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Formula for Reducing Benefits Costs
The Combined Strategy of Wellness and Alternative Funding (Self-Insured Plans) Are Effective in Cutting Employee Benefit Expense
One: the cost of health care has risen over 131% in the last 10 years and there is no indication this trend will ever slow down.
Two: the American workforce is unhealthy – over 33% of the U.S. population have reached obesity levels and over 67% are overweight, which in turn has resulted in an alarming increase in the incidence of chronic diseases like Diabetes, Heart Disease, Stroke and Cancer – at least 70% of which are caused by poor lifestyle.
Three: the drop in productivity due to an unhealthy workforce equates to a loss of over $73 Billion annually. If you factor in time lost due to hypertension and stress, that figure is closer to $300 Billion per year.
In an effort to offset these elements in hopes of flat-lining and in some cases, even reversing these trends, more and more Employers are searching to find cost-effective solutions. Needing to discover a blueprint that will allow them to build a better benefits cost-containment model, businesses look for a strategy that can provide both improved employee health and better worker productivity while at the same time reduce the crippling costs that over-utilization of medical benefits and worker’s compensation claims precipitates.
Commitment to Wellness
Wellness programs are nothing new; they have been around in one form or another for quite some time. Corporations have been implementing some form of wellness promotion platforms since the 1980’s and the concept of workplace fitness is even twenty years older than that. By the late 1990’s, 90% of U.S. businesses had some form of Wellness program or health promotion. Today, through both advancements in medical technology and the evolution of wellness practices, robust Wellness plans that are custom-designed, fully implemented, supported by management and embraced by the workforce have a proven 6-to-1 return on investment. The benefits are as advertised: increased productivity, less absenteeism, greater worker morale and, significantly, lower worker’s compensation and group medical rates.
With a risk-assessment questionnaire, companies can determine the relative health of their workforce and the level of investment they should make when designing a custom-tailored wellness program. Besides the established benefits it provides for the business and the employees, wellness programs will also allow for a health plan report to be compiled that will indicate the risk-tolerance level a company may face as it considers an more workable alternative to Fully Insured medical plans: Self Insurance.
Alternative Funded (Self-Insured)
Smart businesses can leverage their employer-sponsored Wellness Plans so they can remove themselves from commercial insurance pools and get into Self-Insured plans that take advantage of a now healthier worker census. Instead of paying expensive Fully Insured Premiums to the insurance carriers, businesses can choose to simply pay their own medical claims instead. They’ll know that when the annual benefit claims are less than the claims funding, they will be able to put a good portion of those funds back in their pocket. With their Wellness Program effectively functioning and their greater worker health risks minimized, the ability to operate under their claims funding level and even to forecast annual benefits budgets is attainable. For the unexpected event that may cause a catastrophic claims situation, there is by design a stop-loss coverage element in place to provide a ceiling on claims expenditures. Self-insured plans also offer flexibility in design that fit employee’s needs but also contain the ability to change the plan according to the company’s annual health plan reports.
Below are two examples of self-funded options based on situational preference:
1) NO RISK MODEL – Smaller and/or risk-averse employers can access self-insured medical programs with an aggregate stop-loss of 75% of expected claims, creating the fixed cash flow of a fully-insured program but the savings and flexibility of a self-insured program.
•Premium-equivalent rates are based on expected claims
•Premium-equivalent rates reflect the maximum amount the employer will need to pay
•If claims are lower than stop-loss level, extra payments will be credited to the following year
•Inc. Vision and Dental
2) RISK-SHARING MODEL – Larger and risk-tolerant employers can take on an additional degree of risk and thus increasing savings by adding specific stop-loss levels and setting their aggregate stop-loss rate at 115% or 125% of expected claims.
•Premium-equivalent rates are based on expected claims
•If claims exceed expected claims, employer will have to fund account up to stop-loss level
•Employers will not have to pay for claims that are over the stop-loss level
•Employers will be provided with premium-equivalent rate and maximum liability rate
•Employers can also select specific individual stop-loss levels
HOW SAVINGS ARE DEVELOPED:
•4-5% Network Savings
•1-2% Clinical Savings
•3-6% Stop Loss Savings
•2-3% Premium Taxes
•2-5% Elimination of State Mandates
•6-10% Carrier Margin
Potential Savings: 18% – 30% over Fully Insured Plans
While no one can predict exactly what impact the Health Care Reform Bill will have on Group Medical expense in this country, it can be reasonably assumed that much of the additional cost of the new, larger insurance pools or exchanges being created in 2014 will be carried on the backs of the existing employee-based benefits plans. With future increases of 25% in Health Care costs being estimated by insurance industry insiders, U.S. businesses will be desperately searching for alternatives to high-premium, fully insured plans.
No further documentation is needed to show that Wellness Programs succeed in any size business, and the corporate world has known for some time that the Alternative Funding Benefits Model is effective in flat-lining – if not reducing – the costs associated with Health Care. Now, with the development of new Alternative Funded Plans for smaller companies, there is every opportunity for businesses of any size to take advantage of this combined approach to benefits planning and finally regain control and predictability over their benefits future.
For more information, go to: www.tevisins.com
Center for Disease Control
Duke University Study 2010
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Tevis Insurance Solutions is an Insurance Brokerage specializing in Employee Benefits for Large and Small Business, offering a complete range of Products and Services from Fully Insured to Alternative Funding (including Self Insured) programs.