Around the country CEOs are looking to hire top talent, CFOs are looking to bring certainty and predictability to the budget, and HR professionals are looking to provide an all-star benefits package to the workforce. All difficult tasks in today’s economy and all significantly impacted by rising healthcare costs.
If leveraged effectively, the healthcare budget can serve as the centerpiece to acquiring the best “free agents”, stabilizing expenses, and granting employees access to world-class healthcare. However, this hasn’t been the story for most organizations. Year after year, employers face a healthcare budget that is striking out in its efforts to provide a successful financial outcome. Why is that?
In part I of Why Is My Healthcare Budget Striking Out you will uncover the first fundamental challenge you face in controlling your health insurance costs. If you can identify the spin on the curveballs thrown at your health plan, you can implement the right solutions to crush them out of the park.
<h2 style=”text-align: left;”><em>Strike One</em></h2>
<h6 style=”text-align: left;”>Health insurance companies have no incentive to save you money</h6>
Yes, you read that correctly. Health insurance companies have no incentive to save you money. Now, even if you agree with the statement, it’s important you understand why. At the end of the day, insurance companies are just playing by the rules of the current business model. Consider it a byproduct of the “Affordable” Care Act.
When the government enacted the “Affordable” Care Act in 2010, one of the key players in the law was the <strong>Medical Loss Ratio (MLR) rule</strong>.
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The purpose of the rule was to ensure that insurance companies use a percentage (80%, for example) of each premium dollar to pay for medical claims. The other 20% could be used to pay overhead expenses such as administrative costs, marketing, salaries, commissions, and profits. If the cost of paying claims was less than 80%, the insurance company would be required to return money to the employers it insures. At that point, insurance companies no longer had an incentive to help employers contain medical claims costs and had every reason to watch costs increase because it reduced the probability of having to return money to its book of business. If you’re having a hard time believing this, think about the stock performance of the largest insurance companies (Anthem Blue Cross/Blue Shield, Aetna, Cigna, and United Healthcare) since 2010. All four insurance companies have seen their stock values increase no less than 300% over the past eight years. For them, the “Affordable” Care Act has been more friend than foe.
<h5 style=”text-align: center;”><strong>”Stock prices have increased over 300%”</strong></h5>
If you are looking to utilize the healthcare budget to create MVP results for your employees and your bottom line, you cannot rely on the insurance companies alone. Unfortunately, they don’t have an incentive to help you save money. It’s about managing risk and insurance is the most expensive way to manage risk. When you follow through with designing a world-class healthcare experience for your employees, you will be focused on successfully managing risk. When employees are given the ability to access high-quality care at significantly reduced prices, the cost of the insurance will take care of itself.
In Part II of Why Is My Healthcare Budget Striking Out, you will uncover another misaligned incentive that could be impacting your financial objectives. Until then, bear down, focus on the target, and strike out the status quo!
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