This candidate looks awesome: great experience, glowing references. But you noticed her hesitancy when you mentioned your company’s health benefits—the “one-size-fits-all” plan.
It’s the dilemma every small and mid-sized business (SMB) runs into: You need to recruit Tesla-level talent. But your health benefits are more like a 10-speed. Sure, you could buy better benefits, but it would cut into your profit margins. Not a good look when you’re growing.
Health Benefits For SMBs: Is There A Solution?
Actually, yes. A whole new ecosystem of health benefits is arising that puts the consumer at the center. You just have to know where to look.
It starts with a savvy advisor, who will know right off the bat that you’ve got plenty of options. She should tell you about:
- Network value solutions: With these options, commercial health insurers can keep premiums low by assigning members to specific high-quality, efficient health systems.
- High-deductible consumer-directed health plans: Premiums are lower because of the high deductible, while a health savings account allows tax-advantaged saving for health expenses. Millennial workers tend to prefer this option.1
- Added benefits such as supplemental health, legal, and financial wellness: For many candidates, these voluntary benefits complete the package.
- Well-being resources: Think health advocates, health coaches, and wellness programs. These services help your employees manage their own health.
It might come as a surprise, but comprehensive benefits solutions, like Mercer Marketplace 365+, that offer all of the features above have been developed for small to mid-sized businesses, providing more options for employers and employees alike.
SMBs: Getting A Piece Of The Action
These forward-thinking benefits solutions are no longer just the domain of large employers. They’ve become a necessity for small to mid-sized businesses. In fact, 9 out of 10 employees say receiving benefits is just as important as getting paid.
Not surprisingly, more small companies are hanging onto their health benefits. In 2013, 21% were thinking of scrapping their health benefits. In 2015, that number dropped to 7%.
SMBs are also looking for more competitive benefits to live up to the expectations of employees. Among workers ages 34 and younger, 70% want the flexibility of lowering the value of some benefits while raising the value of others. One team member might prefer to sock more money into his 401(k) rather than spend it on expensive health coverage that he might not use. Another might want a premium health plan because he has a child with special needs. A wide range of employees calls for a wide selection of benefit options.
You Win Too
It’s not just employees who come out ahead with rich benefits—it’s businesses themselves. Creative benefits packages are the future competitive edge for SMBs. When you talk to your advisor, ask for a set of solutions that attract the best talent, satisfy your employees, keep your costs contained, and protect everyone’s health in the long run.
1 Murphy B. “21 Statistics on High-deductible Health Plans.” Beckers Hospital CFO (May 21, 2016), http://www.beckershospitalreview.com/finance/21-statistics-on-high-deductible-health-plans.html
A recent report from the Health Care Cost Institute (HCCI) found that people enrolled in high-deductible consumer-directed health plans have higher out-of-pocket healthcare expenditures than those in other types of medical plans, even though they use fewer medical services. The HCCI study examined claims from 2010-2014 for over 40 million individuals per year covered by employer-sponsored insurance. According to the study, out-of-pocket expenditures for people enrolled in CDHPs were 1.5 times greater than for those in traditional PPOs or HMOs, even though CDHP enrollees utilized roughly 10% fewer medical services per year. Neither the study groups nor the results were adjusted for member demographics, so it’s difficult to say that plan design accounted for all the difference in utilization. But it is interesting to note that while utilization was lower in all categories of medical services, the biggest differences were in the use of brand-name drugs and in ER use – two areas where overutilization is targeted by consumerism strategies.
Not surprisingly, the study found that total per capita spending on healthcare for CDHP members was 13% lower than for non-CDHP members. Out-of-pocket spending, however, is 33% higher for the CDHP members. On the face of it, this might seem like a bad deal for the CDHP members. But, as the report explains, the cost analysis does not take into account differences in the plan premiums and employer contributions to employees’ health savings accounts (HSAs) or health reimbursement arrangement (HRA) funds. Savings on lower premiums and employer account contributions can offset higher out-of-pocket spending at least to some degree, and employers use these two elements to manage employees’ financial risk under the CDHP. The difference in out-of-pocket spending in the study was just over $300, and, according to Mercer’s National Survey of Employer-Sponsored Health Plans, the median employer contribution to an HSA is $500. Of course, not all employers make an account contribution.
