Strategies for Small Employers to Hold Down Health Benefit Costs

A survey from Mercer found midsize and large employers are having some success in finding health benefit cost-management strategies that do not shift cost to employees.

However, it noted that the average deductible rose by more than $250 among small employers (10 to 499 employees), which typically have less ability to absorb high cost increases and fewer resources to devote to plan management.

Michael Thompson, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, based in Washington, D.C., says, “We’re seeing for small employers is average deductibles over $1,000 and out-of-pocket cost that can range up to $10,000 for families. If we keep doing what we’ve been doing, employers can’t keep absorbing costs, and at some point, employees can’t.”

According to Mercer Partner and Senior Consultant Susan Klinefelter, based in Tampa, Florida, larger plan sponsors are focusing on high cost claims, but small employers have a hard time insuring them, and they generally won’t switch to self-funding health benefits. However, small employers are asking for more claims detail from insurance companies to understand what ails employees and what the employers and their partners can do to address this. “The number-one thing small employers are doing is getting more information to be a greater part of the action,” she says.

Mercer found that, among employers with 10 to 499 employees, 80% use fully insured plans. But, among employers with 200 to 499 employees, only 51% are fully insured. Those who self-fund want access to all same reports and options larger employers have.

“Even with limited resources, what is emerging is that small employers are diving into employee demographics, focusing on turnover and tenure. They are finding ways to keep older employers healthier. And, if they find turnover among younger employers, they may not offer cash as a wellness program incentive, Klinefelter explains. She adds that almost all small employers are asking for insurance credits for wellness programs, and this offers them more money to put into what employees need—massage chairs, a quiet room to relieve stress, among other things.”

Carriers are offering wellness solutions that can improve employee wellness in general, according to Klinefelter. Small companies ask insurance companies for point solutions to address diabetes, musculoskeletal ailments and cancer. For example, Omada, based on national suggestions for reducing the chance of becoming diabetic, helps employees and also helps with presenteeism and absenteeism. Livongo, if an employee is already diabetic, will make sure the employee is taking medication timely and managing his diabetes. “Small employers are looking to stave off large claims and asking carriers to include such things. The carriers are responding to keep business and reduce their own risk as insurers,” Klinefelter says.

Beyond wellness efforts

Klinefelter notes that midsize and large employers are sending employees to specialty pharmacies—something smaller employers may not have the option of carving out. However, they are educating employees about resources such as GoodRx to help employees get medications at a reduced cost.

Small employers are also asking insurers to be a part of a level-funding contract, a contract by which they will pay a set amount of premium and if the plan does better it can get a dividend back. Klinefelter explains that with a level-funding contract, the insurance provider estimates an employer’s expected cost per employee per month and charges the employer 90% or 100% of that. It then assesses how claims actually tracked, and if they come in less, the employer gets a dividend reimbursement in the upcoming year. She says insurance carriers are using it partially in a way to give employees connectivity to data and to keep employer groups renewing with them.

Mercer has seen spousal surcharges or no coverage for spouses double among small employers. And, telemedicine is offered in every market—often with no cost sharing in the small employer market.

According to Thompson, small employers are using centers of excellence in communities where employees live and work. And, he says, a lot more focus is needed on primary care. It can save on overall costs because it leads to less hospital admissions, emergency room visits and specialty care. Preventive care is covered at no cost to employees. “We need to figure out approaches to provide affordable access to everyday care,” Thomspon says.

The National Alliance has also seen some coalitions that have captive insurers with which small employers can pool together and self-insure. “There is an opportunity for small employers to play together and act like large employers to mitigate costs,” according to Thomspon.

He says there are bills in Congress that are very much focused on improving health care costs, especially drug costs. The big topic that hasn’t gotten to the bill stage but is in public discussion is a public option for health care. “We think it’s quite unlikely that the country is ready for or willing to accept Medicare for All, but a public option would potentially create competition in the health system where there is none,” Thomspon says. “Also, there has been no constraint on hospital costs, so if there is any way to constrain or limit these costs, it could play out better for employers of all sizes over time.”

Thompson speaks about how the burden of health costs is affecting employees’ future financial security. In the National Alliance’s most recent conference, one employer said it is seeing increases in 401(k) plan loans due to health care expenses.

He adds that the industry is looking at health savings accounts (HSAs) as retirement supplements, but they haven’t proven to be so because employees spend for current expenses. “Deductibles and out-of-pocket costs have increased so much it is encroaching on retirement savings,” Thompson says.