Self-insurance, employer trusts and professional partnerships help businesses slash health care costs.
In 2017 the workers comp company SAIF changed its pharmacy benefits plan to include a new tier of “preferred generic” and “nonpreferred generic” options.
“Our largest increase in utilization and cost was the nonpreferred generics,” says Renae Combs, SAIF’s benefits and wellness manager. “We saw positive changes in utilization and containing our health care costs.”
Statistics show Oregon employers are figuring out how to play the plan cost containment game better than most states. A recent Commonwealth Fund study found that for the period 2010 to 2015, only three states reported lower premium increases than Oregon, which clocked in at 2.3% per year. Many states reported increases of 2% to 3% higher.
The same trends held true for employee contributions to plan premiums, deductibles, and total employee contributions to premiums and deductibles. All were below the national average, and several were well below.
So what’s going on here? The answer appears to be one part short-term plan redesign and another part a longer-term effort to improve the overall health of workers to reduce plan utilization.
The former has clearly had the greater short-term impact, as employers have dashed toward Health Savings Accounts (HSAs) and high-deductible plans in the last few years. But the latter is the only strategy, experts agree, that can bring predictability to designing employer-sponsored health plans — and perhaps someday eliminate that annual cost increase altogether.
Our companion story looks at wellness program trends and efforts to link those programs to health care cost containment. In this article, we look at how a few Oregon companies, small and large, are redesigning employee health care plans to manage expenses even as they face cost pressures outside their control.
Large employers typically have more options because of their buying power. An increasingly popular option is self-insurance. Eighty percent of companies with more than 500 employees self-insure, according to a 2016 survey by the Society for Human Resource Management. Nike is self-insured, and sources say Columbia Sportswear is contemplating a move to self-insurance as well.
“Self insurance gives us more insight into our claims and the utilization of employee benefits,” says Pell of Deschutes Brewery, which adopted the tactic some years ago for its 530 employees. “You have a better sense of control of your destiny.”
The brewery works with a broker to ensure the right third- party relationships, Pell says. “But we pay for everything.”
Plan costs have gone up about 12% annually over the past three years, she says, as Deschutes has expanded its vision and alternative care coverage. R&H Construction, which employs 220 in Portland, examined the self-insurance option but so far has decided to stick with brokers, says Karen Swanzy, payroll and benefits administrator. The company decided it just wasn’t quite big enough to manage the move, she says. “We’re on the brink.”
R&H does pay the full health insurance premiums for 85% of its employees, and offers two plans to choose from: a traditional PPO and the more eclectic HSA plan. In the face of runaway cost increases, the company switched to the cheaper HSA for all employees two years ago. When the move “got some real pushback” from workers accustomed to the fee-for-service PPO model, Swanzy says, R&H added the PPO option back in. (Only 15% opted for it.)
Kaiser Permanente credits its cost containment strategy to several factors.
The HMO is both a hospital and an insurer, and it focuses on preventive rather than acute medical care. Plus, as an insurer and employer, Kaiser can apply what’s working with its workforce to its insurance plans. For example, when Kaiser found the plan’s emergency room utilization rate among one of its employee groups spiking, the HMO asked Felisa Hagins, political director for SEIU Local 49, to help redesign the plan to discourage unnecessary ER visits.
“We studied the data and they were right — they were using it more than they needed to be,” Hagins says. “But it was mostly because Kaiser was restricting urgent-care hours. They opened urgent care every day and made the hours longer; we agreed to a higher [employee] co-pay for the ER, and it’s working.”
Jennifer Stacy, manager of strategic accounts, labor and trust, for the occupational health division at Kaiser Permanente, says Kaiser’s goal is to avoid acute treatment whenever possible. From a prevention and early-detection standpoint, all Kaiser’s caregivers are connected, she says.
“So we monitor care gaps.”
Among Kaiser’s specific cost-containment tactics: a disease-management system built into the plan for those with chronic illnesses; telehealth options including a 24-hour online nurse line and video clinician appointments; and a sophisticated electronic health records system that keeps patients and caregivers connected.
But although these strategies have reduced expenses, Kaiser’s Western market shares are facing growing competition. Shan Fowler, senior director, employer portfolio and product strategy, at the national benefits consulting firm Benefitfocus, says a recent in-house survey shows HMOs losing market share in the West.