Because a key tenant of consumerism is that if consumers have more ‘skin in the game’ they’re more likely to spend their healthcare dollars wisely and efficiently, it’s expected that out-of-pocket spend is greater under CDHPs than non-CDHPs. Unfortunately, the study can’t quantify how much greater because it doesn’t take into account premium savings or employer contributions. And while it does show that CDHP members utilize healthcare services at a lower rate, it leaves unanswered a critical question – did higher out-of-pocket spending discourage use of medical services so far as to negatively impact the health of CDHP plan members, or did consumerism in fact work the way it was supposed to? Here’s hoping that the next big CDHP study will focus on that – admittedly difficult! – question.
In the meantime, it’s a good idea at open enrollment to provide employees with a modelling tool that will help them understand how they are likely to fare under a CDHP versus another medical plan choice. A lower paycheck deduction means more money that you control, while a rich medical plan may never deliver value (other than peace of mind) for the money spent; for many, choosing a CDHP is a good financial decision when the lower contribution is weighed against the higher OOP expense. It’s also important to educate employees on how they can use the HSA to their best advantage and to ensure they have the price and quality information they need to be smart healthcare shoppers.
Emily Ferreira contributed to the preparation of this article.
Employers are grappling with the escalating cost of healthcare benefits. HR and finance leaders are adapting -- as are employees across the nation -- to a ‘new normal’ of narrow networks and high deductible plans. Basic coverage is increasingly augmented by voluntary benefits to meet the varied needs of employees and their families. During this ongoing transition, employees are being asked to more actively participate in the enrollment process.
This new employee empowerment shifts more responsibility of choice to the employee, who is trying to make vital health care decisions, but who, surveys confirm, feels ill equipped, alone, and confused about what the best decisions may be. So what is the way forward?
First, some surprising numbers: According to a 2015 survey by the Kaiser Foundation, nearly two-thirds of American adults say it’s difficult to find out what medical care will cost. Despite that, a mere 3% actually shopped for price among doctors and just 2% for hospitals. In fact, 57% of insured Americans are unaware that physicians charge different prices for the same care, according to Public Agenda.org.
The picture improves when we look at individuals who have easy access to information. A recent study published in the Journal of the American Medical Association (JAMA; June, 2016) found that use of a price transparency tool reached 10% of the 149,000 employees who were offered one.
Interestingly, a majority of Americans do not equate price with the quality of care. The Public Agenda results showed 71% of insured Americans say higher prices don’t necessarily deliver better quality care, while 63% conclude that lower prices are not an indicator of lower quality care. “Many may be ready to choose less expensive care. Together, these findings suggest that Americans are open to looking for better-value care,” summarized the non-profit, public issues think tank.
That’s good news as the focus for employers continues to shift toward providing employees with the tools they need to make informed decisions about their healthcare. So here are two questions to ask as organizations gear up for 2017 and beyond: Do your employees have access to good information about the cost and quality of healthcare services in their markets? And is your health and benefits platform an inviting place for them to go to find this and other future-ready benefits solutions?
Every time a big company makes the leap to a private exchange, the industry pays close attention – especially Mercer’s own Sharon Cunninghis, North American Health & Benefits Leader. In this Human Resource Executive article, Sharon shares her thoughts on private exchange trends and opportunities, including best practices for employers who are making the switch. Her advice: “Help people understand the new benefits program, how it differs from what was in place previously, the added advantages of the new program and available support services,” she says. “Secondly, make sure that there’s a good, solid project plan from an implementation perspective – technology, new administrative processes and tools.” Sharon goes on to explain why, ultimately, health and benefits solutions of the future, Mercer Marketplace 365 in particular, will be seen as a “true healthcare destination” – a comprehensive platform that goes above and beyond today’s typical private exchange, serving as a resource not just at open enrollment, but throughout the year. With 6% of large employers either already using a private exchange or planning on it for 2017 – and an additional 27% considering adoption within 5 years – this is a trend to watch.
This New York Times article offers an interesting “compare and contrast” analysis of public exchange plans versus employer-sponsored plans. Whether you’re satisfied with benefits on the public exchange really comes down to your perspective. If you were among the millions who were previously uninsured, you’re likely to be happy with your exchange coverage. If you came to the exchange after having had employer-sponsored coverage, the story is very different. A more limited choice of providers in the health plan network and higher out-of-pocket requirements are among the chief differences noticed by those coming off employer plans. In the end, a typical plan on the public exchange “looks more like Medicaid, only with a high deductible.” So while the public exchange is helping to fill a gap in the U.S. health care system, it’s not proving to be a source of comparable coverage for early retirees or those who would like to quit a corporate job to freelance or start a business. And each year, as these plans get skinnier, we’re seeing fewer employers that would even consider dropping the company plan to send employees to the public exchange.
