Health Benefits

Health Care Benefits: CFOs Have More Options Than They Think

Self-insured organizations have greater customization options that could lower the amount a company and its employees spend on health care.
Erik WallaceJune 23, 2022
Health Care Benefits: CFOs Have More Options Than They Think
Photo: Getty Images

CFOs are used to seeing the cost of health care benefits for their organization go up each year, typically by a double-digit percentage. If they’re lucky, the increase stays in the high single digits.

Employers typically absorb these increases and compensate by sometimes decreasing the quality of the benefit or increasing the employee contribution. After payroll, health care benefits are typically the second-highest cost for employers. 

With the total cost of care in the United States exceeding the total revenue of the federal government at over $3.8 trillion, the health care marketplace has finally begun to adjust. 

Employers now have an increasing number of methods to resist the rising costs of health care.

Ninety-nine percent of employers in the U.S. have under 500 employees. These “small” businesses are truly the lifeblood of our economy, but most are unaware they have options when it comes to employee health benefits. 

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  Erik Wallace

For example, the CFO of a 50-person company with $6 million in annual revenue may be operating under the assumption that the organization is too small to self-insure. But a CFOs does have a choice besides paying insurance premiums rising at a faster rate than any other cost on the balance sheet.  While costs for self-insured organizations are rising as well, taking that step opens the door to greater customization that can lower the amount the company and employees spend on health care. There is a pathway to increased access to better health care at a lower cost.

Self-Insurance is Increasingly Accessible 

As a result of continual premium increases, fully insured companies, which purchase their health care benefits from a health plan, often end up paying double the cost per member of self-insured companies that pay their own claims.  

Self-insurance has traditionally only made sense for companies with 500 or more employees. Many smaller companies feel they don’t have many options and have to choose a fully insured benefit solution. But the endlessly rising cost of premiums is changing that equation. Companies with as few as 50 to 75 employees, or even fewer, may now find that self-insurance is more cost-effective. It also offers more flexibility, creates options for more cost-containment solutions, and makes fees and data more transparent. Self-insured companies, for example, can reduce medical and pharmacy costs oftentimes by up to 50%, particularly when combined with some of the following ideas. 

Coalition Transition 

The pharmacy side of the benefit typically makes up about 30% of total benefit costs, but there are often major savings to be found in that 30%. Pharmacy benefit coalitions allow smaller employer groups to gain better leverage in the drug-pricing marketplace. 

Despite the obvious benefits, coalitions have sometimes gotten a bad reputation because of a lack of flexibility in the contract with the pharmacy benefit manager (PBM). However, new coalition models have emerged that provide buying power without limiting choice. Those models can include features such as automatically using the cash price for a drug if it’s lower than the price the plan would normally pay. 

Rebate Reckoning 

Most goods are simply manufactured, sold to wholesalers, and then sold to retailers or consumers. Drug pricing is infinitely more complex. Part of the equation involves rebates paid by the drug manufacturer for inclusion in the formulary, which is the list of covered drugs for a plan. 

Employers should investigate what portion, if any, of these rebates are being passed on to their organization. Getting information about these rebates is difficult, but not impossible. Some brokers and PBMs are providing more transparency and helping companies make informed decisions about their benefits. 

Stop-Loss, Carve-Outs, and Bolt-Ons 

One of the biggest hesitations employers have about becoming self-insured is the risk of severe, high-dollar claims such as cancer, organ transplants, or premature births. Stop-loss insurance can cap both the individual and aggregate claims of the plan. 

Another concern are high-cost specialty medications with a six- or even seven-figure annual price tag. This risk can be mitigated by “carving out” a program with a nationally accredited health care provider for specialty, infusion, and injectable medications.  

In addition, there are other clinical programs that can be “bolted on” to PBM contracts that provide alternative funding for specialty drugs. These programs have negotiated special pricing for these drugs and are often comprehensive. 

Erik Wallace is president of pharmacy benefits navigator CoeoRx and chief commercial officer of Goodroot, a community of companies reinventing health care one system at a time.