Opportunity: A small city paid nearly $600,000 on health care benefits for its 100 employees through its fully-insured health care plan each year. Although we frequently discussed switching plans, leadership hesitated at the idea.
Solution: After Initial Cost Modeling revealed their fully-insured plan locked them into expensive pricing every year, they agreed to transition into a partially self-funded plan that delivered the flexibility of Value-Based Insurance Design, a data-driven approach to health care that helps employees access high-quality care at lower prices.
Payoff: The city has saved more than $400,000 over the last two years while eliminating co-pays for prescription maintenance medications and slashing max out-of-pocket expenses by 45%.
2015-2018: Combating A Fully-Insured Plan
When we first started advising the municipality in 2015, they were on a fully-insured plan with one of the state’s local Network carriers. Although the price of their plan came with a Medical Cost Per Employee Per Year (PEPY) well below the national average of $13,243, the insurance carrier’s inability to manage claims ultimately led to their dissolution. With their departure, we saw many opportunities to reduce their expenses. As long as they were locked inside the fully-insured plan, however, the organization’s options were limited and data was difficult to obtain. Worse, they were scared of committing to change. Unable to make significant cost-saving alterations, they resigned themselves to three years of minimal improvements.
2015-2016
Plan Type: Fully-Insured
Total Cost: $586,133
Cost Per Employee Per Year (PEPY): $5,920
Deductible: $2,000
2016-2017
Plan Type: Fully-Insured
Total Cost: $586,133
Cost Per Employee Per Year (PEPY): $5,920
Deductible: $2,000
2017-2018
Plan Type: Fully Insured
Total Cost: $579,772
Cost Per Employee Per Year (PEPY): $5,797
Deductible: $2,000
In 2018, after the incumbent carrier’s dissolution, our Initial Cost Modeling revealed their fully-insured plan was ready to jump to $750,000 per year without offering additional benefits. As their advisor, I recommended adopting a solution to include partial self-funding, with high performance components. Partial Self-funding gives them access to the tools to reduce the frequency and severity of claims, delivers data and provides medical management to steer access to high-quality care. More importantly, the well constructed Partially Self-Funded plan actually limits liability just like a fully-insured plan.
2018-2020: Unlocking Savings in Partial Self-Funding
Switching to a partially self-funded plan made an immediate impact on the company’s bottom line. Annual health benefits costs dropped from $579,772 to $387,677. At the same time, the municipality unlocked numerous benefits for its employees, including:
- Transparent Pharmacy Partners – With new pharmaceutical partners, the municipality eliminated waste providing access to inexpensive medications and reduced expenses for employees.
- Eliminating Networks – Reference-Based Pricing permits evaluation of claims and pricing while showing facility performance and doctor ratings. This data empowers employees to seek high-quality treatment. The reduced recovery times and improved medical outcomes result in lower overall health care expenses.
- Independent Medical Management – With a concierge-style medical advocate working on their behalf, employees get an experienced medical professional to assist and educate them in making health care decisions around doctor visits, medications, and surgeries.
Here’s how the municipality’s health care benefits expenses evolved over the last two years:
2018-2019
Plan Type: Partial Self-Funding
Total Cost: $387,677
Cost Per Employee Per Year (PEPY): $3,786
Deductible: $2,000
2019-2020
Plan Type: Partial Self-Funding
Total Cost: $376,476
Cost Per Employee Per Year (PEPY): $3,551
Deductible: $2,000
Although the municipality managed to save more than $10,000 this year compared to the 2018-2019 period, that wasn’t the biggest advantage for the municipality and its employees. The new plan also delivered the following benefits:
- The municipality received a refund check of $187,000. While it had funded the plan for approximately $575,000 in 2018, it only spent $387,000.
- Max out-of-pocket expenses dropped from $6,600 to $3,000.
- Prescription co-pays for maintenance medications dropped to $0.
- As of July 2020, the municipality has already received $8,236 in pharmaceutical rebates.
Value-Based Insurance Design (VBID) is a Custom Solution for the municipality’s health care plan. Initial Cost Modeling reveals whether this solution is more affordable, leaves more money on the table for other city-wide investments, and may offer greater care to its employees.
Once it is determined to be a good fit, Benefits become attractive again — a major perk for a small city where salary increases are limited and employees rely on robust benefits packages to provide for their families.
Find Your Savings
Businesses can enjoy high-quality health care benefits without sky-high costs. By exploring new benefits options outside of traditional fully-funded plans, companies and municipalities can unlock better health options for their employees with less risk at lower prices.