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Inflation Could Hit Group Health Insurance Premiums

by Inoventive Solutions
June 30, 2022

The health care sector is not immune to the effects of spiking inflation, and the increasing cost of care is likely to spill over into health insurance — but it’s uncertain by how much.

Mid-year is the time that health insurers start setting their pricing for the upcoming year, and they are currently locked in what one trade publication calls “bloody” contract negotiations with doctors and medical networks to secure the highest prices they can for their services.

Hospitals and medical services facilities such as labs and imaging centers, like other employers, have to contend with the volatile job market and the spiking cost of supplies and machinery.

But the effects on health plans are still unclear as insurers can reduce the impact of higher costs by paring down networks, scaling back some benefits. This may be the case for smaller insurers that have less clout than their larger counterparts, but experts say that inflation will have a greater effect on rates than in recent years.

Add to the equation recent interest rate hikes by the Federal Reserve, which will increase health systems’ borrowing costs and even impede funding for new capital projects.

When they negotiate network rates with insurers, providers take into account all of their own costs when tabulating their offers.

Using spiking inflation as leverage

The trade publication Modern Healthcare noted in a recent report that escalating costs have already influenced contract negotiations between medical providers and insurers.

According to Modern Healthcare, providers that are currently in negotiations “can use inflation as leverage, given that physician groups’ and hospitals’ daily operations are tied to the rising cost of gas, food and other goods.”

It predicts also that providers will argue that more people will forgo or delay care as inflation eats into their expendable income, which in turn will increase the cost of care in the long run as those untreated issues develop into serious ailments.

Medical providers and insurers usually negotiate new contracts every three years, so those hospitals and doctors that renegotiated last year or in 2020 will have to absorb their higher costs. Inflation is already built into these contracts, which didn’t anticipate the higher levels we’ve witnessed in 2021 and 2022.

That leaves them in a bind since insurers won’t be willing to renegotiate contracts that include provisions offsetting higher-than-expected inflation.

It’s due to these pre-negotiated contracts that employers didn’t see a surge in their premiums coming into 2022. But that may change as new contracts come into effect.

While the industry was not terribly affected by inflation in 2021, recent data suggests it’s starting to hit health care providers.

Hospitals’ average labor expense per adjusted discharge in March 2022 rose 15% from the same month in 2021 and 32% from 2020, according to the Kaufman Hall “National Hospital Flash Report.”

Meanwhile, providers are paying more for supplies and equipment, as well. Non-labor expense per adjusted discharge rose nearly 26% compared with February 2020.

How will my premiums be affected?

The big question of how much of these increased costs hospitals and other providers will be able to pass along to health insurers and patients remains. For certain, inflationary pressures will be a topic of discussion during contract negotiations for 2023.

While rates for group health plans are still being set, many carriers have already filed 2023 rates for plans they sell on Affordable Care Act marketplaces. Average rate hike filings for 2023 have been hovering around 7.5% in mid-2022.

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How Your Staff Can Save on Childcare, Health Services

by Inoventive Solutions
June 23, 2022

One of the most underused employee benefits available is the “cafeteria” plan ― which can benefit both the employer and the employee.

These plans allow workers to withhold a portion of their pre-tax salary to cover certain medical or childcare expenses. The benefits are free from federal and state income taxes, employees’ taxable income is reduced and that means that employers don’t have to pay FICA on those dollars.

Cafeteria plans enhance your employee benefits package, while boosting your margins. They have three specific flexible benefits for your employees to choose from:

1. Pre-tax health insurance premium deductions

Premium-only plans allow your employees to elect to withhold a portion of their pre-tax salary to pay for their portion of the premium contribution to their employer-sponsored plan. The plan offers a simple way reduce the cost of their benefits.

2. Flexible spending accounts

An FSA allows you to fund certain medical expenses on a pre-taxed basis through salary reductions to pay for out-of-pocket expenses that aren’t covered by insurance (think: deductibles, copayments, prescriptions, over-the-counter drugs and orthodontia).

Each paycheck, a certain amount is withheld pre-tax and put into an account. Employees pay for medical expenses up front out of pocket and then seek reimbursement from their FSA.

The average U.S. worker spends more than $1,000 every year on these types of benefits.

And there’s one more benefit: By participating in an FSA, your employees’ taxable income is reduced, which increases the percentage of pay they take home.

3. Dependent care FSAs

The dependent care FSA is an attractive benefit for employees who have to pay for childcare or long-term care for their parents.

Many employees don’t take advantage of this benefit and may be unaware of the significant tax savings. Employees may hold back as much as $5,000 annually of their pre-tax salary for dependent care expenses.

Qualified dependent care expenses include, but are not limited to:

  • The care of a child under the age of 13,
  • Long-term care for parents,
  • Care for a disabled spouse or a dependent incapable of caring for her- or himself, and
  • Summer day camps. 

