $10,200 for individual coverage and $27,500 for family coverage.
 
Diversified Group will keep you up to date on any additional action on this topic.
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Isn’t Everyone Entitled to Know the Cost of Care?

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The President’s Executive Order Demands Healthcare Cost Transparency

We have long chronicled the huge price swings that often exist among healthcare providers in the same locales. To combat this situation and help patients find low cost, high-quality care, the President recently signed an executive order directing HHS to develop rules requiring hospitals to publish clear and understandable pricing that reflects what people will actually pay for tests, surgeries and other procedures. HHS also wants the rules to ensure that providers and insurers give patients information about their potential out-of-pocket costs before receiving care.

While lobbyists argue that this requirement will only drive prices higher, the administration sees enabling patients to know how much hospitals charge as a relatively simple idea – one that will promote greater competition for health services and reduce costs for consumers.

When the Administration required hospitals to post prices online earlier this year, the step had little impact. Data included billing codes that few people could decipher and list prices which few people ever pay. While the rules for this order must be developed, it is intended to require that hospitals disclose what patients and insurers actually pay in a format that patients can understand.

We’re certain that the rules will not be written overnight and not without loads of input. But if an executive order can lead to an environment where patients can understand what costs lie ahead and how to find more affordable, high-quality options, then let’s give it a shot.

Tell Us How You Feel!

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Connecticut Paid Family and Medical Leave Law

On June 25, 2019, Governor Ned Lamont signed into law Connecticut’s Paid Family and Medical Leave law. Below are some highlights from the new law:

Connecticut Paid Family and Medical Leave Law
Key Dates June 25, 2019 – CT Governor signs legislation into law;
January 1, 2021 – Employee payroll tax begins;
January 1, 2022 – Benefits become available and final regulations are due;
July 1, 2022 – Annual notice of benefits to all new employees required.
Governing Body New state agency, the Paid Family Leave Insurance Authority.
Covered Employers Employers with at least one employee working in the state. The law exempts municipalities, local or regional boards of education, and nonpublic elementary and secondary schools. Municipal union employees can bargain to be covered under the state program. If the union bargains and is granted inclusion, non-union employees for that municipality will automatically be included.
Eligible Employees An employee who has earned at least $2,325 in a base period (ex:  first four of the five most recently completed calendar quarters) and have been employed at least 3 months preceding the leave request. Available to full-time, part-time and former employees (if they apply within 12 weeks of losing their job).
Leaves Covered Family leave to bond with a newborn or adopted child. Medical leave to care for a family member with a serious illness (family member’s include spouse, child, parent, parent-in-law, stepparent, others who are equivalent to a family member, grandchild, grandparent or sibling).  Medical leave is also available for the employee’s own serious illness. Paid leave is also available to serve as an organ or bone marrow donor.

Intermittent leave will also be allowed except in the case of bonding with a newborn or adoption.

Length of Leave Up to 12 weeks of paid family and medical leave during a 12 month period, with another two weeks available for a serious health condition related to pregnancy.
Benefit Amount 95% of base weekly earnings up to 60 times the minimum wage rate (maximum weekly amount will be approximately $780 per week in 2022 up to $900 per week in 2023).
Payroll Contribution Beginning January 1, 2021, a new payroll tax up to .5 percent of the employee’s wages will be deducted to fund the program. Wages are capped at the Social Security wage base ($132,900 in 2019).
Concurrent Benefits If an employee is receiving worker’s compensation, unemployment compensation and another other state or federal wage replacement, they will not be eligible for benefits under the CT Paid Family and Medical Leave.
Private Employer Plans Connecticut employers can opt out of the state program if they have an employer sponsored private plan that provides the same or more generous benefit. Private plans must be approved by a majority of covered employees.

The above is a brief overview of the law as it stands today and is subject to change. Final regulations are due by January 1, 2022 which is the same date that benefits are first payable. The regulations should clarify issues surrounding implementation, coordination with CT’s unpaid FMLA leave and provide sample model notices. Diversified Group will keep you informed of any developments.

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