Rising health care costs have driven up insurance premiums, straining employers’ funds and leaving less money available to invest in their businesses, hire employees or award pay increases.
“Any time costs go up, there’s less money to spend on other things that are important to the growth of a business,” says Ross Farro, a principal at Benefits Resource Group. “It comes down to companies deciding how they will pay the increased expenses and continue to offer health care benefits.”
Smart Business spoke with Farro to learn about strategies employers can utilize to effectively deal with rising health care costs.
Are certain types of businesses hit harder by these changes than others?
Generally the size of the business determines how it’s treated under the Affordable Care Act (ACA). For instance, the new law means community rating is used to determine premiums for companies with fewer than 50 employees, which eliminates medical underwriting. This has driven up rates for companies with healthier workforces — sometimes as much as 50 to 120 percent. They are also obligated to provide minimum essential benefits to meet the plan design requirements under the law.
Also, employers that offer group benefits are being hit with fees and higher taxes that come with the ACA. Large employers are also still awaiting final U.S. Department of Health and Human Services guidance for measuring the eligibility of employees during 2014 for required coverage in 2015.
What are the most troubling issues for employers as health care costs rise?
Employers are concerned with controlling costs without reducing employee benefits. The taxes and fees that come with the ACA are substantial. This year, taxes and fees are roughly 5 percent of fully insured premiums, and are expected to increase next year. Employers paying $1 million for health care premiums will have $50,000 in associated fees. For many companies, that’s the equivalent of one potential new employee’s annual salary.
What should employers do to better control health care-related expenses?
Wellness plans and an emphasis on consumerism are two approaches that can help employers better afford the health insurance benefits they offer employees. Negotiating with or changing providers really doesn’t work. A better solution is to focus on things that can be changed, such as addressing obesity and chronic disease within your employee population since these are factors that increase costs. Wellness initiatives not only have an impact on insurance premiums over time, but can improve productivity and mitigate disability claims.
Health care consumerism is fundamentally about restructuring an employer’s health benefit plan into one that puts economic purchasing power in the hands of its employees. To leverage this approach, companies should consider programs such as a health reimbursement account or a health savings account paired with a high deductible that pays for health care expenses with pretax dollars from the employee, employer or both. Either strategy brings attention to the costs of services and prescription medications, encouraging employees to be more cost conscious.
Self-insuring allows employers to pay the costs of claims rather than pay for a fully insured premium, offering a more transparent look at costs. It also can substantially reduce the amount of new ACA fees and taxes. Self-insuring is becoming a viable option for employers with fewer than 100 employees, as insurance carriers are developing products for groups as small as 25 employees.
If employers do only one thing to deal with the challenge of rising health care costs, what should it be?
Employers need to work with a consultant, not a broker. It’s not only about shopping your benefits with other insurance providers; it’s about being creative and knowledgeable. You need a proactive consultant who understands the laws and can develop strategies to help you. As much as employers might want to wait to see if something comes along to derail the ACA, they must realize it’s not going anywhere at this time. ●
Ross Farro is a principal at Benefits Resource Group. Reach him at (216) 393-1820 or [email protected].
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