In 2012 the rate of medical inflation will continue to rise, PricewaterhouseCoopers reports. Employers are frustrated - not so much by the high cost of the medical as by the apparently intractable upward cost trend that is making benefits plans unsustainable.
Employers have no idea how to address the medical cost trend. They look in desperation to their benefits broker for guidance, yet most brokers remain hopelessly reactive.
Steering a parked car
Employers and brokers alike have accepted annual premium increases as normal. Only when there is a "high" renewal do most brokers act to address the problem. Really?!
When the only action is reaction, there's no bending the curve, because you are always behind the curve.
When no one is driving the benefits strategy, there's no movement. It's impossible to steer a parked car.
There are some brokers, however, who are using innovative plan designs to drive down their clients' costs and regain some immediate control over health costs.
The key components for these strategies are:
* High-deductible consumer-driven plans
* Workplace voluntary benefits
* Effective communication of the benefits plan to employees.
High deductible, high rewards
HD plans, specifically HSAs, offer the advantage of producing both short-term premium savings and longer-term savings by getting employees engaged in decisions about paying for health care.
I'm referring to HD plans with deductibles of $3,000 or higher, up to $10,000. These much higher deductibles are essential to generate the substantial premium savings that brokers are leveraging to create these new innovative plan designs.
But consumer-driven plans will reduce health costs only if employees enroll in them. And the only way to ensure participation in an HD plan is to make it the only one available.
The dreaded 'M' word
However, most employers - and especially HR professionals - have been hesitant to mandate (ever notice how HR generally loathes that word?) that employees enroll in a true high-deductible plan. In addition to a laudable desire to shield their employees from additional cost-shifting, employers want desperately to avoid the employee pushback and the hit on morale from offering only a HD plan with no other options.
The game of risk
It's understandable that, even with lower premiums, employees are very uncomfortable with and resistant to the much greater risk exposure of a much higher deductible. I've written previously how forward-thinking brokers are meeting this challenge using plan designs that include voluntary health benefits - such as critical illness, accident, hospital indemnity - to help employees insure against the risk of higher deductibles. Voluntary benefits that protect employees from the out-of-pocket costs of a higher deductible combined with one-on-one benefit counseling sessions have been effective in increasing employee adoption of a HD plan.
I realize that this isn't news to a lot of brokers. But there's a new, game-changing twist on the strategy - one that allows employers to move to offering only an HD plan to the sound of employee cheers instead of a revolt.
Benefits formerly known as voluntary
Since the higher deductible dramatically reduces premiums for the employer, you can develop a comprehensive employee-protection plan that shifts some of the premium savings into employer-paid voluntary plans to strengthen the coverage. The obvious point here is to lower the baseline medical cost by an aggressive move to a higher deductible. Now future medical inflation is added onto a much lower baseline medical cost.
The employer then invests part or all of the premium savings in supplemental (no longer voluntary) medical plans to 1) provide additional financial protection for employees by insuring against the high deductible and 2) avoid employee blowback from the higher deductible. If introduced to the employer to address a high renewal, this strategy can eliminate the renewal increase and maintain - or even lower - current benefit costs while reducing the medical baseline.
The gap band
One of the most popular of these strategies keeps the current PPO plan, but moves the deductible to, let's say, $5,000. Then, using some of the cost savings, you buy a medical gap plan that wraps around the high deductible, then add in both a critical illness and accident plan. (Note: Carriers in a few states, particularly California, have not been open to brokers wrapping their plans with a gap policy. Hopefully that attitude is changing.)
The gap plan covers 100% of in-hospital expenses and 50% of out-patient procedures. Families love it because it pays all hospital costs for maternity.The critical illness plan provides a cash payment at least equal to the deductible in the case of a diagnosis of a serious condition such as heart attack, stroke or cancer. Employees can buy up more CI coverage, if desired.
The accident plan pays most or all out-of-pocket medical expenses due to an accident.
GI for everyone!
Two key points: All of these supplemental (again, not voluntary) plans are guaranteed issue, and the most progressive brokers are extending this supplemental coverage to spouses and families - all employer-paid. This is extremely important because you eliminate any employee decisions; this new plan design looks to employees just like their previous PPO plan, but better. They now get 100% maternity coverage, cash if they or a family member has a serious illness, and little or no out-of-pocket if there's an accident. First dollar coverage!
Preventative care and doctor office visits are as before, with the previous copay remaining in place.
The only other challenge is prescription drugs, which these producers are handling either with employer contribution to a HRA or with a separate drug plan that offers a lower deductible and copays.
All the same to the employee
Employers might object that there are a lot of moving parts to this plan design and that employees will get confused and alarmed by the complexity.
One of the leading advocates for this gap-based strategy has an effective way of laying the groundwork with an employer. He points out that the medical plan design is configured and negotiated apart from the prescription drug plan, where adjusting the formulary and copays is a separate process. These two separate components are then mashed together into what the employees see as a single health plan.
Combining the supplemental plans is no different than adding in the prescription drug plan. To employees, all that matters is what is covered and how much is out-of-pocket. They don't care if the bills are being paid by one carrier or four, as long as payment is made and they aren't responsible.
Communicating the good news
The first two components of this strategy are the HD medical plan and supplemental (formerly voluntary) health benefits. The final and essential component is effective benefit communication to employees.
A good benefit enrollment firm or an online enrollment system with an effective avatar virtual benefit counselor will help employees understand the new plan design. Employees will learn that the new high deductible doesn't mean high risk or high out-of-pocket expenses and that they are actually better covered now than under the old plan.
One broker got a round of applause at a group meeting after he explained the new better benefits that included the gap, CI and accident. Employees love the better protection with first dollar coverage for the same or less money.
Grab your driving gloves
Make this approach your own idea and begin to drive your clients' benefits strategy. If you want help implementing this specific strategy, certain general agencies are using this and other cutting-edge strategies to help brokers drive benefits strategy.
The bottom line is if you don't grab the wheel and drive your clients' benefits strategy, another broker will. So slip on your driving gloves and shift into high gear.
Next month: How brokers actually are bending the cost curve downward, creating truly sustainable benefits plans for their clients.
Griswold, a former senior executive with a national enrollment firm, is an industry-leading authority on consultative selling and cross-selling voluntary. He consults with agencies and carriers to explode their sales revenues. He can be reached at (615) 656-5974, firstname.lastname@example.org or insurancebottomline.com.
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