Way up there on the list of things not to like about the U.S. healthcare system is the extreme variation in prices charged for the same service from one provider to the next – variation that is very often unrelated to quality of care. While employers are tackling this problem in a few different ways, there isn’t a ton of data to show how well any of these strategies work. So I jumped on the recent New York Times article reporting on one mega-employer’s attempt to achieve more standard pricing while still allowing members to choose their providers – reference-based pricing. The employer in question is the California Public Employee Retirement System, or Calpers for short, and the experiment included 450,000 of its members.
Beginning in 2011, Calpers set a limit on the amount it would contribute to the cost of a number of elective procedures, including knee and hip replacement surgery, colonoscopies, and cataract removal surgery. They made sure there were some hospitals that met certain quality criteria that would provide the service at or below their maximum contribution amount. Patients who wished to get a procedure at a hospital charging more would have to pay the difference themselves. That was a strong incentive for members to go to the less-costly hospitals, and a strong incentive for hospitals charging above the maximum to lower their prices.
As described in the article, it’s hard to see the program as anything other than a success. In two years, Calpers saw a 20% drop in prices for the services with reference-pricing, while, according to the article, “typical health care prices paid by employer-sponsored plans rose by about 5.5%.” During that time they saved $6 million on knee and hip replacements, and $7 million on colonoscopies. Even better news: Researchers found no evidence that quality suffered as prices fell.
You might think results like those achieved by Calpers would send other employers flocking to this strategy. But our most recent survey found that just 13% of all large employers currently have reference pricing in place for some services, although another 18% say they are considering it (among the largest employers, the number considering rises to 29%). As with most good things in life, there are a number of caveats that go along with reference pricing. You need enough hospitals in a given market so that patients have a choice about where to receive care and hospitals have an incentive to reduce prices. You need the resources to assess quality and choice, to set fair reference prices, and to communicate the program to employees. You need employees who will be able to use the program to their advantage.
And even if you can check all these boxes, reference pricing will only be part of the solution. It addresses elective care – “shoppable care” – which only accounts for about 40% of healthcare spending (leaving a lot of price variation to be dealt with by other means). But it could be a good starting point. And for employers that don’t have the right market conditions or the resources to pull off a program like Calpers’, think about a Center of Excellence approach – another way to build value and transparency in the U.S. healthcare system.
We got a question in response to our post Checklist: Want to Increase Your CDHP Enrollment? Try This.
Q: How? If my execs are enamored with PPO.
A: One of the key tenets we pursue in helping clients develop a CDHP strategy is to focus stakeholder attention on what would change, and what would not. In the case of moving from a traditional PPO to a CDHP, the change could be focused entirely on just a couple elements. For example, there’s no requirement for a change in:
- Plan actuarial value
- Covered expenses, or
- Out-of-pocket maximums.
In fact, one preferred approach is to install CDHPs that are approximately equal in actuarial value (AV) to a competing traditional plan, but which offers employees lower premium contributions (because their utilization will generally subside in a CDHP vs. a PPO) and, in the case of an HSA-compatible plan, the opportunity to contribute to and accumulate a portable, tax-protected account that’s generally superior even to their 401(k).
While many employers hesitate to pursue a CDHP strategy because account-based plans can appear to simply be (or, if poorly-designed, can actually be) a means of cost shifting to members, they don’t have to be so, at all. In fact, we generally try to avoid use of CDHPs as “low value” plans, but rather encourage clients to position their CDHP offering(s) to compete with more traditional plan options on AV as well as premium contribution. Further, we see and help many employers move to strategies that reward positive health behaviors through HRA/HSA funding by the employer. These strategies provide first-dollar HRA/HSA funding to offset higher deductibles for those exhibiting healthy behaviors.
Finally, with the rapid expansion of CDHP offerings we’re seeing among employers, it’s likely your company will begin competing for candidates who’ve been enrolled in a CDHP and may even have an HSA balance they’d like to port with them to your company, and in which they’d like to continue contributing. By not offering them the opportunity to enroll in a CDHP – particularly an HSA-compatible version – you may inadvertently be inhibiting your ability to attract quality candidates whom you’d like to hire.
