Controlling Benefits Costs

Since the passage of the Affordable Care Act (ACA), medical insurance has seen a steep rise in cost and a decline in benefits. With the changes in the market, employers have struggled to offer the benefits needed to attract and retain top talent. Moreover, these impacts have disproportionately affected small and mid-sized employers. Read on to discover suggestions for controlling benefits costs.

So, smaller employers must either accept the worse coverage at a greater cost or get creative with their solutions. Here are the top three options we recommend to start taking back control of benefits costs.

Option 1: Join the Self-Funded Movement

Self-funding has historically been an intimidating prospect for many brokers and employers. However, there has been a 30% increase in self-funded insurance over the last decade. With a variety of forms based on a company’s risk tolerance, it is an increasingly viable option to explore.

Modifying your plan to a form of self-funding can also give you access to pharmacy rebates. Pharmacy rebates are a cut of profits that pharmaceutical companies provide to insurers for covering their medications. In fully-insured contracts, these rebates are profits that go straight to the insurer. In self-funded contracts, however, the employer can get access to some or all of their rebates. With an average rebate of approximately $2,000 per employee per year, your rebates can quickly reduce your benefits budget.

Option 2: Reference-Based Pricing

One of the most creative self-funding options available on the market is Reference-Based Pricing. Reference-Based Pricing removes networks entirely and instead pays a percentage above Medicare to providers. As a result, employees can see any provider, and you save on claims costs. While there has been a hesitation to move to non-network plans, an average network-negotiated price is 224% above Medicare rates across all types of services. As a result, there is a huge opportunity to drive savings if you remove those high rates. With those lower rates, you can provide even better benefits to employees at a fraction of the cost.

Option 3: Professional Employment Organizations (PEOs)

PEOs are a co-employment arrangement, meaning employees work for both the PEO and the employer. In practice, the PEO pays the employees and shares in legal responsibilities, and the employer manages the employee’s day-to-day activities. Generally, the PEO provides the HRIS/Payroll system, HR Advice, Worker’s Compensation coverage, and more for a fixed monthly cost.

PEOs can save employers substantially with the health benefits they offer. Since PEOs have so many employees, they are not regulated by small-market restrictions and can access a wider array of insurance at discounted costs. They provide these discounts and competitive benefits to the employers they work with, which often will significantly offset the fixed fees.

How to Choose

These are some of the most popular options we have implemented with our clients to help control benefits costs. But, the hardest question is always, “Which option is the best for my business?” That answer is influenced by a variety of factors, including your risk tolerance, size, culture, and more. So, start having this conversation with your broker before renewal season. The earlier you begin exploring the options, the more time you and your broker have to understand the market, assess each strategy, and come to the best decision for your business.

Have questions about these strategies or want to learn more? Contact our Benefits Advisors today!