Health Insurance Tips
For Peter Hermann, health insurance is a headache. "Health insurance is a remarkably large expense, even for a 15-personfirm like ours," says Hermann, a general partner of Heritage Partners, a private-equity investment firm in Boston. "You can'thire and retain good people without a good benefits package. But as managers, we need to spend an inordinate amount oftime thinking about health insurance -- not only because the costs keep rising but because the marketplace is so volatile.There's a forced need to keep reevaluating your company's coverage as insurers pull out of certain types of products or makeother major changes."
What should you do when your company is faced with a health insurance rate hike? Obviously, you can shop for a new planor increase employees' contributions. But what if you've already tried those options? While there isn't a miracle cure, hereare some additional strategies to help keep health insurance costs down:
- Isolate niche coverages. "Areas like prescription drug coverage can nickel-and-dime you to death unless you set up asystem that encourages employees to think twice before they make every single purchase," says Paul Gregory, a healthinsurance consultant based in New York City. So-called "behavioral health" coverage (such as psychiatric care andsubstance abuse treatment) is another area that can jack up the cost of your company's coverage if you're not careful.
One suggestion is to remove those niches from your basic health care plan when you are comparison shopping amonginsurers. Then contract for each of those niches with managed care specialists that can fine-tune your coverage so that itremains a meaningful, but controlled, benefit for employees.
"It's amazing the way a well-planned copayment charge will discourage employees from using the company plan for everyprescription drug they've ever heard of that might or might not turn out to be necessary," Gregory explains.
- If you're making cutbacks, introduce plan improvements at the same time. "Most employees recognize that health carecoverage is expensive, so they're willing to make some trade-offs, especially in a situation where they feel they're alsogetting a real benefit or an improvement in their plan," notes Vincent Gandolfo, a senior managing director at Frank Crystal &Co., a New York City-based insurance broker and consultant serving middle-market companies.
It's also important to make sure that your cuts yield meaningful savings. For example, many businesses now have plans thatoffer employees some sort of choice between managed care and traditional indemnity coverage. Gandolfo often finds thatbusiness owners who offer a choice try to lower costs by increasing the deductibles or copayments on the indemnity plan(which generally is the more expensive option for the employer).
"I hear it all the time from clients," Gandolfo notes. "They say, 'How can it be that you won't knock 10% off my costs if I'mwilling to sign up for a $1,000 deductible on the indemnity coverage?" However, Gandolfo says, it doesn't work that way.Insurers realize that most employees will sign up for the managed care option, which means that's the place where you needto make meaningful cuts.
Gandolfo's recommendation for real bottom-line savings? Raise your managed care copayment charge on "in-network" officevisits from, say, $5 to $10 or $15.
- Start aggressively monitoring all aspects of your plan. Cost control is obviously one important aspect of plan monitoring,but other issues matter, too, such as the quality of the plan and the popularity of various features. It's much easier to negotiatecost control measures when you know which coverages actually matter to your employees and which benefits are notmeaningful.
- Look beyond short-term price swings. No matter how aggressively you want to control costs, it's not realistic to think thatyour company can switch insurance carriers every year or so, argues Jill Andresky Fraser, finance editor for Inc. magazine.She notes that just cleaning up the paperwork trail from holdover claims could overwhelm you. But, Fraser adds, you'llbenefit by setting up a health care strategy that takes into account coverage and cost control goals over two to three years.
Her recommendations: Stay in touch with your insurance broker or consultant throughout the year to make certain your plan iskeeping you on track. Be prepared to make annual adjustments to your existing plan(s) to respond to changes within themarketplace or your employee base. And, of course, comparison shop among insurers every few years to find out whether abig switch makes sense.