Are there rattlesnakes in your health plan?

Thought Leadership on Employee Benefits-Risk & Reward presented by TriBridge Partners.

This is part 1 in our series, 3 ways to apply farming principles to a health plan.

As a child growing up in a farming community, I was given the opportunity to experience the early mornings and daily routines associated with raising livestock, baling hay, and overall land and resource maintenance. I was also able to witness the ecosystem through which a well-run farm was able to make necessary improvements while preserving the working elements.

An employee workforce can be viewed in a very similar way, with HR as the caretaker or the “farmer,” charged with the responsibility of being a good steward. They have an eye on what needs to be improved, all while keeping the ecosystem in balance. There are many, many ways to draw parallels between the two roles, but there are three (related to the health plan) that we are relevant today. Today we will showcase the first: bales and bundles.

Part 1: Bundles

Unbundle your health plan. In early summer, farmers normally begin to cut and bale hay. The hay is bundled and stacked for various uses around the farm, and while there is a lot of good that can come from those bales, there are sometimes problems living inside them as well. Live snakes, insects, dead animals and other unknowns can be living within those bales.

Your employer health plan is no different. In an effort to offer affordable healthcare coverage to employees, many employers today purchase a bundled healthcare product from an insurance company. The bundle normally has a fancy name and is branded with a safe, credible logo that conveys a sense of security.

But what is inside that bundle?

Well, a lot of things. On the employer’s behalf, the insurance company contracts and pays a variety of other vendors to provide services. For example, insurance carriers purchase re-insurance (yes the insurance company buys insurance) to pay the claims that exceed their comfort level. They pay to rent a physician network for your employees to access; they pay a prescription drug plan (PDP); they may also pay a third-party administrator for assistance with billing and enrollment; they may pay an entity to assist with coordinating benefits with Medicare; they may outsource and pay for other services like disease management and customer service support.

With each of these programs, they choose to either pass the cost through in the form of a premium or perhaps even mark them up to create a margin. Of course, they also should and do pay their employees, executives, leases, and all the other costs associated with keeping the lights on. There are also taxes — some that are state-based and others that have federal origins. These taxes are passed through as well. The premium you are paying each month is used to satisfy many of these costs (and more), and is built into the bundle and never seen.

A bundled health plan, by design, is intended to make life easy for the employer because the insurance company is taking care of all those vendor relations and procurements. However, the downfalls are as follows:

1. With a bundled plan, the insurance company only needs to tell you what they are required by law to tell you about your costs and reasons for premium increase. When asked why your premiums are increasing, the answer is often generic. Healthcare costs are on the rise nationally within the pool of employers that you are associated with, and therefore, your premiums are going up to. Or maybe it’s because your population is getting older (unlike the rest of the human race). From time to time you may get a little more information about how there are several ongoing and expensive conditions. This is really not helpful because you have no way of tracking, measuring improvement and resolving the issue. So what happens? You are forced to pass some of the cost on to the employees and/or change the plan design.

2. With a bundled plan, you are at the mercy of the insurance carrier’s timing with regards to when you receive your renewal information. So, one of the largest investments that your company makes could go up dramatically and you have limited time to react and create a strategy to keep your eco-system in harmony.

3. Bundled plans are taxed. There are certain taxes that apply to bundled plans. The insurance carriers pay the taxes but pass the cost on to the employer through the premiums. For example, if you receive a 10% increase in healthcare premium costs, 2-3% (or more) of that increase could simply be tax pass-through.

4. Bundled plans are required to provide certain state and federally-mandated levels of benefit coverage. You, the employer, have no choice in what benefits are included or not included in the plan. You may agree with all the mandated benefits in your plan, but some employers enjoy being able to choose to do so versus being required to.

Neither bundled nor unbundled plans are suitable for every workforce out there. There is no “one-size-fits-all.” To determine the most appropriate strategy, we recommend a feasibility analysis be completed. Are you bundled or unbundled? Do you know? If you are competing with other employers for talent and they are strategically controlling healthcare costs, they have a financial advantage over you.

So what is in your bale of hay? Better take a look so you can make an informed decision.

By unbundling the health plan an employer can look at each of these components and their costs and make an informed decision about whether they wish to continue to be bundled or not.

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