What you get out of it

Every dollar that goes through a cafeteria plan reduces your payroll by the same amount. That means you don’t have to pay FICA or workers’ comp premiums on that part of your workers’ salaries.

The savings can add up to as much as 20% of every dollar being passed through the plan.

It’s also a great recruitment tool and an essential part of a larger employee benefits package.

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Many Employees Choosing the Wrong Health Plans

by Inoventive Solutions
June 17, 2022

A new study  has found that many people in employer-sponsored health plans are enrolling in plans that are costing them more than they ought to be paying.

Many employees choose pricey plans with low deductibles, which force them to spend more up front on premiums to save just a few hundred dollars on their deductible.

As result, many employees are spending hundreds, if not thousands of dollars more on their health care/health coverage than they need to.

Study 1: The deductible angle

A study by Benjamin Handel, a U.C. Berkeley economics professor, found that the majority of employees at one company he studied were in the highest-premium, lowest-deductible plan ($250 a year) their employer offered.

This resulted in them spending about $4,500 a year on health care, compared to only $2,032 had they gone with the cheaper plan (which had a $500 annual deductible) and received exactly the same care.

Study 2: Too many choices?

Additionally, the research paper “Choose to Lose: Health Plan Choices from a Menu with Dominated Options,” published in the Quarterly Journal of Economics, found that more choices also didn’t yield more savings for individuals in employer-sponsored plans.

The study examined the health plan choices that 23,894 employees at one large U.S. employer made. They were able to choose from 48 different combinations of deductibles, pharmaceutical copayments, co-insurance and maximum out-of-pocket expenses. All of the plans offered the same network of doctors and hospitals.

As a result, workers paid an extra $528 in premiums for the year to keep their deductible at $750 instead of $1,000. In other words, they paid $528 to save $250.

For nearly every plan with a deductible of $1,000 (the highest deductible available for those seeking single coverage), the additional premiums required to reduce the deductible, with all other plan attributes fixed, exceeded the maximum possible out-of-pocket savings provided by the lower deductible.

The study also found that the lowest-paid workers were significantly more likely to choose dominated plans (the most expensive).

Both of the studies above looked at plan options with relatively low deductibles when compared with high-deductible health plans, which have become more popular with time.

In 2018, the minimum deductible for an HDHP is $1,350 for an individual and $2,700 for a family. But, under current regulations, total out-of-pocket expenses are limited to $6,650 for an individual and $13,300 for a family with a HDHP.

While these plans have gotten a bad rap lately, a study published by the National Bureau of Economic Research found they are often cheaper for employees, as well.

The authors, both from the University of Wisconsin-Madison, found in a study of 331 companies, that at firms offering both a HDHP and a low-deductible plan, selecting the HDHP typically saves more than $500 a year.

Strategies

To help offset the cost of a HDHP, you can offer your staff health savings accounts (HSAs), which offer a tax-advantaged way to save for health care costs. While there are annual contribution limits, HSAs allow your employees to roll over their balance from year to year. The funds they contribute to their HSA are pre-tax, so the savings are significant.

The Wisconsin-Madison authors surmised that many people choose the costlier health plan for two reasons:

  • Inertia – It’s easier for consumers to stick with their old plan rather than crunch the numbers to see if a new plan may be more appropriate.
  • Deductible aversion – When employees see a low-deductible plan they may associate it with better quality care, even though the network and coverage may be the same.

The best strategy to guide your staff to the plan that best suits them is to educate them. You should have workshops for your staff prior to open enrollment, to help them understand why the higher-deductible plan may often be the best choice for them if they want to save money on their overall premium and out-of-pocket expenses.

Ideally, you could encourage them to set aside the same amount of money in their HSA that would be enough to cover their deductible. This way, your employees would not feel burdened by health expenses they may have to pay for during the year.

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More Employers Add Narrow Networks to Offerings

by Inoventive Solutions
June 9, 2022

More employers are including narrow provider network insurance plans among their plan offerings to their employees to give them a lower-cost premium option.

Narrow provider networks limit the number of covered providers included in health insurance plans. While these plans have been mainstays on Affordable Care Act marketplaces, employers have been slow to adopt them.

But according to the Willis Towers Watson “Health Care Delivery Survey,” 18% of large employers offer a narrow network — also known as a high-performance network — in their employee health plans. Those numbers are expected to have grown to an estimated 25% in 2022, experts say.

Premiums for such plans cost 16% less on average than plans with broad networks, according to a study in the journal Health Affairs of plans sold on the individual health insurance market. 

If an employer wants a more economical premium cost, choosing a plan with a limited (or narrow) network may help. Those who want greater choice may pay more for access to a network with more providers. Narrow networks include all specialties, but a smaller network may offer only two podiatrists, for example, while a larger network may offer 10 or more.

