A fiscal black cloud has emerged in American business, and it’s threatening the livelihood of the middle-class workforce. Health benefit plans, meant to enhance compensation packages, are having the opposite effect. Over the last decade or so, increases in disposable income have been hugely outpaced by employee health plan costs. This has resulted in most American workers having less money to spend every paycheck.
While employer-sponsored health plan costs increased by relatively small amounts annually for the last decade, these nominal increase were only made possible as a result of businesses shifting the cost burden to employees and their families, thus diminishing the effects of annual salary increases.
Unfortunately, most American workers truly cannot afford this increased financial burden. Yet, many employers fail to recognize this disturbing trend and even fewer are structured, or prepared, to maximize financial opportunities as they relate to benefit plan management. In addition, companies may not be receiving the best deals because conflicts of interest that benefit other parties maybe working against them. These include:
- Insurance companies that want to control the deployment of services, provide proprietary services, maximize fees and premiums, and sell other services.
- Health care providers that are not focused on cost and quality.
- Pharmacy-benefit-management companies that do not provide insight into financial arrangements and are not passing the real savings on downstream.
- Brokers and consultants that are compensated by insurance companies and service providers and financially benefit when more services are purchased.
A fresh approach to managing the procurement of employee benefits is needed. The rules of the system that have caused this mess need to be radically reconsidered. If you keep playing the game under today’s rules, both your employees and your company will continue to lose. The health care providers, insurance companies, and brokers are currently in charge, and you are simply a pawn in their game.
What’s needed are ways to avoid the pervasive archaic thought process of the heath insurance industry and to adjust the approach of procurement of benefits to use the same rigor that is used when purchasing other goods and services. This can be achieved by uncovering redundancies, waste and underperformance in benefits plans and vendor arrangements without compromising the quality of services provided to employees.
The process starts by assessing all contracted providers, carriers, brokers, and vendors. Are your best interests aligned when evaluating options? It’s often not known that there are prevailing conflicts of interest when products are sourced and placed by partners, brokers, and consultants. Decision makers should be informed of any ownership stake, preferred partnerships, or revenue-sharing arrangements.
Have all the market options been scanned and considered, or only those suggested? Innovation and disruption have rapidly accelerated to the point that both traditional and non-traditional solutions need to be considered. These involve taking a closer look at third party carve-out options for areas like care management and pharmacy benefits management, especially specialty pharmacy, which is a high cost driver.
When comparing market options, it’s advisable to ask targeted questions in order to ensure you’re comparing like services. Inquire about such areas as the scope of services to be included, network arrangements, and exclusions. Are you taking advantage of services that are included in the existing fee structure? And are you paying for redundancies and duplication – such as reporting, care management, call-center resources, online resources, and RFP services?
During the evaluation of options, you need get transparency around compensation and expose visible and hidden fees, costs, commissions, and supplemental arrangements. When deciding on a market solution or renewing contracts, negotiation discussions with the service provider are critical. When possible, avoid accepting initial offers and ensure that fees agreed upon are only for services needed and rendered. Focus efforts on high-quality, low-cost service providers; they actually still do exist in our health-care system.
Once a vendor is in place, performance management and monitoring is important. Metrics and performance guarantees should be established and included in the contract in order to manage the effectiveness of the program. Management of the program needs to be an ongoing process. It does not stop simply because providers have been chosen and agreements have been negotiated. Conduct regularly planned audits of all vendors, as well as their contracts and performance.
Through this new approach, you can expect that you will gain control of a what is now a chaotic system. In turn, that will result in greater corporate savings, less cost-shifting to employees, and higher employee disposable income. Such effort should resonate positively with employees, helping with both retention and recruitment, as you will literally be putting more money in employee’s pockets. As a by-product, by cutting the fat in health-care expenses, your company will have more resources to devote to your core purpose as an enterprise. Thus, the effort is good for employees and good for business.
Eric Krieg is the president of Risk International Benefits Advisors.