Sharing Intelligently
Employers can collaborate to reduce their healthcare costs in numerous ways—and discover many potential benefits. Employee health can be promoted by sharing resources and best practices in benefit design, as well as creative ideas in funding and employee education. However, some larger employers have gone beyond these measures, agreeing to also share, or “socialize”, their claims experience. Pooling of healthcare costs may be appropriate in small groups (as currently mandated by NYS insurance law), but we will review some of the caveats for the large group market.
 
In larger organizations, healthcare claims (unlike some other insurance risks) are actually highly predictable. In fact, over time, the graph line for “premiums” tends to look just like the one for “claims”. (Even more so when you remove shock claims over a certain threshold, such as $100,000, through an internal pooling mechanism built into the rates.)
 
Premiums Are Claims Deferred
So if premiums essentially reflect claims, do participants in these pooling arrangements really know how much of their budget is being shared with another company? Think of it this way: if 90% of your workforce is lower-wage, entry-level workers, do you want to enter into a salary sharing arrangement with a company whose workforce is 90% highly-paid white collar professionals? Exactly! But these consortium arrangements are doing exactly that with the next highest personnel cost—health insurance!
 
In certain markets where community rating was prevalent for larger employers, claims were unknown, so it was much easier to convince even larger groups to enter into these agreements because they couldn’t see the true costs. And since many of these arrangements’ formation also coincided with a move out of the “community pool”, it is also nearly impossible to directly attribute any savings to the act of forming a consortium versus that of changing to experience rating.     
 
Troubled Relationships
However, the real strain on the relationship begins when claims are no longer obscured—and one organization can see how much they are subsidizing another. (This is a microcosm of what happened in the community HMO pools when groups with lower claims realized that they could dramatically lower costs by being on their own.) While some of these health insurance consortiums are closely knit and there is often peer pressure to stay together, eventually one or two subsidizing CFOs realize how much they are supporting another business (often a competitor) with their healthcare dollars, and the plans begin to unravel. This issue has eventually plagued every such arrangement, from workers’ compensation to health insurance.
 
Knowing that premiums follow claims, many benefit advisors believe you should invest time and energy collaborating to make your employees healthier over the long haul, rather than spend time on these relatively short-lived arrangements. In fact, by taking this longer term approach, you stand to gain twofold—lower premium costs over time, and much more immediate gains through improvements in worker productivity and absenteeism.
 
To arrange a full review of your benefits objectives with a Benefit Advisor from Relph Benefit Advisors, please contact us.