High Performance Benefits: Navigating the 2nd Highest Cost for Your Company

Navigating health insurance is stressful for everyone and healthcare costs are the second highest line item on a company's P&L statement (after compensation). There are ways to work within the current system to improve outcomes for employees and employers. The only thing it requires up front? Thought and care.

Josh Mandell
Advisor, Health Rosetta and Partner, MBL Benefits Consulting

Navigating health insurance is stressful for everyone. It’s both expensive and inadequate. Healthcare costs are the second highest line item on a company's P&L statement (after compensation). Even people with “good” insurance find themselves in medical debt. Some of this is a symptom of a greater economic problem — nineteen percent of households cannot afford to pay medical bills right away — or due to an unexpected serious diagnosis. Some of it, however, is how the system is designed.


Our medical system is opaque and enshrined in bureaucracy. This comes at a very real cost, both to employers and employees. If it’s hard to find a doctor, you’re less likely to go to one until your condition gets more serious. Then, you’re paying more money to address a bigger problem. You may encounter hidden costs, like your doctor prescribing a treatment that your insurance doesn’t cover or only covers in part. 


And, from the start, you don’t know how much your treatment is going to cost. Healthcare is the only industry in which not knowing how much you will pay for something before accepting the financial burden is widely accepted. The opacity of the system makes it nearly impossible for employees to make the right healthcare decisions for them. Some tools, like insurance companies’ price transparency tools, are actively misleading, in that there is an inverse relationship between quality and care. This isn’t intuitive for most patients, who are inclined to believe that a more expensive doctor is better, the way a more expensive car is better. In the case of healthcare, however, the best care is more efficient, and therefore less expensive. The costs start to add up with additional specialists needed, a longer stay in the hospital, and when mistakes are made. The most expensive option doesn’t come with additional care, but with wasted resources.


The status quo isn’t working. The system is more complex and harder to navigate than ever. It’s constantly passing on more and more costs to employees. Employers’ costs are escalating, projected to hit above $15 thousand per employee in 2021. Overall, healthcare costs in the U.S. greatly exceed healthcare costs of comparable nations. And, a lot of this already-inflated cost doesn’t actually add value to anyone. Experts estimate that at minimum 20% of healthcare costs are waste, fraud, or abuse. 


TL;DR: Our healthcare system is expensive for employers and employees, and you don’t get what you pay for.


A lot of people look at this information and say our healthcare system is broken. I disagree. It’s working exactly as it was designed to. It just wasn’t designed for employers or employees. Insurance companies are — again, counterintuitively — not incentivized to lower healthcare costs. Due to a provision in the Affordable Care Act (ACA), insurance companies are required to spend at least 85% of their premium dollars on healthcare costs, or return the money as a rebate to their customers. The remaining 15% is value for shareholders. Insurance companies have no incentive to make the pie smaller when doing so reduces their piece. We can’t expect insurance companies to do better. What we can do, though, is do better for our employees.


There are ways to work within the current system to improve outcomes for employees and employers. Not pie-in-the-sky, wishful thinking solutions, but proven tactics and strategies to drive down underlying cost of care, improve transparency, and most importantly, improve outcomes. We’ve never been better positioned to pull back the curtain to help employees make the right healthcare decisions for them. By empowering employees, employers can see lower healthcare costs and healthier employees. This can truly be a win for everyone. 


The only thing it requires up front? Thought and care. Benefits are usually treated with a hands off approach or fully through a short-term financial lens. By investing time in benefits, HR professionals can improve their employee experience and their financial outcomes. 


In order to empower employees to make better healthcare choices, we have to demystify the healthcare system. We can’t expect them to understand it on their own; the system is too complex to treat employees like typical consumers. Sure, the information is out there, but employees shouldn’t have to become experts in a subspecialty before making a doctor’s appointment. But, providing them the raw metrics isn’t enough, either. We need to give them better, actionable information and access to expertise. A comprehensive approach will use a mix of technology, analytics, and human help to provide them with the information they need. 


Once we give them the tools to make better choices, we have to align incentives. For the most part, costs are roughly the same for employees regardless of their treatment experience. They meet their deductible and that’s it. For employers, though, a few extra days in the hospital can make tens of thousands of dollars of difference. And, the employee likely didn’t want that time in the hospital either! 


In the case of healthcare, we’re all on the same team. Healthier employees equal a healthier business. We can incentivize employees to take the best healthcare option for them and make it easy for them to actually use their benefits to prevent bigger problems down the line. One way to do this is to pass on some of the savings back to them. If they choose a highly rated yet less expensive treatment option, they could save the company a lot of money. Covering their deductible would make a meaningful difference to the employee and the company would still see significant cost savings. Again, a true win-win.


The results can be profound and sustainable. They can save costs, improve retention, and improve employees’ quality of care. Health insurance and benefits are too important to take a hands off approach. Without providing them this help, we’re leaving them at the mercy of a system that is not on their side. We can make healthcare an actual benefit to employees instead of something they are scared to use.


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