Wish That Group Health Insurance Wasn’t So Expensive?
Part III: Factors That You Can ControlByRaymond D. Matkowsky
Health care insurance has become employers’ biggest cost concern, topping those of wages and energy. There are options available though. However, health care costs need to be trimmed in pieces and you must take the time necessary to put all the pieces together.
Desired results stem from “fact-based decisions.” If you do not want to spend the time necessary to research and uncover the data needed, you will not get the best deal available. Then don’t waste your time. Go to a broker, ask for whatever you are willing to pay for and be done with it! On the other hand smarter decisions can be made when people become more educated through the gathering of correct and accurate information.
The choice is yours, but remember how Ben Franklin once defined “insanity” as doing the same thing over and over again and expecting the results to be different. If you truly want/need to lower your insurance costs, don’t do the same thing most people have been doing over and over again and don’t wait for your present policy to expire. Get started now! Spend the time to get facts!
Rating Factors
There are many rating factors that insurance providers take into consideration prior to providing a quote. A rate equation can literally include over a hundred different factors. Most of these you have no control over. Also the weight given to each factor may vary from one company to another.
Besides deductibles, co-pay, co-insurance and maximum out of pocket amounts, a rate equation will generally include information about the size, location, and nature of your business, the number of insured within your company, the medical costs within the area, the average employee age, and the percentage of males, females, and children insured by your plan.
Concentrate on Factors You Can Control
It makes no sense to concentrate on factors that you cannot control, therefore in order to cut costs you will have to deal with factors that you can affect. Remember though, there is no best insurance provider, there is no perfect plan already set up, everyone’s needs are different and there are usually more options than people realize.
What factors can you control? Besides the common ones of deductibles, co-pay, co-insurance, maximum out of pocket and the type of policy, there are several. Among them is the size of your group, the size of the group coupled with the ratio of females to males, the term length, payment methods and the insurance company itself.
Size of the Group
Insurance companies will not negotiate prices with groups of less than 50. This is why many employers have banded together to form large groups that insurance companies will negotiate with.
There are numerous resources for finding these groups. The most obvious is your state or local insurance commission. They would be aware of most groups in your area. Others maybe trade associations, chambers of commerce, professional associations, labor unions, a local college’s business department and the AARP for groups with people over the age of fifty. Friends, relatives and business associates can be important sources. Agencies that do accreditation reports or consumer ratings may also have important information.
Many insurance companies charge a hefty premium to female dominated groups on the assumption that female policy holders require more costly medical procedures than their male counterparts. A female dominated business might look to a male dominated group to partner with. Since it is assumed that the male group would have a lower premium than the female group and that inclusion of the female members would raise their premiums, this will only be effective if other factors work to sufficiently lower premiums for both.
There is one more strategy that you could use to increase the size of your group. That is to offer coverage to your part time and retired workers. This can be done on a different cost sharing basis than your regular employees. In doing so, you may find that the benefits extend beyond insurance cost and comparing such scenarios may be well worth it.
On average, organizations with twenty six to fifty employees pay about 13% less than companies that have ten or less employees in their group. In New Jersey the average 2007 cost of insuring an employee in a group with two to 50 members was $7251. The average for a group of 51 or more was $6598. If the inclusion of your part time or retired workers would cause a shift to a higher category, you would be well advised to consider the option. Whatever the final number is, enlarging your group should lower your premium.
Payment Terms
Insurance companies will surcharge you for the privilege of paying premiums monthly. This is true for many types of insurance besides health and something that you may want to review with your staff. You can shave a few dollars off of your yearly costs by paying annually, semiannually or quarterly. This requires you to make a large payment up front however you have not only eliminated or reduced your surcharge payments, but also gained the ability to offset your administrative costs. You do this by simply continuing to collect your employees’ share monthly or semimonthly. This money is now placed in an interest bearing account from which you will make future payments. This strategy will vary from group to group, but depending on the size of the group this interest can be substantial.
Insurance Companies
A key ingredient to finding the lowest possible cost is to get as many quotations as possible from different insurance providers. Different companies have different rating standards, so you may be able to find similar coverage for less money. Health insurance companies are very competitive. This competition can be very beneficial for you. Use it!
Remember though, one major complaint against insurance companies is that they are very willing and accommodative when selling a policy. But when it comes to paying claims they try to delay or avoid payment altogether. Also understand what looks like a great premium now may result in a hefty increase next year. The provider may consider the first year as a loss leader to be made up in the future.
In cases where the insurance contract is renewable there is usually no guarantee the premium will remain the same. If the premium is the same throughout the contract period, the insurance company most likely factored in possible future increases in costs and spread them out over the entire policy term. The result will probably be that you pay more than you need to.
