Sustainable health care cost containment: What works best?

There are obvious benefits of offering health insurance to employees. The most obvious? If you don't offer health insurance, you won't be as attractive to the employees you want to attract.

But the fact remains that health insurance is an expensive benefit, even with the trend toward high-deductible plans combined with health savings accounts that shift more of the cost to employees.

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The annual average cost of employer-sponsored health insurance ranges from about $6,400 for individual coverage to more than $18,000 for family coverage, according to a 2016 Kaiser Family Foundation study. Even with the employee paying on average about 18 percent of that premium, what's left is still a big chunk of change - especially for a small company.

Health costs are a burden on employees too. A study found that the No. 1 cause of personal bankruptcy in the United States is unmanageable medical expenses, affecting 1.7 million Americans in 2013. And another 10 million people who have year-round health insurance coverage can't pay their medical bills.

Given this huge cost, many employers are looking for ways to help their workers cope with medical expenses without jeopardizing their company's financial stability.

Longtime efforts by American corporations to shift the cost of employee health care to employees are reaching the limits of their viability. Most employers have already increased the share that employees pay for their coverage with higher deductibles and co-pays.

While some employers, both large and small, will continue to chase cost-shifting strategies, many are looking for more sustainable ways to deliver health care benefits.

In fact, the most recent Gallup poll on employee engagement shows that even though most companies offer some of the benefits that employees are looking for - such as health insurance - many workers are still saying they'd quit their jobs to get a better deal on those same benefits. Translation? What's important isn't just whether to offer health benefits. It's also what kind to offer that makes employees feel valued.

 

The Path from Wellness Incentives to Voluntary Benefits

Coverage of chronic and mental health conditions accounts for 86 percent of the nation's $2.7 trillion annual health care spending, according to a June 2017 summary by the Centers for Disease Control and Prevention.

In recent decades, employers discovered that they can abate health care's upward cost trend not just by committing the retention sin of cutting coverage, but instead by focusing on influencing employees - especially those with chronic conditions - to take better care of themselves.

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The evolution of this movement has four main stages:

  1. Incentives. Incentives offer modest gifts or payments to encourage employees with chronic medical conditions to participate in wellness programs, such as smoking cessation or diabetes management. These are popular and easy to administer. However, these types of programs have been around for decades now, and their long-term positive impact on the relentless rise in the healthcare cost curve is yet to be proven. Only about 25 percent to 30 percent of employees eligible for such programs make use of them, and even a decade ago, experts suggested that employers may have "maxed out" on the incentive side of the wellness equation.
  2. Penalties. The next generation of programs are the punitive flip side to incentives. For example, an employer may provide lower reimbursements to employees with chronic conditions who refuse to participate in disease-management programs. While potentially effective as a cost-cutting measure, going negative in this manner can cast any employer in a harsh light.
  3. Lowering financial barriers. This less defined but more nurturing approach looks to clear the decks for employees with chronic conditions, so that they have no excuse not to take care of themselves. For example, the employer can design a health care plan that includes eliminating co-pays for certain drugs such as beta-blockers, or cooperating with local urgent care clinics, where employees can receive fast and convenient care for non-life-threatening problems for less than the cost of a hospital emergency room visit. Some employers even bring in pharmacists to provide coaching at the worksite and lower - or even eliminate - employee copays for lab tests and prescriptions for chronic conditions such as heart disease and diabetes.
  4. Voluntary benefits. The newest generation of programs designed to push employees toward more healthy lifestyles is already here, and has been for some time. This array of offerings, chosen by employees themselves to fit their needs, is generally referred to as "voluntary benefits." As the name implies, this approach offers a tempting buffet of options, and employees can sample the ones best suited to their particular situations.

 

How Voluntary Benefits Work

Voluntary benefits fall in a middle ground between standard-issue group health insurance and purely optional out-of-pocket programs paid for by the employee, such as fitness club memberships. A 2016 survey by Willis Towers Watson found that 92 percent of surveyed employers believed voluntary benefits would play a larger role in employee satisfaction over the next three to five years.

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Health-related initiatives dominate this 2017 list of the most common, and popular, voluntary benefits:

  • Hospital indemnity plans
  • Accident insurance
  • Cancer and critical illness insurance
  • Supplemental life insurance
  • Dental insurance
  • Vision discount benefits
  • Short- and long-term disability insurance
  • Identity theft insurance
  • Pet insurance
  • Student

The Willis Towers Watson survey predicted that critical illness insurance, offered by 44 percent of employers in 2015, could grow to 73 percent by 2018.

"The growth of VBS is widespread among employers of all sizes and in all industries," Amy Hollis, Voluntary Benefits leader at Willis Towers Watson, said in a news release accompanying the survey. "The appeal is simple: These programs enrich traditional benefits by offering a high level of personalization to employees while leveraging group purchasing power. Moreover, because these programs are voluntary, they add little or no cost to employers."

Typically, employers pay considerably less of the cost of voluntary benefits than they do for traditional health insurance. But even paying half or more of the total cost, the employee still benefits from the lower group rate. Another advantage is that these voluntary benefits can be paid for through payroll deductions.

Especially for smaller employers, an integrated package of voluntary benefits is attractive for the one-stop shopping aspect, rather than contracting separately for the various components. Some benefits can also be paid for in pre-tax dollars, a further advantage for employees.

Some experts recommend phasing in a program of voluntary benefits over three years, with health care offerings dominating year one. These would be followed by income protection products (disability insurance, fraud protection) in the second year, and choices for consumer products such auto and homeowners' insurance in the third.

The reality is that for many workers a solitary accident could spell financial hardships they aren't prepared for. A recent survey showed that paying for out-of-pocket medical expenses is the top financial concern for 42 percent of workers facing a debilitating injury, a critical illness diagnosis or a hospitalization. For a majority (58 percent), however, the top concern is losing their jobs because of the injury and being unable to put dinner on the table for their families.

No matter the schedule or the exact package of benefits, having choices that help protect employees from health-based financial troubles is one way of making a difference to both workers and the workplace, no matter how big or small the company is. Offering these kinds of protections are a powerful inducement for a promising employee to join your team and stay with it.

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