“High-deductible plans keep [adding market share] in all regions,” Fowler says, primarily because the premiums are cheaper, and more of the overall cost is borne by the employee, not the employer. “Because of Kaiser’s foothold there, [the market share decline] is a big deal. It takes a very strong value proposition for employers to pull away from that model.”
Kaiser capitalizes on its vertically integrated model. Other employers leverage external collaborations to preserve health insurance for employees. Portland-based United Food & Commercial Workers Local 555 co-administers — with board members from grocers like Safeway, Fred Meyer and Albertsons — an employer-union trust fund that subsidizes employee health insurance. The plan is funded by employer contributions and covers plan deductibles, co-pays and other costs that result in medical insurance that employees can afford and thus use.
“A lot of our members are health care workers, and as a group, they tend to be high utilizers,” says Local 555 executive director Mike Marshall. “Coverage for them is a fair amount more expensive than for other groups.”
The plan pays the full premium; deductibles are $3,000 for individual, $5,000 for family coverage. But even with the trust funding much of the cost, Marshall says, he and company reps have had to raise the deductible and co-pay over the last few years to rein in cost increases. The trust covers those increases, but employers pay more for the plan and contributions from the trust have increased.
Small businesses face the greatest challenges in the employee plan arena. Self-insurance isn’t often a possibility for small (under 100 employees) companies. Many simply provide the bare minimum, but others, determined to insure their employees, have to be creative. The Medford-Jackson County Chamber of Commerce, for example, has a plan that pays 100% of members’ premiums and 50% of spouses’ — an almost unheard-of “perk” these days among small businesses.
“We have to search for a new carrier about every year. For us, it’s a matter of being committed to our employees,” says Brad Hicks, president and CEO of the chamber. “But every year it gets tougher.”
The chamber employs 12.
Davidson Benefits Planning, a consulting firm in Tigard, offers its 22 employees a choice of two small-group plans through Regence Blue Cross Blue Shield: an HSA with a $1,500 deductible, in which Davidson pays the full $400 premium; and a more traditional plan with a $500 deductible in which the company pays 80% of the $525 premium.
A wellness program allows employees in the 80%-20% premium plan to reduce premiums by 4%. This year, the total cost of the plan increased just 2% — “truly amazing,” says Brenda Bassett, vice president and treasurer. How did they do it?
“[Regence] put their money where their mouth is,” she says. “They want to keep our business, and we’re working to keep our costs down.”
A tactic known as co-employment is catching on among small businesses. Real Benefits Group in Lake Oswego offers large group coverage packages for small businesses by bundling small employers in a professional employer organization, or PEO. Under this model, an umbrella group becomes the employer for insurance purposes, and the small businesses become “employees” of that organization.
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Real Benefits provides large-group insurance coverage for 50 small Oregon employers with a collective payroll of $28 million. Under the auspices of the PEO, these employers can offer a range of insurance benefits packages to their employees, customized to their workforces.
“Pooling creates savings,” says Robert Kohnle, CEO of Real Benefits.
Kohnle says the Providence plan that Real Benefits negotiated for its first 13 employers saved them $400,000 collectively — big money for small business.
Fawn Morris, executive assistant at Park Academy, a Lake Oswego school for dyslexic students, says since the academy became part of the Real Benefits PEO in January 2016, the school, which employs 22, has saved $24,000. Some of that is due to Real Benefits’ payroll service, but most of it is on the health insurance side. Coverage is through Providence.
“Finally somebody came up with a good idea to help small business,” Morris says. “Now we have a benefits plan that gives us a recruiting advantage.”
Back at SAIF, the company’s self-funded health insurance plan has been performing under budget the last four out of five years, Combs says. Tweaking benefits like the pharmacy offering is one factor. But Combs, like many others, is convinced that one of the big cost savers is a wellness program that makes employees healthier — and less likely to use company insurance.
In a radically uncertain health care environment, strategies like self funding and pooled insurance help employers pare costs where they can — with often surprising success.
But as employers step up in house efforts to reduce costs and get the edge on recruitment, custom wellness programs are the next frontier.
A version of this article appears in the July/August issue of Oregon Business.