A 4-Step Method to Lower Benefit Costs – Creating a Partnership Between Employees and Management

Originally Published in RMP Advisor, July/August 2010

by David Edman

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The conventional wisdom in the workplace is that a rift exists between the employees and management when it comes to healthcare benefits. Employees usually accuse the company of being too frugal, and management is unable to find a compromise that makes everyone happy. In the end, employees are left feeling as if their hands are tied.

A 4-Step Method for Cutting Health Benefit Costs
At the recent Society for Human Resource Management (SHRM) 2010 Annual Conference, certain sessions were devoted to how companies can save money by creating a partnership between the employees and management staff. To help control healthcare costs while still providing excellent benefits to employees and their families, SHRM recommends an ongoing 4-step method. Here’s how the method, which comprises evaluation, education, communication, and motivation, works:

1. Evaluation
   Health insurance claims are processed by the provider or a third-party administrator, and in most cases, employers don’t see the complete picture of how the benefits are being used. By requesting summary claims data, employers can see how money is being spent and to whom it’s going.

   An evaluation of claims data can reveal unnecessary expenses, for example, such as miscoded treatments, erroneous charges, and misuse of the system. Employers will also notice ways to cut costs without reducing benefits, such as when they’re prescribed medicines that are available either over-the-counter or in the formulary and they can choose which they prefer. The data will provide insight into the amount of out-of-network care that is being used. A thorough evaluation gives employers the information they need to better educate their employees on how to efficiently use their health benefits and eliminate unnecessary spending at the same time.

2. Education
   Just as people tend to breeze through owner’s manuals and other instructions, they usually give insurance providers’ Explanation of Benefits statements the same treatment. Without a total understanding of how costs are determined and why rates go up, many employees operate under the guise that, “If it’s covered, just tack it on my bill.”

   Meeting with small groups of employees is a great way to educate the staff on how the prices of their insurance premiums are directly related to how they use the insurance. Higher annual costs equal increased premiums for the following year, and lower annual costs result in cheaper rates.

   In addition, give cost-efficient suggestions to the staff, letting them know how they can help reduce the amount they spend each year. For example, recommend using only in-network physicians and clinics, and explain how doctors can provide samples of medication before writing expensive prescriptions for drugs that may not work. Since many healthcare plans cover employees’ families, make sure to host educational sessions where spouses can attend, as well.

3. Communication
   Communicating the positives of cost-effective healthcare coverage should begin at new employee orientation and continue throughout employment. Dedicating a wall or bulletin board to display current usage data and dollar figures is a key component to keeping employees up to speed on the state of their insurance programs. By having this general data available, employees can hold themselves accountable and see how the improvements they’ve made are affecting the system.
4. Motivation
   With a little motivation from management, employees see that their co-workers and bosses are serious about reducing the amount they have to pay for insurance. Rewarding the employees when quarterly costs go down — such as with picnics and individual financial rewards in the form of reductions in premium charges and/or increases in HSA contributions — can motivate the staff to continue to work towards more efficient healthcare usage.

Employees are increasingly aware that total compensation is a zero sum game — when health benefit costs rise at disproportionate levels, there’s less money available for salaries. When employees and management work together, build trust, and develop strategies to reduce unnecessary (or wasteful) spending, it’s a “win-win” situation.