Renewal season has a way of reducing an employer’s entire healthcare strategy to one number: the increase.
Once the renewal arrives, the questions begin. Should deductibles increase? Should employees contribute more? Is it time to change carriers or consider a different funding arrangement?
Those may all be legitimate conversations, but a more important question should come first: Do we understand why we are spending what we are spending?
Before accepting another renewal, employers should understand which claims are driving costs, how pharmacy dollars are being managed, where their healthcare dollars are going, and whether their current funding strategy still makes sense.
Take the Medical Loss Ratio, or MLR.
Under the Affordable Care Act, fully insured carriers are required to spend a minimum percentage of premium dollars on healthcare claims and quality improvement.
But MLR tells only part of the story.
It does not necessarily tell an employer whether the original premium was appropriate, whether the underlying healthcare prices were reasonable, what a reported large claim ultimately cost after negotiated discounts, or whether the plan is operating efficiently.
Employers should ask: What does our MLR tell us, and what doesn’t it tell us?
Pharmacy spending deserves the same attention.
Employers should know whether employees are receiving medications at the lowest reasonable net cost and how rebates, discounts, credits, and other pharmacy dollars are accounted for.
When there is a formulary change, prior authorization, specialty medication, or clinical exception, employees should not be left to navigate the process on their own.
A PBM should be part of an employer’s pharmacy strategy. It should not be the entire strategy.
There is also a larger question about where healthcare dollars ultimately go.
Hartford HealthCare recently announced plans for a hospital expansion approaching $1 billion. Investments of that size are a reminder of how much money moves through the healthcare system while employers and employees continue to see their costs rise.
Healthcare organizations need facilities, technology, physicians, and infrastructure. Employers funding a significant portion of the system still have every reason to understand what they are paying, why they are paying it, and whether those dollars are being used efficiently.
That brings the conversation back to renewal.
If your organization is receiving an increase, understand why.
If it is not receiving an increase, understand why.
If claims performed better than expected, ask what happened to the unused premium dollars.
Before accepting the next renewal, employers should ask five questions:
1. What does our Medical Loss Ratio really represent?
2. Which claims are driving our costs?
3. Is our pharmacy spending being managed effectively?
4. Where are our healthcare dollars going?
5. Do we have the right funding strategy?
Renewal should not simply be a negotiation over next year’s rate. It should be the result of understanding what happened throughout the year and determining whether the organization’s healthcare strategy is actually working.
Employers do not need to become experts in every healthcare contract, claim, or pharmacy arrangement. They should, however, have an advisor who can explain them in plain English.
About Ken Wosczyna
Ken Wosczyna of EBA-1 is a healthcare strategist specializing in employer-sponsored health plans, utilization analytics, and sustainable cost control. Based in Stamford, Connecticut, he helps employers develop long-term healthcare strategies that improve affordability for employees while creating more predictable healthcare spending for businesses. Through data-driven analysis and multi-year planning, Ken works with organizations to reduce overspending and build sustainable health plans that better serve both employers and their workforce.
For additional perspectives on employer healthcare strategy, cost management, and industry trends, visit https://eba-1.com/ or subscribe to Ken’s LinkedIn newsletter, K.I.S.S. Healthcare 101 — Keep It Simple & Smart, Monthly Health Insurance at https://www.linkedin.com/build-relation/newsletter-follow?entityUrn=7249889392675155968
