Combating the High Cost of Healthcare

Jeff Reardon, Trust Administrator, New Hampshire Interlocal Trust

Town and city administrators are constantly fighting to control costs, and a significant budget item is the cost of employer-sponsored health plans. As the costs of medical services continue to rise at an unsustainable pace, employers must do everything they can to keep these costs under control. In this article, I will share five ways a municipal employer can help control its healthcare costs.

Before we get to strategies, let’s discuss why the cost of care is so high. The cost of health plans is primarily driven by claims experience. Generally, 88% to 93% of the cost directly correlates to the amount of medical claims the plan incurs. Risk pool members benefit from sharing the risk with fellow members, which has a smoothing effect on renewal rating; however, as year-over-year claim costs rise, so will the cost of the plans. It is important to recognize that if we want to control the cost of health plans, we must focus on containing the cost of claims however we can. Here are a few ideas…

Review and Explore Plan Designs

The structure of a health plan is a powerful tool in managing the level of claims it incurs. As decision-makers, you have the power to consider the Medical Loss Ratio (MLR) or the amount of claims a plan incurs in relation to the amount of contributions paid. The higher the MLR, the poorer the plan’s performance; poor performance translates into higher rates. Benefit-rich plans tend to have higher MLRs. You may find that municipalities often offer very rich plans as a recruitment and retention tool or to satisfy collective bargaining agreements. However, this should not deter you from exploring options with higher deductibles, coinsurance, and out-of-pocket maximums to encourage employees to be more mindful of the actual cost of care and become better healthcare consumers. Your decisions can make a significant difference. There are ways to offer these types of plans that are attractive to employees.

Offer a Consumer-Driven Health Plan (CDHP)

CDHPs are high-deductible health plans paired with a Health Savings Account (HSA). According to 2024 ACA rules, the minimum deductible to qualify as a consumer driven health plan is $1,600 for a single plan and $3,200 for a 2-person or family plan. The HSA that can accompany the CDHP is intended to allow the employee to accumulate funds that can be used to cover out-of-pocket costs such as deductibles, office copays, and coinsurance. The employee and/or their employer can contribute to this account. HSAs have a unique triple tax benefit; contributions go into the account on a pre-tax basis (lowering the employee’s income tax burden), investment growth in the account is tax-free, and withdrawals are tax-free as long as funds are used for qualified medical care. Unlike their cousin, the health reimbursement account (HRA), HSAs are owned by the employee, so they keep the account even upon a separation of employment. The ownership element is crucial because

those dollars now belong to the employee. As such, we anticipate a shift in how the person views spending out of the account. If it’s my money, I will be more aware of my medical costs. The idea of implementing a $1,600 deductible plan may make you a bit queasy, but remember that the employer can contribute to the HSA. If the employer contributes $600 to the employee’s HSA, the $1,600 deductible plan becomes a $1,000 deductible plan. Set up a contribution matching arrangement, and you have just given your employees another incentive to contribute their own money to the account. CDHPs are attractive to most people, especially if they are designed thoughtfully, with the employee’s best interests in mind.

Consider Adjusting Your Cost-Sharing Agreement

It is common for towns and cities to pay for all or most of their employer-sponsored health plan costs. However, it might make sense to consider adjusting the cost-sharing structure to encourage participation in lower premium plans. Here is an example of how this could look. Let’s say the employer offers a low deductible health plan and pays 85% of the premium regardless of enrollment type. The group wants to implement a consumer-driven health plan (CDHP) but is concerned that there will be little to no participation in it. The employer can sweeten the pot on the CDHP by adjusting the cost-sharing structure of the plan options. For example, the employer could reduce the amount they contribute towards the cost of the benefit-rich, low-deductible plan to, say, 80% and contribute 100% of the cost of the CDHP. Employees who enroll in the CDHP J U LY / A U G U S T 2 0 2 4 9 would experience significant savings in their contribution costs, which they can then contribute to their HSA to cover the potential increase in out-of-pocket costs.

Offer Incentives for Using Lower Cost Options

Navigating the world of healthcare is extremely challenging. Americans tend to be good consumers. Think about how we shop for everything from groceries to appliances to vehicles. We usually look for value in the goods and services we purchase. Now, think of how we consume healthcare. We rarely have an awareness of the actual cost of the care we receive, never mind differences in costs from one provider to another. Even with the implementation of the No Surprises Act and price transparency rules, it remains difficult for the average person to “shop” for value in the healthcare space. To help ease this challenge, most health insurance providers offer tools employees can use to find high-quality, low-cost options and financial incentives for choosing the lower-cost options. An example of this would be our Compare Care program, which easily connects covered employees to qualified medical professionals who do the “shopping” for them and presents lower-cost options, if any, are available. They even take care of scheduling the appointments for them. The subscriber also shares in the savings, which they can use to offset out-of-pocket costs. It is important to note that low cost does not mean low quality, and consumerism tools, like Compare Care, take this seriously. In other words, they will not send your employee to just any cut-rate healthcare provider; quality of care is also a critical factor.

Demand Employee Participation

As healthcare costs continue to rise, rich employer-sponsored health plans are unsustainable. This should be especially concerning for municipal employees because not only are administrators keenly aware of the cost of the plans, but taxpayers are also. With so many eyes on municipal budgets, it is only a matter of time before the public demands change. Therefore, becoming better healthcare consumers should be as important to employees as it is to employers. Helping employees understand their health plans and their associated costs requires attention and intention on education. We understand that people are not usually interested in learning about their health plans until they must use them; however, a commitment to educating employees on this front is especially important today. Strategies for getting employee participation come in many shapes and sizes but here are a few general ideas to get the creative juices flowing.

  1. Make Participation Mandatory: Set a policy that every employee must attend an open enrollment session to participate in the plan.
  2. Offer Incentives: Make a nominal contribution to an employee’s FSA, HRA, or HSA for attending an open enrollment or educational session.
  3. Offer Many and Varied Educational Opportunities: Hold relatively short, regularly scheduled educational sessions that cover various healthcare topics. Session content can range from healthcare consumerism to a specialty care program for diabetes. You can also incorporate fun events like fitness challenges and cooking demonstrations with the educational piece.
  4. Focus On Employees’ Pockets: Explain how increasing costs affect them; when the employer’s costs rise, theirs does too. For example, if an employee contributes $150 on a bi-weekly pay cycle, a 12% renewal increase equals an additional $468 out of their paychecks during the next plan year.

These concepts are not out of this world; they are very much within reach. I would encourage the reader to think about them and to take action to begin your cost-containment journey. A good first step might be reaching out to your current health plan provider and scheduling a time to discuss cost-saving strategies and programs available today. I wish you luck on your journey.

Be well,

Jeff Reardon

Trust Administrator

New Hampshire Interlocal Trust