Health Benefit Cost Containment: Controlling the Uncontrollable

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www.gallagherbenefits.com Health Benefit Cost Containment: Controlling the Uncontrollable David Carrell, REBC, CLU Area Senior Vice President [email protected] www.gallagherbenefits.com

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Health Benefit Cost Containment: Controlling the Uncontrollable. David Carrell, REBC, CLU Area Senior Vice President [email protected] www.gallagherbenefits.com. Agenda. History of Health Benefit Costs Cost Drivers Who’s to Blame? Funding Strategies Strategies for Cost Containment - PowerPoint PPT Presentation

Transcript of Health Benefit Cost Containment: Controlling the Uncontrollable

Page 1: Health Benefit  Cost Containment: Controlling the Uncontrollable

www.gallagherbenefits.com

Health Benefit Cost Containment:

Controlling the Uncontrollable

David Carrell, REBC, CLUArea Senior Vice President

[email protected]

www.gallagherbenefits.com

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Agenda

• History of Health Benefit Costs

• Cost Drivers

• Who’s to Blame?

• Funding Strategies

• Strategies for Cost Containment

• Role of Benefit Cooperatives

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History of Health Benefit Costs

Ten Years of Trend

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What’s Driving Cost Escalation?

• Technology/Research

• Cost shifting – Government programs/uninsured

• Malpractice premiums/defensive medicine

• Health Care Professional – Wages and Benefits

• Consumer behavior – “I want it all, I want the best, I want it now and I don’t want to pay for it!”

• Waste/Inefficiencies/Fraud

• State mandated benefits

• Aging Population

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What’s Driving Cost Escalation?

Average Life Expectancy

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Who’s to Blame?

?

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Who’s to Blame?

The Perception:• Those ^&$^#@&*&*$ greedy insurance companies

and their %$%#%^^#@%^& high-paid executives!

Not Really:• “Insurance company profit margins, have been running

at 6 to 7 percent”New York TimesMilt Freudenheim“Cost of Health Insurance Rises

Again, but at a slightly slower Rate”September 12, 2007

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Who’s to Blame?

• Consumers

• Employers

• Consultants

• Health Care Providers

• Insurance Carriers

• Lawyers

• Politicians

The Reality:

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Funding Strategies

The proper choice of funding vehicle is integral to the cost-containment process but is not itself, a cost containment devise.

Each funding vehicle must account for the components of health benefit costs; claims, expenses and incurred claim liability.

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Fully Insured

• All risk assumed by carrier

• Renewal rates determined by carrier

• Employer’s claim experience blended with carrier’s book of business

• Fixed expense components based on retention formula-Not actual costs

• Normally no refund of excess premium in favorable claim years

• Deficit incurred in one year may impact future years

• Flexibility in plan design limited by carrier

• Rule of thumb: Applicable to groups under 500 covered employees

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Partially Self-Funded

• Most risk assumed by employer

• Specific stop loss purchased to mitigate impact of catastrophic claims

• Aggregate stop loss purchased to mitigate impact of unforeseen claim frequency

• Renewal rates determined by employer

• Excess “premiums” (surplus) remains in fund

• High level of flexibility in plan design

• Rule of thumb: Generally applicable to groups of 500 + covered employees

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Strategies for Cost Containment

“We will either find a way, or make one.”

Hannibal

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Cost Containment Tools

• Short Term

– Raise deductibles, copays, out of pocket limits

– Increase employee contributions

– Terminate Plan/Cash equivalents to employees

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Cost Leveraging Illustration

Year Claim Cost

Employee Share

Increase over 1st year

Plan Share Increase over 1st year

1 $5,000 $725 N/A $4,275 N/A

2 $5,550 $780 7.6% $4,770 11.6%

3 $6,161 $841 16.0% $5,320 24.4%

4 $6,838 $909 25.4% $5,929 38.7%

5 $7,590 $984 35.7% $6,606 54.5%

Assumptions: $5,000 medical claim, $250 calendar year deductible, $1,000 out of pocket limit, 90/10 coinsurance, 11% annual trend

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Cost Containment Tools

• Short/Long Term

– Employee Assistance Plans (EAPs)

– Disease Management

– Consumer Directed Approach-HSAs or HRAs

– Transform “Defined Benefit” to “Defined Contribution” (Taft-Hartley approach)

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Cost Containment Tools

• Long Term

– Education (newsletters, websites, “lunch and learns”

– Sponsor/Fund Wellness programs (Diet, exercise, stress management, smoking cessation, etc.)

“Everybody wants to go to heaven but nobody wants to die.” Loretta Lynn

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Wellness Initiatives

• Why wellness?

– The least expensive claim is the one that doesn’t occur.

– Worker’s Comp risk is universally managed; Why not employee health risk?

