©marchmeena29/ISTOCK/THINKSTOCK
A CFO’s mandate is to control costs for their organization. Control of healthcare costs is high among the biggest challenges. But the usual renewal strategy of spreadsheeting and moving carriers really isn’t controlling costs and, worse, is just a one-year fix.
Health insurance premiums are based on the cost of claims and frequency of claims. Thanks to the ACA, insurance carriers are required to spend at least 85 percent of premiums on claims for plans over 100 employees – that’s the Medical Loss Ratio (MLR). The remaining 15 percent margin is where they make their money. So, for an insurance carrier to grow their bottom line, they need to grow the margin. To do that, they have to grow claims costs. Does that sound aligned with a CFOs best interest?
No, a CFO’s need is the exact opposite - reduced claims frequency, reduced claims cost, which results in reduced premiums. That’s where a CFO should be focused. Managing supply chains to control cost is critical to the overall health of a business. That principle applies in the context of healthcare costs, too. Implement an effective, long-term healthcare cost solution and the CFO can then refocus on the rest of the business.
Fully-insured plans offer a CFO few, if any, meaningful cost control options. Switching carriers or increasing member out-of-pocket costs is really just a cost shift to employees. Neither option supports HR with the challenges of retention and recruiting in this extremely tight labor market. Conversely, the self-insured world offers an array of tools to control costs and improve quality within the health care supply chain.
What’s a particular surgery cost? What’s the cost of a specialty drug? What’s a good price for that MRI? In the fully-insured world, all the CFO knows is those costs are out of control. Don’t count on help from your insured carrier – remember: their motivation is the MLR. It’s up to the CFO to implement a program that directs health plan dollars to efficient hospitals, lower cost drugs and competitive imaging facilities. Is that even possible?
Yes, the transparent, data-driven nature of a self-funded plan provides access to information. Information is power in healthcare. That power gives the CFO and plan members opportunities to make smarter decisions – ones supported by cost and quality data. With an insured plan, those same decisions are made by the carrier or health provider based on their own financial interests.
A growing number of your competitors are finding success in a self-funded model – it’s the market disruptor of the health plan space. That success is characterized by lower cost, greater predictability, long-term stability and support of retention/recruiting.
Renewal season 2019 is just around the corner. It really is time to get out of that old yellow cab health plan and start riding with Uber.
Robert Carrington is VP of Employee Benefits at EPIC Insurance Brokers and Consultants.