To understand cost containment for your employee benefit plan, you need to understand what is the cost breakdown of a typical plan.
The average cost of employee benefits is about $3,000 per employee per year. Approximately 15% of that is made up of administration fees, and the rest (85%) comes from benefit claims costs.
Most insurance companies say they will save you money on the administration side, but few companies do an outstanding job of managing the cost of the claims. Would you rather save 10-15% of $2550 or 10-15% of $450? Yes, that was rhetorical!
So how do we control cost and what are our keys to cost containment? There are many opportunities but let’s tackle a few of them.
The first step is ensuring your plan is in the correct funding model. Most Benefit Consultants will push you toward an insured plan. Is this the best solution for all companies? It’s certainly the best solution for the insurance company and the benefits consultant.
Ensure the pieces that should be insured but take the other components out of an insured plan. By doing this, you can save 20-30% on administration fees.
The next piece of business is dealing with that nasty IBNR reserve. Now if you’re only insuring the risky components of your plan, your IBNR just got smaller. For the parts still insured and subject to an IBNR, work with a provider that either refund the IBNR or eases it over 3 years and not 1 year.
Let’s look at Long Term Disability. By incorporating a Disability Management element into the process, any employees potentially facing a claim are better supported through a difficult time and far less likely to go on LTD. Fewer claims mean lower premiums.
For larger employers, there’s another unique opportunity. Since the risk to most insurance carriers on LTD is potential long term claims, insurance companies have to fund a hefty reserve. If most claims don’t go beyond 2 years, why treat every claim as if it does? By looking at LTD as Mid Term Disability, the carrier doesn’t need to fund as large a reserve thus a lower premium. This doesn’t affect the coverage to the affected employee either. This can lower LTD premiums by 10-15%.
Another opportunity for cost savings is with processing prescription drugs. Introduce a Managed Drug Formulary and use a Central Dispensing Pharmacy instead of a Retail Pharmacy. Recurring drugs are delivered to your home or office, and the best and most cost-effective drugs are dispensed promptly. This can reduce your total drug spend from 15-20%!!
So when was the last time you had these type of conversations with your benefits consultant?
Want to hear about some more cost containment opportunities? Contact Performance Based Benefits and find out why “Solutions begin from a place of understanding