June 22, 2016
Key Misconceptions on Health Insurance
by David Berg
Small- and medium-sized businesses really can avoid overpaying, lowering health costs and gaining a competitive edge.
As the Obamacare compliance clock ticked down, a Phoenix-area CEO lay wide awake at 2 a.m., worrying he might have to consider laying off more than 70% of his 170-employee workforce. Earlier that day, his insurance broker told him that companies with more than 50 full-time employees would be fined heavily if they didn’t provide health insurance under Obamacare. His lawyer confirmed it — the fine would be as high as $5,000 per employee.
None of his options looked good. The cost of the health insurance his broker proposed exceeded his company’s profits; ignoring the law’s reporting requirements would increase his fines even more. Reducing his staff to avoid the Obamacare mandate meant splitting up his company or laying off 120 employees.
Except for one thing: His broker and lawyer were wrong about the law. Obamacare does not require employers to offer health insurance.
Since Obamacare became law, blue collar, service, construction and other such companies nationwide have grappled with providing employer-sponsored healthcare that wouldn’t completely bankrupt their business — a seemingly impossible challenge given the skyrocketing cost of medical insurance. Here in Arizona, CEOs are confronting the issue head-on.
Like these CEOs, you have to start by arming yourself with the truth. Then, you realize that, if structured correctly, healthcare can become a huge competitive advantage for companies of all shapes and sizes.
Say what? Healthcare is usually one of the biggest expenses for a company. Most people would consider it a major impediment to profitability — not a competitive advantage. But that’s where they’re wrong.
In a previous article, I discussed how the correct place of service makes the biggest impact on healthcare costs. Simply understanding the huge difference in costs for services performed in a hospital vs. identical services received in a lab or imaging facility down the street can help companies and their employees make smart choices about getting high-quality, high-value care.
But it doesn’t stop there. Beyond managing place of service, employers can take action right now to transform healthcare into a competitive edge. This might seem unbelievable — status quo healthcare is a colossal expense that’s bleeding companies dry — but small- and medium-sized businesses really can avoid overpaying, lower employees’ costs, decrease the amount of time spent away from work and provide benefits that larger competitors simply cannot match.
The experts will tell you this is impossible, but these three steps are all it takes:
1. Think differently.
First, businesses must decide that they are finished with the status-quo healthcare system. What would it be like for them to approach healthcare with a completely different mindset? To reconsider what they’re willing to tolerate and pay for — and what they’re not? Instead of being resigned about the burden of healthcare — helpless in controlling costs while also meeting the mandates of Obamacare — what would happen if they were to apply an entrepreneurial mindset and skill set to their healthcare problem?
Despite shocking health insurance rates and a general belief that costs cannot be controlled, thinking differently about healthcare translates to an entirely different experience. With the help of a trusted broker — they’ll never think about their company’s healthcare the same way.
2. Understand the law and what’s required.
Most business owners do not truly understand what the law requires or what the difference is between what’s required and what they may want to provide their employees for strategic reasons. In many cases, insurers are using Obamacare to convince companies they must provide traditional health insurance or risk massive government fines. Brokers can help their clients understand what the law requires and build a plan that meets Obamacare mandates and offers great healthcare without killing the bottom line. For example, self-insurance is a great solution for many companies.
3. Design and build a health plan that meets a company’s unique needs.
Most employer-sponsored health plans are structured to benefit their insurer, but brokers can help their clients change all that. The best plan will allow the company and its employees to pocket the savings if waste, administration and overpricing are eliminated.
See also: Healthcare Quality: How to Define It
Here are a few key components of a health plan that work well:
- $0 Co-pays for routine care (the “routine 90%”):
It might seem counterintuitive, but charging co-pays for routine care will actually cost companies a lot more money in the long run, not to mention reduce employee satisfaction. The simple solution? Businesses should steer clear of routine co-pays. Instead, they can provide the “routine 90%,” meaning 90% of the care that 90% of people need and use, 90% of the time, all at no cost to their employees. This includes things like preventive services, primary care, physical medicine and injury care, rehabilitation (including chiropractic), basic labs, X-rays and immunizations.
The “routine 90%” represents a very small portion of overall claims, perhaps as low as only 10% of the costs. Purchasing traditional insurance to cover this 90% is unwise for businesses aiming to control costs and make their workforces happy; self-insurance will usually make the most sense.
When these services are free and easily accessible, expensive hospital and urgent care visits will go down a meaningful amount. But be wary: This “no co-pay” tactic can also backfire; it can be used as a loss-leader tactic to guide your staff toward high-priced hospital services when a hospital system employs the primary care doctors. This is exactly why it’s important for business owners to educate their people about the huge price differentials between hospital doctors and services and identical services performed at an off-hospital lab or office.
- Stop-loss insurance for non-routine services (the “other 10%”):
Stop-loss insurance covers the more expensive and less predictable 10% of costs for things like accidents, chronic or complex illness and catastrophic diagnoses like cancer. Such insurance will cover hospitalization, specialist care, brand-name prescriptions and other high-cost services and procedures.
- Plan design that guides and rewards
Most people don’t know how to get the most value out of the healthcare system, but brokers can help business owners educate their employees and provide smart incentives. Giving employees $0 co-pays for the inexpensive “routine 90%” is a great way to start, but there are plenty of other incentives that will save business owners money while also improving employees’ healthcare.
As an example, a smart health plan design will always discourage the quick use of elective orthopedic surgeries and procedures until inexpensive $0 co-pays in the “routine 90%” prove ineffective. A smart plan will always reward the use of generic prescriptions over expensive brand names that provide no extra benefit.
In future articles, we’ll dive into some easy (and very smart) incentives that any employer can include in their plan designs to ensure they can lower the bigger, unnecessary claims costs.
- Data analytics
A well-designed health plan includes a mechanism for continuous data collection and learning about the people who incur the most claims costs in any particular year, month or day.
In a previous article, I discussed why business owners should own their company’s health data because it enables the employer and broker to negotiate fair pricing, educate their people about place of service and ensure they’re making smart decisions about care. The same is true for stop-loss insurance; companies should demand ownership of employees’ data.
Collecting and leveraging this data will provide the advantage businesses and their brokers need to keep renewal costs from rising every year.
- Free protection and support
It’s important that HR managers and employees know where to start when they have questions or need care. Doctors and other health industry professionals may direct their patients to hospitals and other needlessly expensive places of service. And if the providers are affiliated with a hospital system, they may be obligated to refer patients to a hospital, even if the services they need are available at an offsite clinic at a much lower cost.
Business owners have the power to disrupt this status quo process. By providing their people with free, 24-7 assistance in navigating the healthcare landscape, they can improve employee care and satisfaction and can protect their business from overpaying.
Knowing the costs of services, where to find value and how to avoid waste before a service is needed is a critical part of the protection and support employees need and appreciate.
In a future article I’ll share some very valuable healthcare “hacks” that business owners and employees will find empowering. In the meantime, I encourage you to visit redirecthealth.com/HealthPlanScorecard to complete the free Health Plan Scorecard. In 10 minutes or less, you’ll be able to score your healthcare mindset and make immediate improvements.