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Tracking the Key Ratio
Subtracting the insurance-company adjustment (a discount that takes into account SRC's track record) from the Total Authorized Charges gives you what SRC actually paid out. That, expressed as a percentage of Total Charges Considered, gives you the key ratio. Most of the time it hovers between 60% and 65%. If employees are paying more than 40% between their $200 deductibles and their 30% copayments, then Brown looks at the total reductions -- items not covered by SRC insurance for which the employee must pay out-of-pocket. "I want to find out if there are things our policy should be covering but isn't," says Brown. "I want to make sure we are driving down costs and not simply shifting them to employees."
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Educating the Employees
"Hospital emergency centers seem to be taking the place of family doctors," says Stack. "The emergency wards are open after working hours and on weekends, and we found that many of our employees were using them for convenience. Problem is, a visit to the emergency room costs $100, compared with a doctor's visit of $40. Employees were willing to pay a premium for the convenience, too. Their share of the bill was $30, compared with $12 for a doctor's visit. To get employees interested in using doctors more often, we published a list of family doctors and explained the cost differential in our monthly newsletter."
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Challenging Your Bills
"I can delve into this line [Miscellaneous hospital charges] and find out how much we are paying for every box of tissues," says Brown. He has gone so far as to find out that the gloves the hospital charges $2.47 a pair for can be bought for 18¢ a pair from the hospital's supplier. "I do that research to make a point. When hospital administrators tell me they raise their costs only to cover inflation, I have proof that's not the case. That makes them take me seriously when I dispute unnecessary charges. It also helps impress upon employees the need to double-check hospital bills. We also give employees a small bonus if they find overcharges."
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Deciding Where to Spend Insurance Dollars
"Since we started tracking, dental-coverage costs have migrated to the front of the pack," says Brown. "We found that only 40% of companies offer dental. So the first thing a new hire does is go get the family's teeth fixed. We don't want to cut the dental benefit, but we are asking, 'Can we afford cosmetic things like braces, or should we emphasize preventive maintenance? Currently, there's a product that coats children's teeth to prevent cavities. It costs about $32 per tooth, but it may be worth covering it, since cavities are more expensive than that."
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Saying No to Brand-Name Drugs
In 1989 SRC asked the grocery-store chain that provides its employees with pharmaceutical drugs to break out the quantities and costs for each purchase made. The summary also compares brands with generic alternatives. From those bills, it's easy for Brown to spot "maintenance" drugs, like blood-pressure pills, that can be purchased more cheaply. To encourage the use of generic drugs wherever appropriate, SRC increased the name-brand deductible from $5 to $6 per prescription, and decreased the generic deductible from $3 to $2. Since then, generic-drug usage has doubled to 37%. "This could translate into a 35% reduction in costs," says Brown.
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Anticipating Trends
According to Brown, the trend is for psychiatric care to increase, especially for children between the ages of 8 and 18. To get a jump on the trend, SRC has been sponsoring seminars for kids of SRC employees. Thus far it has sponsored seminars on substance abuse, nutrition, and athletics -- an appealing and healthful alternative to drugs. "There are no results to measure in such a program," explains Brown. "Instead, we measure its popularity."
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Devising Low-Cost, Effective Programs
"When we encountered our first case of substance abuse," Stack recalls, "we sent the patient to recover at a treatment center 'in the peace and serenity of the Ozarks.' It wound up costing us $30,000. That was too much. In 1988 we worked out a deal with the local council of churches to put together a no-frills substance-abuse program for $2,000 per person. So far 15 people have gone through it. Employees get two chances. After that, they are fired. Because we've grown from 450 employees to 650 employees in a span of five years, it's difficult to measure straight reductions. But I think if we hadn't developed the program with the churches, substance-abuse problems would have cost us $450,000."
