“You might find it interesting to know that 17.4% of the gross domestic product is healthcare,” benefits adviser Kimberly Eckelbarger writes in her book, Breaking Through the Status Quo: How innovative companies are changing the benefits game to help their employees and boost their bottom line. “We spend more than any other economically developed country, due to increased use of medical technology and higher costs.”
It’s that higher-cost part that Eckelbarger, the founder of Tropical Risk Management based in Trinity, Fla., focuses on with her clients. Most are midsize employers who typically offer their employees three fully insured plans at different coverage levels and price points.
For younger, healthier employees, there is usually a low cost, limited coverage plan, while for older employees and those with medical conditions more robust, higher-cost plans are generally available. It’s the costs associated with the latter that Eckelbarger zeroes in on, as these rise faster given that the plan participants are greater utilizers of healthcare and represent a more adverse risk pool for the employer.
To reduce these risk pools, Eckelbarger shows her clients how to roll all three plans into a single “right-sized” plan reduces costs for employer and employee alike. For the employer, the savings flow straight to the bottom line, increasing earnings before interest, taxes, depreciation and amortization.
Her approach also debunks the traditional wisdom that to reduce costs, employers must reduce benefits. “The truth is exactly the opposite,” says Eckelbarger. “Employers have to increase benefit offerings to reduce cost.”
The adviser uses higher deductible health plans with copays in combination with a 105 plan, which refers to Section 105 of the Internal Revenue Service code. These plans allow for the reimbursement of medical expenses under an employer-sponsored health plan and there are various types, including health reimbursement arrangements, medical expense reimbursement plans and accident and health plans. Using different 105 plans in combination with a HDHP with a $5,000 deductible gives Eckelbarger the flexibility to meet the needs of different employee populations within a single plan framework.
This creates a variety of cost-saving opportunities for her clients—lower premiums key among them. In one recent instance, those amounted to $920 per employee per year. For the 101-employee company that meant a savings of $468,673 over a five-year period.
Fellow adviser John Stoner, president of the Stoner Organization in St. Petersburg, Fla., and another proponent of 105 plans says of Eckelbarger, “There are only two or three other brokers that I know of that are using the same strategy.” The 96% of brokers that use only standalone HRA plans, he adds, “are missing an opportunity.”
Making use of voluntary benefits
Voluntary benefits, such as dental and vision, are another core component of Eckelbarger’s strategy. For those employees that tend to skip their annual checkup but regularly visit the dentist and optometrist can detect a host of serious chronic conditions, ranging from anemia, diabetes and HIV to cancer, multiple sclerosis and heart disease.
“Dental and vision plans are not currently being marketed as a wellness benefit, but they should be,” she says. “Dental and vision wellness preventative visits save lives and reduce health plan spend with early detection.”
Stoner explains that predictive modeling can be applied to the data gathered from dental and vision checkups to determine if an employee is liable to make a healthcare claim in the near future.
“Instead of catching someone with a $100,000 claim, we are trying to catch them before they make a $100,000 claim,” he says. “When you have a dental plan and a vision plan in place, employers will save money on health plan claims, and they will save social security taxes when the employee buys up from a $200 benefit to a $1,000 or $1,500 benefit.”
What makes vision and dental plans even more attractive for employers is that their tax favored status means their net cost is negligible.
Eckelbarger takes her strategy yet a step further by incorporating disability plans. These cost clients $5 a month per employee, but their savings on reduced claims costs and social security taxes easily surpass that.
“We work from a base plan of $100 per week in short term disability benefits, which due to employee contributions is a no-to-low cost item for employers,” Eckelbarger says. “Interested employees can buy up to a 60% of compensation benefit.”
Another advantage for employers is how this strategy raises the level of employee engagement. Eckelbarger says it typically runs 75% and higher.
“Contrast that with the status quo, which engages about 25% of employees—even when financial incentives are used,” she continues. “In the mid-market space, when we demonstrate an engagement level of 75% or more, we see anywhere from a 7% to 15% premium savings from the health plan carrier.”
Eckelbarger says her strategies can dramatically reduce what is the third largest line item expense for American employers.
“We are in an economic healthcare crisis that is unsustainable and requires thinking differently than we have in the past,” she argues. “Strategy with execution will provide employers improved EBITDA and begin to solve this crisis.”
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