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Wellness Initiatives

• What is wellness? No single definition.

– Worksite wellness screenings

– Disease management

– Plan design provisions ( adult/child well care allowance)

– Lifestyle modification

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Wellness Initiatives

• Is wellness worth the investment?

– Depending on employee participation level, ROI varies from 5:1 to 20:1 (1)

– Worker productivity: Reduce absenteeism by 2%, Increase productivity by 9% (2)

– School district turnover is traditionally low. Intervention early in employees’ careers yields ROI to sponsoring district

(1) Source: Proof Positive: An analysis of the Cost-Effectiveness of Worksite Wellness, Summex Health Management, Sixth Edition, 2006(2) Source Pelletiuer B, Boles M, Lynch W. 2006

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Wellness Initiatives

What are the wellness initiative basics?

• Develop a strategy. Employ professional wellness firm.

• Establish measurable goals. Use medical plan utilization data for baseline

• Identify health risks. Rx data, on-site wellness screenings, health risk appraisals

• Develop intervention programs for different groups:– Healthy Population: Exercise, nutrition, lifestyle modification

– At-risk Population: Exercise, nutrition, lifestyle modification/lifestyle coaches – Chronically Ill Population: Above + disease management specialists

• Modify according to participation, measurable results

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Cost Containment Process

“One who attempts nothing will probably achieve it.” Anon

“Doing nothing is very hard to do…you never know when you’re done”

Leslie Nielsen

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Step 1

• Engage the Stakeholders via Advisory Committee

• Duties and powers of Committee should be clearly defined.

• Committee makeup should include representatives of employee constituent groups, other stakeholders

• Outspoken, opinionated members; not whiney

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Who are the Stakeholders?

• Employees

– Certified and non-certified– Male and female– Young and “more mature”

• Administrative Personnel

• School Board Members

• Taxpayers

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• Define Fundamental Goals of the Plan

• Examples:

– Better balanced package (medical, dental, life, disability)

– Cover “big ticket” costs

– Emphasize disease prevention

– Encourage/Reward healthy lifestyle initiatives

Step 2

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Step 3

• Dissect current programs to determine how well they match-up with Plan Goals

• Example: If employee wellness is goal, are there sufficient incentives in place to encourage high levels of participation?

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Step 4

• Rebuild benefit program in the image of the Advisory Committee

“If you don’t change your direction, you might end up where you’re going.”

Anon

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Step 5

Identify and record baseline data related to program changes:

Examples:

Claim $/employee

Top 10 disease categories

Generic vs brand name Rx utilization, etc.)

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Step 6

• Develop implementation strategy; short and long term

– Determine what can be realistically implemented in one, two or three year periods.

– Consider impact of:

Employees’ natural resistance to change

Communication needs

Vendor support.

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Step 7

• Begin implementation process via group meetings

• Allow minimum six months prior to effective date of program changes

• Assume big pushback from rank and file

• Lead with rationale for program redesign. Use “gap analysis” to show impact of inaction on paychecks, retirement

• Enlist committee members to make case to their constituents

• If feasible, tie future compensation, benefits to success of plan

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Step 8

• Implement program. Prepare for:– Lots of questions– Confusion– Complaints– Finger-pointing

• Make sure vendors and consultant and committee members committed to support implementation phase

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Step 9

• Meet quarterly with Advisory Committee to:

– Monitor

– Measure

– Modify

• The benefits marketplace is dynamic (HRAs, HSAs, teledocs, on-site clinics/pharmacies). Keep Committee members up-to-date on new developments.

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Benefit Cooperatives

“All for one and one for all”

Alexandre Dumas

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Role of Benefit Cooperatives

• Benefit Cooperatives are formed to better contain costs by:

– Sharing risk with other comparable size groups with common interests

– Creating greater purchasing power and access in the insurance marketplace

– Employing advantages of self-funding at a reduced risk to individual cooperative members

– Gaining greater flexibility in plan designs

– Create a forum for exchange of information among coop members

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How Do Benefit Cooperatives Control Costs?

• Aggregating claims of all coop members flattens out “peaks and valleys”

• Fixed costs of administration spread over more lives produces lower costs per employee

• Greater credibility of claim experience (Law of Large Numbers) allows coop to assume greater risk and lowers cost of stop loss insurance

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Benefit Cooperative- Typical Financial Structure

Member Units’“Premium $”

Cooperative’s Fund

Interest Earned on Cash Flow

Fixed Costs $ TPA Administration’ Reinsurance EDP, Reporting Systems Utilization Review Actuarial Consulting Banking Communication Material

Claims $

$$ $$$$

$$

$$

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Typical Benefit Cooperative Governance

• By-laws

• Board of Directors

• Executive Committee

• Advisors (non-voting)– Benefits – Accounting– Legal

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Questions?

?