What they are

An insurer that offers the narrow network plan will contract with a local, community-based medical provider, large enough to ensure they have all the specialties needed for the insurance plan.

Typically, these plans feature fewer doctor and specialist choices, but they are, by law, required to have all medical specialties represented in their network. Many people think the plans are restrictive, but that’s not the case. The main driver of these plans is their focus on coordinating care and the central role of the patient’s personal physician.

On top of that, insurers say that providers in these narrow networks have track records of delivering care more efficiently and cost-effectively by focusing on improving patient health rather than billing for more services.

Cost savings: In exchange for a narrower network, up-front premiums are often lower than other plans that have more choices of providers.

Additionally, narrow networks control longer-term costs by encouraging enrollees to go to their primary care providers first with any new health concerns or issues, instead of going straight to a specialist. Increased use of primary care physicians and less use of specialists can also help control your employees’ out-of-pocket expenses.

The drawbacks

These plans are not for everyone. For someone who may not use their health insurance much, a narrow network could be ideal. But for many people the narrow network may not include their personal doctor and hospital that they are accustomed to going to.

And in some cases a specialist could be miles away, requiring a long drive. This is something for parents of young children to consider when choosing a plan.

Also, even if you have staff that focus on staying in-network, sometimes going out of network is unavoidable. And many narrow network plans do not cover any services outside of their network, while others may cover a small portion.

Under the Affordable Care Act, health plan enrollees are protected from massive medical bills because health plans are required to limit the amount of out-of-pocket costs to $8,700 for an individual and $17,400 for a family. But that applies only to services from an in-network provider. There is no limit if your employee goes out of network.

The takeaway

Employers know they need to offer health benefits to attract and retain top employees.

Narrow network plans provide a way to contain costs without sacrificing care, but because they’re comprised of local, community-based medical providers they’re best for a workforce that works at a single location and therefore lives within proximity to the job site/office.

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Workers Cite Health Benefits as a Top Factor When Accepting a Job

by Inoventive Solutions
June 3, 2022

Despite the job market upheaval and intense competition for talent, there is a mismatch between the value that human resources executives and job prospects put on employee benefits, according to a new survey.

One in five workers surveyed said that health care and health insurance are a major factor when deciding to accept a job, compared with only 13% of human resources executives, according to the “2022 Health at Work” survey by Quest Diagnostics.

And when asked to cite the top two factors for attracting and retaining workers, 50% of employees cited comprehensive health insurance, making it the highest-rated factor. That’s compared with only 37% of HR executives.

While making more money was still the top reason for looking for new work, the results illustrate the importance of health benefits and that employers are not as tuned into their employees’ needs as they think they are.

But the one issue hanging over all employee benefits, particularly health insurance, is the costs. Employees are now expecting employers to do more to control these costs, particularly as premiums are expected to increase as more people are dealing with chronic conditions and delayed treatment due to the COVID-19 pandemic. That should be a wake-up call for employers.

Here are some of the approaches that employers are taking:

Pay a fixed amount to an employee’s total premium — In this scenario you agree to pay a set amount towards the premium regardless of which plan your worker chooses. If they choose one with more generous benefits and lower out-of-pocket costs, they’ll pay more out of pocket than if they choose a plan with a lower premium. You can choose either a flat rate or a specific percentage of total premium.

Offer narrow network health plans — Employees who sign up for these plans can only receive care and services from providers in the plan’s network. If they go out of network, it will likely not be covered and the employee has to pay for the costs out of pocket.

And because the network is narrow, meaning the insurer doesn’t contract with a number of different providers, premiums are usually lower, but still offer quality care.

Offer wellness programs — If implemented properly, these programs can help your workers improve their overall health through lifestyle change. There are a number of wellness programs with a focus on a variety of areas, such as smoking cessation, weight loss, exercise programs and activities, and health screenings.

These are all programs aimed at preventing disease and poor health, reducing the need for expensive medical care later.

Offer a telemedicine option — Virtual care services have exploded during the last two years and more plans are covering these services.

Offering telemedicine as part of your benefits package can lead to substantial cost savings as it allows your employees to access health care professionals when they need them, 24/7. This can reduce the chances of trips to urgent care facilities and emergency rooms, which are both costly.

Offer HDHPs — High-deductible health plans tend to be less expensive than other plans because they shift more of the cost to the employee, who pays out of pocket in exchange for lower premiums.

Typically, employers will arrange for workers to contribute a portion of their pay, pre-tax, into a health savings account, which they can later use to pay for health services and medicine. The idea is that your employees will use the money they save on premiums and deposit it into the HSAs, which have a number of benefits:

  • Funds going into the accounts are not taxed,
  • Withdrawals are not taxed,
  • HSAs have an investment feature that lets account holders invest their funds, much like a 401(k) plan, and
  • Employees can keep the accounts, and even move them between employers.
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