This article first appeared in Forbes.com
November 22, 2023
In the world of modern business, HR leaders are not only influencers of workplace dynamics but also catalysts for financial success. As they venture beyond traditional roles, HR leaders can carve a niche for themselves by mastering the intricacies of healthcare cost optimization.
In a paradigm where employee well-being and fiscal prudence intersect, you have a unique opportunity to not only differentiate yourself but also emerge as an essential contributor to your organization’s bottom line. In fact, in my experience, the potential impact of an HR leader is so substantial that healthcare savings achieved through strategic optimization can even surpass the contributions of top sales personnel.
Putting The Cost Into Perspective
According to KFF, the average total annual cost for single and family coverage in 2022 was $7,911 and $22,463 among all plan types. Employers contributed $6,584 and $16,357, or roughly 83% and 73% respectively. Statistically, coverage would cost an employer $853,860 for every 100 covered employees, assuming 80% were single and the balance were families. The balance of the premium would be the responsibility of the members.
Where Healthcare Costs Rank On Small Employer Concerns
According to The Commonwealth Fund, the cost of providing healthcare to employees ranks first among concerns of small-business owners, meaning organizations with 500 or fewer employees. Of those surveyed, 37% ranked healthcare as their first or second concern, just ahead of attracting new customers. A recent article by SHRM cited that employers anticipate healthcare costs to increase 7% for the second consecutive year. I believe this further emphasizes the importance of managing this spend while at the same time being attuned to the needs of your company’s members.
The escalating healthcare costs of recent times have cast a formidable shadow over the financial landscapes of organizations and their employees alike. According to a study by Peterson-KFF, healthcare expenses consistently outpace inflation and wage growth, necessitating innovative approaches to curb this financial drain. However, I believe this is where HR leaders, equipped with the right strategies and tools, can create substantial value.
Strategies For Increasing Healthcare Savings
1. Use transparent PBMs.
Of the many opportunities that exist to assist HR leaders in reducing total healthcare spend, utilizing the services of a transparent pharmacy benefit manager may be the least disruptive to the plan sponsor (the employer group offering the benefits plan) and the members. Few plan sponsors are aware that their current pharmacy benefit manager (PBM) is earning significant revenue in the form of rebates, spread pricing, formulary manipulation, administration fees and other non-disclosed costs. In my experience, these revenue sources can inflate prescription claims significantly. When seeking to get or replace a PBM, look for one that is committed to mitigating and/or passing this cost back to your company in exchange for a flat administration or per script fee.
2. Avoid embedded relationships.
Many of the nation’s largest third-party administrators are part of a controlled group of companies that include health insurers, pharmacy benefit managers and data aggregators. Some examples include UnitedHealth Group and CVS Health. These embedded relationships can make it difficult for plan sponsors to control plan documents, work with transparent PBMs and select other solution partners more aligned with their company’s financial incentives rather than those of their carrier.
Determine whether your plan administrator includes these kinds of embedded relationships. If so, consider migrating your plan administration and oversight to an independent administrator that can make it easier for you to optimize your company’s healthcare spend. (Full disclosure: My company offers these services, as do others.)
3. Ensure payment integrity.
Payment integrity refers to the process of properly paying claims. What you may not know is that plan documents often include clauses that reward the carrier or third-party administrator for detecting and correcting claims that were already paid by them in error. These errors are often the result of provider processing or coding errors, billing fraud or payment initially made on a non-itemized bill. Payers have a misaligned incentive to pay claims incorrectly at first, then audit the claim and be compensated for the reclaimed payment. Many TPA and insurance carrier agreements prohibit the plan sponsor from controlling the auditing process and isolate the plan sponsor from the financial reports that would identify these types of practices.
Statistically, about 5% of members account for 50% of a plan sponsor’s total healthcare spend. These outlier patients present a tremendous opportunity for you to not only reduce wasted spending from your health plan but also improve care and quality of life for your most vulnerable members. Outlier patients often fall into the following major specialties: cancer, spine surgery, orthopedics, bypass surgery and organ transplants. According to John Hopkins Medical Research, these specialties have a misdiagnosis rate between 22% and 37%.
To help your organization reduce fraud waste and abuse that the fee-for-service healthcare model can incentivize, consider implementing mandatory second opinions and being proactive with care coordination to ensure patients are paired with the very best physicians practicing in these areas, based on appropriateness and outcomes of care.
Conclusion
By reducing healthcare expenses, your organization can redirect saved funds to fuel growth, innovation and employee-centric initiatives, fostering an environment where everyone thrives. I recently attended RosettaFest 2023, where hundreds of forward-looking benefits advisors, employers, unions and public entities shared stories of how they are literally transforming the health and wealth landscape in their businesses and communities. Many HR leaders have risen beyond their traditional roles to become architects of both employee well-being and financial prudence.
As the healthcare cost challenge continues to intensify, HR leaders are uniquely positioned to master the art of cost optimization, utilizing independent models to wield control over healthcare expenses. By fostering a harmonious convergence of fiscal responsibility and employee satisfaction, you can help set the stage for an organizational journey that transcends mere profit, embracing holistic success in every facet of the business landscape.
Lou Bernardi | Founder | BritePath
Benefit Optimization Officer | Health Rosetta Advisor | Forbes Business Council Member