Client
Non-Profit employing 400 people in multiple locations throughout Baltimore City, Baltimore County, Anne Arundel County, Harford County, Cecil County, and the Eastern Shore
Situation
The client experienced several years of double digit premium increases which rendered dependent coverage unaffordable. The concern was if the pattern continued the plan could further erode and eventually dissolve.
Objective
Understand the cause of the inflation, remedy the controllable contributing factors and build a strategy to open a path to increased dependent enrollment.
Research
Once data was collected and reviewed, several issues required immediate attention:
The client could not present an attractive underwriting package. Participation was poor which raised concerns of adverse selection, thus making underwriting very conservative. During multiple renewal years, competing insurance companies declined to quote on the program leaving the client only the incumbent carrier’s renewal offer with which to negotiate.
In years that yielded a competing quote, the client was forced to chase the lowest cost option. This created an inconsistency with health insurance vendors; therefore, gathering claims data was difficult. The available claims proved inconsistent and not credible.
The client had an established Benefit Committee of both employees and Board Members who were challenged with the task of finding ways to increase affordability of healthcare for the employees who needed to insure dependents.
The client experienced communication inefficiencies. There are twenty-seven locations, mostly retail, so “all staff” meetings were logistically impossible. Only 50% of the staff is connected to the company e-mail system. The organization employs individuals with both physical and mental disabilities, which adds additional challenges to communication.
Strategy
It is a strategic advantage to present an organization as the best possible risk. Poor participation and unbalanced enrollment mix painted the group as a very poor risk. This needed to be improved to deepen the field of potential vendors.
A consistent relationship needed to be established with a health insurance vendor to gain access to credible claims reporting. Once that relationship was in place and twenty-four months of data was collected, the data dictated future benefit decisions.
Results
Demographic information was analyzed and found to contain a large class of eligible employees with all but a few enrolled in the medical coverage. After enlisting compliance expertise, the client agreed to remove the class of employees as eligible and grand father the few enrolled. This approach immediately improved the participation percentage and thus created a more attractive risk.
The client was now able to choose a relationship not just accept the one offered. A Request for Proposal (RFP) for a health insurance vendor that would partner with the client over twenty-four months and provide detailed claims experience was distributed. The vendor was selected, the data was collected, and the client was soon armed with twenty-four months of credible claims data.
The data revealed that although self insuring the plan was not financial responsible, self insuring the prescription plan would reduce cost without increasing risk. A RFP was developed to solicit a pharmacy benefit manager to administer the program. The finalist selection was based on ingredient cost, fees, rebates and other contract requirements.
McQuade Consulting convened with the Benefit Committee to understand all challenges and lend expertise. A holistic approach was agreed upon which addressed the cost inflation and made the benefit program more affordable for employees to insure their dependents.
Successes
Self Insured Prescription Plan: A third party pharmacy benefit manager was selected to administer the prescription benefit. This change saved $65,314 in the first year which equated to 5.8% of the client’s total health care budget. Exhibit A illustrates the reduction in pharmacy cost associated with the new pharmacy contract. Since its inception in July of 2005 and for the next twelve months, the per employee per month claim cost reduced from $72 to $54.
Wellness initiative: A Wellness vendor was hired to educate and motivate employees towards a healthy lifestyle. The vendor performed health risk assessments to establish a baseline and identify large risk factors within the population. Seminars, exercise programs, and other communication events targeted the various known risks to help those affected improve their health.
Client communication was also improved. By incorporating the Wellness Program, the client can now tie communication to wellness announcements to promote other initiatives and educational tools.
Payroll Modeling: To remain consistent to the objective of creating a path towards affordable dependent coverage, the client took advantage of a 4.29% renewal increase to subsidize the dependent payroll deductions with a small surplus added to the individual deductions. The subsidy calculations are illustrated in Exhibit B.
Future Goals
The payroll adjustment alone did not make dependent coverage affordable. The Wellness initiative must be maintained, but other tools need to be added to promote Consumerism and create a cost-conscious employee base.
Exhibit C illustrates a financial forecast of a CDH plan. The funding vehicle is a Health Reimbursement Arrangement (HRA). The data shows that the client would be able to further increase the affordability of dependent coverage if a CDH plan is adopted. This decision should not to be taken lightly. A High Deductible Health Plan coupled with an HRA is a complicated design and demands considerable lead time and a thorough and complete employee education campaign.
Topics such as consumerism, communication with medical providers, prescription cost reduction techniques, the HRA funding mechanism, and cash flow must all be addressed. These topics will continue to be a shared promotion with Wellness initiatives.
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