DOL overtime rules are not just a compensation issue. Check out this slide show with advice on how to approach compliance with the new rules, compliments of Employee Benefit News and our Mercer colleagues. But when evaluating changes in your compensation strategy, don’t forget to consider the benefits implications as well. Be sure to quantify the impact of the new salary threshold ($47,476/year) on benefit costs – for defined benefit plans, 401k match, life insurance, LTD, etc. Compliance with these new DOL rules could be an opportunity to reconsider affordable contributions under the ACA, since increases to salary base may allow for higher employee contributions for employers using rate-of-pay or W-2 safe harbors. Separately, evaluate whether reclassified employees will be subject to a different tracking method under the ACA 30-hour rule – it can get complicated! From a documentation perspective, check eligibility definitions for benefits to be sure they are consistent across plans and align with your compensation strategy.
A Federal Appeals Court ruled that consumers may purchase a fixed indemnity product even if they have not purchased comprehensive medical coverage that meets the ACA criteria for minimum essential coverage. It is estimated that four million Americans have purchased this type of plan and do not also have comprehensive medical coverage, bringing a “gap” in Obamacare into the spotlight. In the gap are those living in states that did not expand Medicaid whose household income is too high to qualify for Medicaid and too low to qualify for a subsidy on the public exchange. While we all agree that a plan providing a cash benefit – for example, $500 a day for hospitalization – is not a comprehensive medical benefit, these plans do play an important role in the era of high-deductible health plans. In Mercer Marketplace 365, 34% of people enrolled in a plan with a deductible of $1,500 or higher are enrolled in at least one supplemental health plan. While there are different types of products – some focused on an illness (e.g., cancer), or on a type of coverage (hospitalization), or on a circumstance (accident), these supplemental benefits do not affect HSA eligibility and provide a financial security blanket for those concerned about high deductibles. If you do not currently offer supplemental benefits alongside your high deductible health plan, it’s not too late to think about it for 2017.
Benefit teams have had a lot to cope with lately – ACA reporting, the new ADA/GINA wellness rules, and the Cadillac tax, to name just a few of the high-priority issues on their plates. So it’s not surprising that when we ask clients about their absence, disability, life solutions (ADLS), they tell us they haven’t had time to review them over the past few years. And many don’t see much to be gained from a review, since they don’t believe they would be able to negotiate a better rate.
But we’ve found that a cursory underwriting review that’s completed in as little as one day may identify opportunities to reduce program costs – in some cases, by as much as 25%. As you work on your strategic planning for 2017, take a look at your ADLS programs and remember there is always room for negotiation, even during your rate guarantee period.
The only time carriers may increase rates during a guarantee period is when lives/volumes fluctuate significantly (usually +/-10-25%). So reviewing your experience during the rate guarantee can only identify a savings opportunity or confirm the current pricing. Given the competitive nature of the ADLS marketplace, our experience has been that carriers are willing to partner with employers, offering rate decreases when warranted, during a current rate guarantee period.
At renewal time, don’t automatically accept rate increases. Even if your loss ratio is over 100%, there may be significant negotiation opportunity on the incurred claims (specifically the reserve component). It’s important to keep in mind that most long-term disability carriers base these reserves on a book of business; rather than a specific employer. If you understand how your rates are set, you are in a better position to negotiate them down.
It’s important to confirm the terms of the renewal. Many employers incorrectly assume that certain terms will automatically renew or that actuarial calculations must be reasonable. Here are some questions to ask your carrier:
- Are they using the most recent base reserve table?
- Will all performance guarantees automatically renew? Request a formal renewal to make sure you’re getting the strongest guarantees possible.
- Have all employees eligible for waiver of premium been identified? Even when you have integrated the LTD and waiver of premium programs, employees may be missed because of differing definitions of disability or other reasons (e.g., manual intervention in the claim process).
- If you instructed your carrier to price basic and supplemental life on a stand-along basis, confirm this is still the case.
- It’s easy for busy underwriters to miss a step when ensuring supplemental life rates do not cross Table 1. Confirm the work was done correctly so you remain compliant.
Other points to keep in mind: Benchmarks are not audits! Benchmarks may be helpful indicators but the only way to objectively assess a carrier’s claim management performance is to perform a claim file review audit. You can start with a short one-day claim file review to confirm if a larger sample is needed. It’s a good idea to conduct these short claim file reviews on an annual basis; at minimum every 2-3 years.
Finally, don’t be afraid to renegotiate ADLS contracts. While most fully insured and ASO contracts will auto-renew, an employer can review and renegotiate the terms of these contracts at any time.
This post is part of our 2017 Planning Checklist series.