Self-Funded Employer Health Plan Cost Management
  • Benefits Strategy

3 Key Levers for Employer Health Care Cost Management (and How to Pull Them Effectively)

Today's employers continue to feel the pinch of high health care costs. Those who've chosen to go self-funded (nearly 90 percent of companies with over 1,000 employees) have a greater opportunity to keep things under control, but also have more to lose if they can't.

In this article, we'll look at three key mechanisms through which self-funded employers can hold health care spending in check, and how each of these can be applied successfully.

But first, let's briefly sketch out the landscape in which large employers are operating when it comes to health care:

Trends Impacting Self-Funded Employer Health Plans

Employers currently spend over $14,000 per employee per year on health care,1 with those costs expected to increase roughly 4 percent over the next year.While that's a relatively flat rate of growth, health care costs continue to outpace the growth of the U.S. economy—making it difficult for employers to keep up.

Specialty drugs are one of the biggest drivers of health care cost growth for employers, with annual price increases of over 14 percent.3  Studies show the bulk of these expenses can be attributed to chronic conditions, which account for three-fourths of all health care spending.4

Meanwhile, it's also increasingly difficult for employees to keep up. The average commercially-insured American worker spends $5,400 per year on health care.5 Added together, annual employee medical premiums and deductibles amount to 12 percent of median household income.That's roughly the same portion allotted to food in a given year.7

So how can self-funded employers keep their costs down while also making sure health care remains affordable for their employees?

3 Primary Health Care Cost Management Levers

When we're working with our clients at Benefitfocus on data analytics strategies for health care cost control, we typically look at three major cost management levers:

  • Plan Design
  • Vendor Management
  • Employee Engagement

Let's take a closer look at each of these levers, and how employers can use data analytics to pull them effectively. 

Health Plan Design

There are a number of adjustments that self-funded employers can make to their health plan design to drive cost savings or help to curb cost growth. These include changes to the type or structure of the plan, like switching from a PPO or HMO plan to a high-deductible health plan (HDHP), and changes to employee cost sharing in the form of premiums, coinsurance and out-of-pocket maximums.

The challenge for employers is making sure ahead of time that any changes they make to plan design will actually have the desired outcome.

One of the primary ways Benefitfocus helps our clients do this is through experience-based plan modeling tools.

Integrated into our BENEFITFOCUS® MarketPlace Insights, these tools allow employers to quickly and accurately evaluate changes to health plan design. With the ability to fully re-adjudicate current claims data, users can thoroughly review current year plans, test different scenarios and proactively analyze the sum-total financial impact of any plan design changes.

This can translate into:

  • More accurate forecasting. By fully re-adjudicating current claims data across a comprehensive set of plan design variables, and with the ability to incorporate inflation, employers (and their advisors) can better project future health care costs.
  • Significant time savings. Designing health plans manually can be time-consuming and confusing. With experience-based plan modeling tools, employers and brokers can build and test new plan scenarios in a matter of minutes.
  • Greater visibility on financial impact. These tools provide end-to-end financial analysis of current health plan versus alternate design, enabling employers and brokers to understand the full impact any changes will have on both employer and employee spending.

Vendor Management

There's a wide variety of vendors with whom self-funded employers can partner to achieve their strategic goals for their health plan. 

These vendors can be organized into three categories, each with its own set of cost-saving opportunities for employers:

Vendor Category

Cost Control Opportunities

Carrier, TPA

Population risk by segment

Plan steerage and benefit constraints

Direction to other cost control partners

Providers, Networks

Service pricing

Care settings

Use and management of RX

Medical Management

(Population health, wellness, onsite clinics, etc.)

Engagement with at-risk members

Results over specified times

 

However, as with plan design, employers need to be able to clearly understand and evaluate the impact these vendors are having/will have, so they can make informed decisions around these relationships.

We had a customer at Benefitfocus that used the advanced analytics tools within MarketPlace Insights to identify frequent types of surgeries occurring within their employee population. And they noticed that prices for certain orthopedic services fluctuated dramatically across their providers. The customer was able to find a vendor that specialized in these services, and used the data from their analysis to contract with the vendor based on cost and quality, implementing plan-based steerage incentives to drive employees to the vendor for those specific services. Moving forward, the customer can use our analytics tools to determine ROI for this new vendor relationship.

Employee Engagement

It's no secret that health insurance is complex. But did you know that only 4 percent of Americans can correctly define each of the terms deductible, out-of-pocket maximum, co-pay and coinsurance?8

Now think about the countless other terms and concepts that come up when trying to navigate the health care system. Employees need help in order to be able to use their health benefits wisely. Health literacy is a key component of employer health plan cost control.

At Benefitfocus, one of the ways we help our clients drive health literacy is through engaging decision support tools embedded into the health plan enrollment experience. When weighing plan options, employees can consider their own prior-year claims and utilization data, which feeds in from our analytics solution, and estimate their total out-of-pocket costs under each plan. This provides employees greater transparency on which to base their enrollment decisions.

Benefitfocus customer Western Kentucky University, which had offered one PPO plan for 16 years, took advantage of these tools to drive significant enrollment in a new HDHP, resulting in a $2 million reduction in health care spending the following year. Get the full story in this case study.

Self-funded employers have a huge stake in the health of their populations. With the right insights and tools, they can ensure that employees are getting high-quality care at cost-effective prices, helping to ensure long-term viability for their health plans.

Benefitfocus recently hosted a webinar around these cost control levers specifically as they relate to employers in the public sector. To hear what our team – and our special guest from the North Carolina State Health Plan – had to say, get the presentation on demand.

 

1. National Business Group: 2019 Health Care Strategy and Plan Design Survey

2. Mercer’s National Survey of Employer-Sponsored Health Plans

3. The Segal Group: 2018 Segal Health Plan Cost Trend Survey

4. CDC: The Power to Prevent, The Call to Control

5. Health Care Cost Institute: 2016 Health Care Cost and Utilization Report

6. The Commonwealth Fund: Drivers of 2019 Health Insurance Premium Changes

7. U.S. Bureau of Labor Statistics: Consumer Expenditures--2017

8. PolicyGenius: Health Insurance Literacy Survey