Cost Containment Strategy for Health Care (Benefit Tips ® - © 2003)
There are three major steps to developing a cost containment strategy.
- Defining what is Eligible
- Setting a Reimbursement Level
- Setting a Spending Limit
Defining what is Eligible
CCRA interpretation bulletin IT-519R2 describes the most generous medical and dental coverage permissible by law. Employers can fine-tune the benefit plan to exclude or limit certain products and services.
Setting a Reimbursement Level
Employers can set the reimbursement level and maximum for each type of product and service. Employee behaviour can be influenced by varying the reimbursement levels, such as 100% coverage for preventive dental services 50% for restorative. Another example is full coverage for the most cost effective pharmaceuticals and partial coverage for medication that is not on the specified formulary.
Setting a Spending Limit
Few employers have the financial resources to provide unlimited coverage. Most set spending limits on specific categories of benefits (drugs, vision, dental, paramedical services, etc.). Some employers take a different approach and set an overall spending limit without restricting the eligibility of expenses or reimbursement level with a health spending account.
Review the cost containment strategy of your present benefits program in light of the results that it is generating. Are your costs contained?
Cost Savings During an Economic Downturn (Benefit Tips ® - © 2008)
Clients who are willing to re-examine their plan, in light of the current economic downturn, can secure significant cost savings without waiting for their renewal. There is lot of pressure on benefit costs and suppliers are willing to do what it takes to retain market share.
Improve liquidity by renegotiating the cash management practices of your benefits program. You can improve cash flow by eliminating reserves and arbitrary inflation projections. Insurers take cash out of your operations by having your prepaying benefits in the form of reserves. They also use double-digit inflation assumptions are unrealistic in this economy and need to be reigned in.
Reduce expenses by renegotiating the mark-up and risk charges of your benefits program. Benefit administration fees and risk charges can range between 10% and 20% of claims for a given client. Aggressively negotiating the cost structure on your benefit plan will lead to both immediate and permanent cost savings.
Manage risk by reviewing your benefit plan design to minimize the natural tendency for benefit cost per employee to increase during an economic downturn. There is a correlation between seniority and escalating health costs since these costs increase exponentially with age. One impact of downsize your workforce is that the high cost for senior employees are spread over a smaller base and the average cost per employee increases.
Include flexibility in your benefits program so that you can trim costs during tough times and resume full coverage when business picks up.
This is the time to reduce costs and positioning your firm to emerge from this downturn with a competitive advantage. Suppliers are willing to negotiate and employees are receptive to accept change.
Please let me know if you would like assistance with your benefit plan design, cost structure and cash management.