The Healthcare Costs Myth
Fact: Your Healthcare Costs are controllable!
The sad thing about the healthcare insurance industry is that organizations have been led to believe that they can’t control costs. As they grow, especially in the middle market with hundreds of employees, businesses have more control over healthcare costs than they realize. But the industry wants them to refrain from thinking that they can control those costs because the industry makes a percentage of those increases in fees (so they make more money).
Every year at renewal, it’s rinse, recycle, repeat. We hear from the employer as well as employees, I have my renewal coming in. How bad is it going to be this year? That’s the mindset. So, unfortunately, the culture of the organization can sometimes be negatively impacted unintentionally by things that are unknowingly in their control.
The Affordable Care Act (ACA) has not reduced healthcare expenses. It’s increased them…by design. The ACA incentivizes the increased cost of healthcare. The companies that really can control those cost increases are typically the ones that are good candidates for a self-insured health insurance plan. When a company moves to a self-insured model, it can handle those healthcare costs because it can adjust the plan design for the organization to incentivize healthy, productive behaviors. Those behaviors help to alleviate some of those healthcare expenses.
And one of the other most significant expense issues brokers should discuss with their clients is pharmacy spending. The impact of pharmacy on healthcare costs and how much money the insurance industry makes from the pharmacy are substantial contributors to healthcare costs. And yes, pharmacy spending is also controllable.
From pharmacy benefit managers (PBMs), the insurance industry makes a tremendous amount of money from pharmacy and pharmacy spin. However, when a company enters the self-insured market, there’s a traditional pharmacy benefit manager, where all things, like rebates, etc., are managed. Then there are pass-through PBMs, who get a flat fee to manage that pharmaceutical spending for the client. But all the rebates go back to the group in this model. There is no incentive for a carrier to communicate their pharmacy spending to their client. So the insurance company avoids keeping up with their client and explaining how they make money.
So what is included in your healthcare coverage costs?
- About 10% of the costs are administrative, including commissions to brokers, fees to administer the claims payment, etc.
- The next piece is reinsurance. Reinsurance represents about 20% (on average) of a business’ healthcare spend.
- And the remaining 70% is where the insurance company makes a significant profit. On average, it’s between 7 and 15% plus.
Utilizing time-tracking software and project management tools can make a massive difference in accurately recording and billing for every hour worked. These tools not only provide real-time tracking but also give detailed reports on how each team member is spending their time, allowing for better resource allocation. This can ultimately improve productivity, reduce wasted time, and increase revenue.
By offering this visual track record, we empower individuals to see the potential for long-term growth and incentivize them to stay with the company for multiple years, if not their entire career.
As business leaders and owners, it’s crucial to focus on the impact of our behaviors and eliminate unintended profit fade. Let’s maximize our profits, serve our clients better, and create a thriving business environment.
Contact Cogent Advisors for a clear strategy on how to get the most from your team.
