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Save Money on Employee Benefits Costs by Redesigning Health Plans

 
 

Employee benefitsCutting costs from a city’s benefits budget is an unpleasant but necessary task facing mayors across the country today. Employees want comprehensive benefits packages, but rising costs make it difficult for cities to provide the benefits they have in the past.

Fortunately, public employers have options that can help. One solution cities can turn to is health plan redesign. Sometimes, a few simple adjustments to a benefits plan can lead to significant savings.

Cities Face Cost Dilemma

Today’s benefits environment creates a lot of difficulties for cities as employers. Known for their rich benefits packages, cities run the risk of creating dissatisfied employees when they make changes to their plans, however small. But with premiums for family health coverage expected to rise between five and seven percent this year,1 mayors and other city leaders are put in a tough place.

Cities typically respond to rising benefits costs in one of three ways:

  • Absorb the rate increases. Cities can choose to absorb the increasing costs, but this leads to a large budget impact.
  • Shift more contributions to employees. Cities can choose to pass along the cost increase to their workers, which directly impacts employee paychecks.
  • Redesign benefits plans by increasing deductibles or introducing a high-deductible health plan (HDHP). This option has become much more popular, with many cities choosing to save money by opting for higher deductibles and higher co-insurance amounts on their health plans or offering true HDHPs (high deductible health plans). In the past five years, for example, the number of employees covered by a health benefits plan with at least a $1,000 deductible doubled.2 According to a 2011 survey of government financial officers, 57 percent say they have increased health plan deductibles as a way to save costs. And 77 percent of them would recommend this option to others.3 But while a new plan design saves money for cities and offers employees lower premiums, it does increase employees’ financial exposure to health care costs not covered by the plan.

Each city has its own set of needs and circumstances. As with anything, there is never a one size fits all approach.

Martha’s Vineyard Saves More than 12 Percent on Health Premiums

Noreen Mavro Flanders, County Treasurer for Dukes County (MA), knows firsthand how much can be saved through benefits plan redesign. By making changes to the county’s health benefits plan to include a $2,000 annual deductible, Dukes County stands to save more than 12 percent on health premiums next year.

“Providing health coverage to our employees is critically important, but the cost of providing that coverage is rising every year,” says Flanders. “The only way we can ensure the sustainability of those benefits for the future is to design a plan with a more equitable distribution of costs.”

However, Flanders is quick to point out that what can be viewed as more “equitable” sharing of cost by county management could be viewed as a new financial burden by employees. That’s why she employed what she views as a true win-win solution by leveraging Colonial Life’s Medical Bridge policy, a voluntary group hospital confinement indemnity plan. “We wanted to accrue the savings from increasing deductibles and redesigning the health plan, but also wanted to provide employees with a vehicle to help offset the new potential out-of-pocket expenses associated with the new deductible. Having the Medical Bridge coverage available to employees on a voluntary basis allows us to do just that.”

Others Enjoy Similar Success

Last year, Prestonburg (KY) increased its deductible for employee health coverage to $3,000 to save costs. At the same time, the city added a voluntary group hospital confinement indemnity plan to help offset the expenses of a hospital stay. The cost of the two plans was considerably less than the cost of the original, lower-deductible medical plan.5

A 52-employee village in Miami-Dade County (FL) also saved money by redesigning its health plan.6 Faced with a 20 percent health insurance premium increase in 2011, local leaders needed a way to continue providing affordable, quality benefits while controlling costs. They chose to replace their health care reimbursement account with hospital confinement indemnity insurance. Doing so allowed the village to cut costs by increasing its health plan deductible and offering employees a way to offset their deductible with hospital confinement coverage. Village leaders were pleased to realize nearly $210,000 in annual savings from their existing insurance plan. They saved an additional $100,000 by replacing their health care reimbursement account with a hospital confinement indemnity policy.

Voluntary Benefits Can be Integral Part of Benefits Plan Redesign

Increasing deductibles is often coupled with the introduction of voluntary benefits — in particular, indemnity medical products that pay benefits directly to employees. Doing so helps alleviate some of the higher out-of-pocket costs associated with the deductible and co-insurance requirements that may be part of a new core benefits plan. At the same time, there is no direct cost to cities because employees choose and pay for the coverage they want.

Increasing deductibles also gives employees more personal responsibility for their medical costs. This can lead to smarter choices and cost savings in its own right. However, to ensure employees don’t avoid needed and preventative medical care, education is a must.

“Increasing the deductible in city health plans and increasing the coinsurance amount often results in lower premiums under an employer’s major medical coverage,” says Patrick McCullough, assistant vice president and practice leader for public sector at Colonial Life & Accident Insurance Company. “However, employees are still left with higher out-of-pocket expenses. Voluntary insurance products can help cities and their employees better manage these increased out-of-pocket expenses.”

To speak more about how voluntary benefits can supplement core benefit plan changes, contact Jeff Bean with the Conference of Mayors at 202-446-8140 or email jbean@usmayors.org, or contact Jeannie Fanning at 240-393-9672 or email jfanning@usmayors.org.

 

1 Mercer annual survey, reported in CNNMoney.com, Sept. 22, 2011; National Business Group on Health survey, August 2011.

2 Kaiser/HRET Survey of Employer’sponsored Health Benefits, 2006-1010.

3 Government Finance Officers Association, “Containing Health Care Costs,” 2011.

5 “City renews employees’ health coverage,” The Floyd County Times, March 28, 2012.

6 Colonial Life & Accident Insurance Company case study, 2012.

 

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