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Health Care - Completing the Strategic Plan - Mar 1, 2010

Posted by: David Alan Buslee in Articles

When an organization conducts its strategic planning cycle, close attention is paid to the sales plan, budgets and the elements of the cost of goods sold. Organizations look at the controllable costs – Material, Supplies, Labor, etc. But when it comes to benefit costs, the concept of “Planning” seems to be counter intuitive. Most organizations consider them almost uncontrollable and either “grit the teeth and bear it” response to premium increases imposed by the insurance companies or carving out benefit levels or value and cost shifting to the employees to save the increase, getting the same or less for more. But are these really sensible reactions for an expense that is typically the third largest expense after materials and labor? A Strategic Benefit Plan will significantly capitate or reduce total premiums paid without affecting coverages and needs to be a part of every company’s strategic and operational planning cycle.

The first step to establishing a Strategic Benefit Plan is to realize that a company can significantly affect premium costs. Just this change in mindset alone is a significant difference in approach. Just as we plan our revenue targets for the next three to five years, sit down and plan what costs the company can absorb and still meet its performance targets. Document the average per employee cost targets for each of the planning years. Remember the SMART goal acronym and apply it to these targets.

Just as you would do a SWOT analysis on sales growth targets, you now need to do a similar analysis on the risk pools that cause premium growth. What are the factors that had led to your historic premium growth? Over the next 3-5 years, what other factors may affect the employee pool? What about the dependant pool? Age, demographics and other risk factors need to be considered. If you plan growth in your employee pool, how will your company control (within the law) the potential risk factors that you may hire into your current pool? Document your approach and findings to support that change in strategy. This is especially important for groups smaller than 100, where utilization reports can be hard to extract from the insurer.

Controlling the costs of your existing pool of employees requires a pool of funds without increasing the overall costs of your current health care plan. The best way to develop that pool of funds is to move to a high deductible plan from your current plan with a Health Reimbursement Account (HRA) component. For a 100 employee plan with a $500 can cost an average of $10K per employee per year or $1,000,000 in premium per year. Moving the deductible to $2,000 can reduce the overall premium 20%, or $200K. So that there is no affect on the employee, your HRA will reimburse employees for the $1,500 difference between the old deductible and the new deductible, or a maximum risk of $150K. The minimum net savings is $50K. But since most employees rarely hit their deductible, most of the $150K is saved per year – about $125K.

This is where the work stops for most companies. They take the total savings of $175K to the bottom line and congratulate themselves. But the savings are a one-off. The next year, premiums will increase 20% and the steady drum beat of growth continues. A strategy puts into place a plan that affects the long term growth rate of the target. Your strategy needs to affect the Weaknesses and Threats of your risk pool. Like any other risk, your need to assess your exposure to those weaknesses and threats. The best way of doing so is to have your employees take a “Health Assessment” – an annual battery of tests which can tell you how your overall population fares for cholesterol, blood pressure, etc. Your insurance agent should be working with you to assemble those tests based on your SWOT analysis. These targeted assessments, along with your utilization reports can reveal the overall population risks your company experiences. Once the exposure risks of the overall population are understood, you and your agent then tailor your wellness programs to address those specific risks. For example, if your employee population is overweight but non-smoking, your wellness program will stress weight loss, not smoking cessation.

Progressivity is important in any strategic plan – all goals shouldn’t be achievable in the first year - so the access to the HRA reimbursement is adjusted from year to year. Key to the strategic plan is making the source of the risk factor progressively accountable for the long term cost controls. For example to be able to access all $1,500 the second year, the employee must be enrolled in a wellness program that addresses the risk factors of the employee population. In the third year your company could add a requirement that the dependants have a Health Assessment. As your company expands the pool of participants in the Assessment program and adjusts the parameters of the wellness program, the annual premium costs will level off as the number and size of the claims are reduced. You and your agent should be actively managing the wellness program and progressivity each year to address changes to the assessed risks of the employee pool to protect the value that the company is able to offer.

Does this work? In case after case, annual premium increases level off after the third year of implementing a Strategic Health Care plan. This occurs in both union and non-union environments, office and blue collar. It is estimated that for every dollar spent in targeted, actively managed wellness programs, three dollars is saved in claims and premium costs.

Bending the cost curve requires an active health care strategic plan. Understanding that you can plan your healthcare costs by knowing and targeting your risk exposure is the first step. Create a pool of savings that can be used to incent your employees to participate in the strategy – they need to have some skin in the game. Create annual targets based on participation in the wellness program, increasing their rewards based on their – and their dependants – participation. Actively manage the wellness program to respond to the risks of the population – the risks will change over time by age of the employee base and through addition of new employees, birth of dependants, etc. Implement your strategic health plan and eliminate increases in your premium expenses.