Have You Considered a Self-Insured Plan?
Some smaller employers sustained greater health benefit cost increases last year because they offer fully insured plans. That’s in contrast to the self-insured model, where employers directly pay for most claims until they hit certain thresholds for individual employees and the company overall, when stop-loss insurance kicks in.
If you haven’t explored the possible viability of self-insuring your health benefits, your financial advisor can walk you through the pros and cons of that approach.
February 15, 2022
Consumer prices jumped 7% in 2021, according to the U.S. Department of Labor. Unfortunately, health benefit costs incurred by small employers increased at an even higher rate — 9.6% — according to the health benefits consulting firm Mercer. The average per-employee cost of health benefits for companies with between 50 and 500 employees was $14,896 in 2021, up from $13,587 in 2020. Costs are set to increase again in 2022 unless employers rethink elements of their employee benefits strategy.
New Study
Mercer recently published a study on this trend. A key reason for the rise in health costs last year was that many people who had postponed treatment for nonurgent health issues at the peak of the COVID-19 pandemic returned to their health care providers last year.
Mercer also cited current market factors that could drive up claims in 2022. Examples include claims for “long COVID” cases, the growing number of available “extremely high-cost” genetic and cellular drug therapies, and general inflation in health care costs. Here are some additional findings from Mercer’s study.
Changing Tactics
Mercer discovered that after many years of increasing employees’ share of overall health costs, employers largely abandoned that tactic last year. For example, the median individual in-network deductible for HSA-eligible high-deductible health plans of companies with 50 to 500 employees stayed consistent at $2,800 from 2020 to 2021. And the median deductible for PPO plans actually dropped by $100, to $900 in 2021.
It’s important to note that the popularity of high-deductible health plans reached 40% of employees enrolled in a health plan in 2021. A decade ago, only 13% of employees in a health plan were enrolled in a high deductible health plan.
Similarly, employers, on average, imposed only modest increases in health plan premium-sharing levels last year (to $167 monthly for employee-only coverage, and $602 for family coverage). Instead, many began to focus on employees’ emotional wellbeing. This focus is likely to continue in the future. Pandemic-related stresses have hit the workforces of many employers hard, and employers, especially larger ones, have been looking to augment “behavioral health” benefits.
Similarly, employers, on average, imposed only modest increases in health plan premium-sharing levels last year (to $167 monthly for employee-only coverage, and $602 for family coverage). Instead, many began to focus on employees’ emotional wellbeing. This focus is likely to continue in the future. Pandemic-related stresses have hit the workforces of many employers hard, and employers, especially larger ones, have been looking to augment “behavioral health” benefits.
Some health plan improvements might be a wise move in today’s tight labor markets. “Generous health benefits can tip the scales in favor of attracting and retaining staff,” according to Mercer. Even so, employers can’t expect results without taking a thoughtful approach to bolstering health benefits.
3 Levers for Improvement
Mercer’s study identified the following three key areas of attention to maximize the positive impact of an organization’s health benefits:
- Quality. Resume or step up efforts to steer employees to access accountable care organizations (ACOs). ACOs are typically health care providers that offer bundled services around a particular diagnosis at a fixed price. As a result, they’re motivated to deliver high-quality care without building in limitless low-value services. Sometimes ACOs receive bonuses if they achieve certain quality and cost performance benchmarks.
- Delivery. Impactful health benefit design elements include convenience for patients and affinity (sensitivity to how people want to receive care). During the worst of the pandemic, patients embraced Internet-based virtual visits to health care providers. Earlier Mercer research found growing employee demand for “apps ranging from those that help find health care providers, to virtual tools for self-care.” The research also found that employees with lower incomes are often more receptive to technology-based ways of interacting with the health care system, possibly because they perceive it as more efficient and thus less costly.
- Personalization. Employees also prefer to customize their health benefits with services that meet their individual needs. While core benefits are usually the same, plan participants may add certain specialized services. Examples include fertility services, treatments for children with autism and benefits related to dysphoria.
Another way to facilitate customization is offering or expanding “voluntary” (employee-paid) benefits. Offering such options on a voluntary platform, paid via payroll deductions, generally enables employees to get a better price than they could by buying them on an individual basis.
Voluntary benefits that grew in popularity last year include legal services, student loan repayment plans, pet insurance and identity theft coverage.
What’s Right for Your Business?
The pandemic is expected to have long-lasting effects on the delivery of health services. To hedge against future cost increases, especially in today’s tight labor market, employers will need to re-evaluate their benefits design and adjust their offerings to meet their employees’ needs. Your financial advisors can help you review your plan and offer solutions to bridge any gaps.
© 2022