Reducing the Cost of Health Insurance in Tough Times

By: Fred Fischer, Benefits Director, CFP Inc.

A slowed down economy and increasing medical premiums has put us all to the test in managing our group health insurance expenses. Many companies are faced with the daunting task of deciding where costs can be trimmed and what measures can be taken to preserve jobs for their employees. In working with our clients we have had several ask what steps they can take to reduce their health insurance expense either when they renew their insurance plans, or, even after their plan renewed. Insurance providers charge premiums based on anticipated usage of the medical benefits. When computing rates they consider age, location, claims history for medical expense, trend of medical costs and of course their administrative cost and profit. Aside from finding a provider with more competitive rates, the reduction of premium costs usually means the transfer of risk (cost) from the insurance carrier to either the employer or their employees. Below are six quick tips you can consider when renewing your benefits plan, or even “off-renewal” if circumstances require immediate action:

Higher Deductible on Medical Plan

Increasing your plan deductible shifts risk from the insurance company to the plan participant by making them responsible for paying more of incurred expenses. In a sample company of about 20 employees, increasing the deductible from $1000/year to $2000/year saved about 9% in premiums (($36/PEPM(per employee per month)) in the employee rate only. Increasing the deductible from $500/year to $1000/year saved about 6% in premiums ($25/PEPM). Sometimes we are able to get deductible reports on groups which means the employer is paying more for insurance than they are actually using. The employer can often use premium savings to offset part of the increased deductible to their employees by funding a health reimbursement account (HRA).

Higher Co-insurance on Medical Plan

Co-insurance on medical plans (the portion the insurance company pays after the deductible is met) is most commonly 80% of claim cost, but also can be 100% down to 50%. On our sample company, going from 90% co-insurance to 80% saved 4.7% in premiums (19/PEPM), and from 80% to 70% co-insurance saved an additional 5.7% (22/PEPM). Other plan changes, such as higher office visit co-pays, or higher out of pocket maximums may also provide cost savings.

Employee Cost Sharing

In our sample company of about 20 employees, the cost per employee for a $1000 deductible plan, with 80% co-insurance is $400/month per employee, or about $2.33/hour (based on 172 hours/month). Having the employee pay a portion of the premium is very common in the workplace. Because insurance providers often have minimum participation requirements for health plans, employees may not be able to refuse the insurance due to cost. Employers, who pay 100% of the employee premium, may have employees with double coverage also through their spouse benefit plan. With cost sharing, employees may decline coverage because of double coverage through their spouse’s medical plan.

Ancillary Coverage

Often medical plans include Alternative Care (chiropractic, acupuncture, massage, holistic), Vision and dental coverage. These are often optional benefits that may be eliminated from your plan, or provided to employees on a voluntary basis at their own expense.

Medicare Eligible Employees

Medical insurance premiums are age sensative. The older we are, the more benefits we use. Most employers see a blended premium rate for all their employees and don’t see the breakdown by age. In a survey of 4 Oregon insurance providers of their 2009 rates for a 65 year old employee with a $1000 deductible plan, 80% co-insurance, premium ranged from $665-$885 per month. Medicare cost for comparable benefit for a 65 year old tobacco user for most folks is about $260/month. This premium includes doctor, hospital, drug and a supplemental coverage plan to fill some gaps in Medicare plans. The potential savings for an employee over 65 can be over $5000/year. Employers cannot force employees to take Medicare or financially incentivize them to take Medicare, but it is an opportunity that should be reviewed when appropriate.

RX Coverage

Most, but not all, insurance providers require groups to purchase the Rx (drug/Pharmacy) insurance with the medical insurance. The drug coverage options can often be %10 to %20 of the medical premium. You can often save money by choosing a lower pharmacy benefit option. If circumstances require, some, not all, insurance providers allow you to drop your pharmacy coverage altogether. Oregon has a discount drug card plan that allows residents to buy drugs at a discounted cost. The card must be applied for and has no cost.

These are ideas that you can consider for your plan renewal, or in modifying your current plan right now. Insurance providers may allow you to make benefit reduction changes during the plan year, but they may also require additional underwriting (re-quoting the group) at the same time. The alternative cost of each decision needs to be reviewed before making changes. In extreme circumstances, the employer may have to make a provider change to realize the savings they need to keep a plan in place. These are tough times, and for many companies keeping a medical benefit plan in place is difficult, but important. If you want additional information or further explanation of any of the above ideas, feel free to call us here at CFP (866-532-0417). We are the endorsed benefits agent of the AOL and appreciate any opportunity to help you with your benefits planning.