Health Benefits Case Study: Identifying Waste, Saving Money

Originally Published in RMP Advisor, February 2010

by David Edman

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Background
PATH®, a subsidiary of Risk Management Partners, LLC, was engaged to conduct a health benefits cost-reduction study for a large, self-insured employer. The key steps were to use available data to analyze healthcare spending, assess options for reducing costs and enhancing value, and prepare a set of recommendations. The employer, with 1,600 employees throughout the country, was experiencing an unexplained spike in its health benefit costs in 2009, which were projected (in late 2008) to be $16.1 million. Midway through 2009, annual costs were trending towards an expected level of spending close to $20 million, and the client wanted to know why and what they could do about it.

The Process
PATH®’s process is to review an employer’s strategy and approach for providing health benefits, and to undertake a data-driven assessment of cost-savings opportunities (see Table 1). For this particular client, the sources of information used by PATH® included summary financial statements, aggregated cost and utilization data, Summary Plan Descriptions (SPD), review of vendor contracts, and information gathered from management (e.g., plan design decisions, employee contribution levels, risk tolerance). We used this data to analyze spending, identify problem areas and cost-saving opportunities, and develop recommendations to reduce costs and enhance value.

Results
Based on the preceding analysis, PATH® identified a number of areas of potential cost savings, which are summarized below. Depending upon how assertive the client wants to be, PATH®’s intervention yielded a set of recommendations to achieve between $3.7 and $5.1 million of savings. The client is at various stages of these recommendations.