One strategy that you may look at, although it may not be recommendable for various reasons, is that some insurance companies will discount a policy if you have more than one with the company. There are risks and advantages to dealing with one company. If it works for you, if you are willing to accept the risks, then look into that possibility.
Insurance companies constantly try to come up with creative ways to entice you to apply for coverage. Take advantage of this. Never lock yourself into a contract for more than two years. A one year contract is even better.
An insurance company is a business. They are looking out for their own interests. You need to be looking out for your interests. So not only work out the best deal you can, but also check into an insurance company’s credibility. Solicit comments from friends, relatives and business associates who have had experience with the company. Check with your insurance commission and Better Business Bureau to see if any complaints have been lodged against the company. An excellent source of information are doctors that may deal with insurance on a daily basis.
Should I Use a Broker?
The answer is an unequivocal “yes”, but only as an advisor. A health insurance broker is no different than any other type of vendor. The only difference is what the broker specializes in. A broker is not the right person to make business decisions for you. Business decisions should not be made by anyone who does not know your company thoroughly. Buying a group health insurance policy is a business decision.
Also, a broker cannot spend the time required to develop the best health insurance plan for your business. If he did that he wouldn’t be in business very long. Plus, a broker does not truly scan the industry in search of the cheapest plan offered. He usually gets the best quotes from companies he deals with regularly. You are better off assessing your needs and obtaining other quotes prior to seeing several agents. Show them the quotes and challenge them to beat the others.
An agent will not steer you to a better deal unless there is something in it for him or her. According to the Insurance Information Institute, the average broker makes about 10 to 12% commission on a policy premium each year it is in effect. There is a great deal of incentive to have your premiums as high as possible. So remove the incentive. Make it a choice between a zero commission and a smaller commission.
A broker should be willing to answer your in-depth questions. If the broker is hesitant to do so or if you just feel uncomfortable dealing with this person, find a new broker. Also, make sure the insurance policy is as represented by the broker. If it isn’t, the insurance company will not consider themselves bound by the broker’s descriptions. It is very difficult to prove what was said verbally. Follow the old adage: “If it isn’t in writing, it never happened.”
Internet
The internet makes obtaining quotes much easier than it has been in the past. Some people, however, prefer spending the time it takes to phone an insurance company since they believe it gives them a better “feel” for their customer service plus they can ask more “in-depth” questions that they cannot using the internet.
Brokers’ commissions are factored into state insurance rates. If a company uses both the internet and brokers to solicit policies, there will be no savings whether you use a broker or not. An insurance provider would prefer that you use the internet so that they can keep the commissions themselves.
Policy Types
There are three main plan types plus a hybrid policy. They are “Fee For Service” plans, Preferred Provider Organization (PPO) policies and Health Maintenance Organization (HMO) plans.
The most expensive since it is the least restrictive and exceedingly rare is the “Fee For Service” plan.
The plan that seems to be the most popular is the PPO. The PPO has two rate schedules (sometimes three), Network (may be divided into inner and outer network) and Non-Network. Network doctors are those willing to adhere to the insurance provider’s fees and are preferred. They will have lower co-payments than Non-Network doctors. For instance the co-payment for a network doctor may be $20 and for a non-network doctor it may be $30. The co-insurance may be 80/20 within the network and 70/30 outside the network.
The most restrictive plan is an HMO. This plan is the least popular because many times the restrictions are too cumbersome for the employees. These plans offer very little in the way of choices.
A “Point Of Service” (POS) plan is a hybrid of a PPO and HMO. It may contain elements of both plans.
There are a number of other plan types such as Health Savings Accounts (HSA) and Wellness plans. It is advisable to look very critically at these plans. Health Savings Accounts are not insurance plans. They are savings accounts tied to high deductible insurance policies. Wellness Plans will not save you any money on your insurance costs unless you can prove to your insurance company that there is a direct “cause and effect” link between the two. This is a very difficult task, to say the least.
Many employers that have had experience with some of these have complained that although the premiums are lower, the administrative costs can become so high that it would be less expensive to choose a one of the alternatives.
Laying the Foundation
You have been shown at least a half dozen off-policy factors that affect your premiums and can be used to your advantage. They will help you lay the foundation and optimize your insurance rating situation. You may be able to lower your premiums 5 to 15% by using these methods alone. However, the lion’s share of savings are still to be found by manipulating deductibles, co-pay, co-insurance and the policy’s maximum out of pocket values.
Part IV of this series will discuss how you can put this information together to lower your premiums and do it without putting a heavier burden on your employees.
As always we welcome your input, email any comments or criticism to rdm@datastats.com.
Copyright © 2008 Raymond D. Matkowsky
Raymond D. Matkowsky is the Chief Executive Officer of Data Stats, a consulting firm specializing in system or product improvement through mathematical and scientific modeling. He can be reached at rdm@datastats.com or through Data Stats’ web site at www.datastats.com |
