Keeping Health and Benefits Plan Costs Under Control
Employer-sponsored health and benefit plans have moved from “fringe” or “nice-to-have” to being a central pillar of the employee value proposition. In response, the variety and sophistication of products in the market has grown, and the costs of employer-sponsored health plans are climbing rapidly. According to the Mercer Marsh Benefits Health Trends 2020 Insurer Survey, the 2020 projected medical trend rate in the Middle East and Africa (MEA) region is 10.9%, and more than 70% of insurers in MEA are expecting this rate to increase in 2021.
Most employers try to manage costs once per year in conjunction with the annual renewal of insured benefits. While modest year-on-year changes are important for keeping plans within budget, they do not typically make a long-term dent in cost growth especially as people risks continue to have an impact on business risks and the bottom line. Employers are therefore seeking ways to economize and improve efficiencies in their health-related plans in order to manage medical costs more effectively over the long term.
Because benefit costs are highly complex, they are difficult to control. Issues include:
- Changing lifestyles and demographics leading to chronic illness.
- Advancing medical technologies.
- A lack of regulation and mechanisms to control practices such as referral-for-profit that lead to unnecessary diagnostics and hospital stays.
- Plan and payment incentives that drive inflationary practices and behavior, such as a lack of coverage for prevention or favoring inpatient treatment for services, which can be delivered in lower-cost settings.
To maintain balance between care and costs, employers must identify the market factors along with the employee and provider behaviors responsible for driving health benefit cost increases. Doing so will allow employers to develop effective, value-based cost-containment strategies that provide access to quality, affordable care while eliminating or managing risks. In turn, employers will have a much easier time making the necessary decisions to ensure their benefits plans are financially sustainable.
The three main strategies for cost containment are:
- Design for value — through coverage provisions, network configuration and engagement.
- Manage health risk — through a data-driven approach that promotes a healthy workforce.
- Drive efficiencies — through smart financing and placement.
To bend the curve, companies need multipronged and multiyear strategies that address these three points simultaneously. The more affordable the plans are, the more you can open eligibility to a broader set of the workforce — which benefits everyone.
Businesses should be encouraging their insurers and advisors to think outside the box and challenge the status quo.
At the same time, companies should be looking at a variety of vendors that can support effective delivery of interventions. This may require short-term expenditure — for instance, investing in digital technologies.
Read our point of view paper on ‘Balancing Cost and Empathy in Employee Benefits – Keeping health and benefits plan costs under control’ to learn how you can manage your medical costs more effectively.