BY: Rodger A. Bayne
President, Benefit Indemnity Corporation
Phone: 443-275-7412
Email: rodger.bayne@benefitindemnity.co
Consumer Driven Health Plan (CDHP) concepts are built upon the premise of buying less insurance. By using higher deductibles and cost-sharing (such as co-pays and co-insurance) one reduces the insurance costs enough to have money allotted to cover these increased cost sharing items.
Given this core concept "buy less and invest the difference" isn't it also logical that one must find the lowest possible Plan costs for their CDHP? When purchasing a CDHP with increased cost sharing, one must consider all factors in one's ability to find the most competitive costs available. After all, if we move from a less expensive HMO platform to a PPO platform with higher cost sharing, only to lose ground in premium because of the internal pricing differentials, we have gained no advantage from the Consumer Driven Health Care initiative.
As a result, the proper exercise of a CDHP, requires balancing several critical factors:
- Achieve the Lowest Possible Plan Costs
- Balance the level of Cost Sharing with Adequate Cost Savings
- Pay the Right Price for Healthcare
Keep in mind that raising deductibles has a diminishing return. The higher you go, the smaller your incremental premium savings becomes.
Consider This:
According to the Kaiser Family Foundation the lowest costs for health care represent 50% of the population that spends an average of $385 per year on health care spending while 14% of the population had no ($0) healthcare expenses. KFF also found that 5% of the population represented 50% of health care costs in 2021 with average spending of $71, 067. So needless to say 50% of us are buying way too much health insurance in an effort to subsidize the most expensive utilizers of healthcare.
Meanwhile increasing the deductible on a health plan from under $1,000 to $5,000 can save a significant amount of insurance premium. But as you raise deductibles higher, the savings slow to a point where only catastrophic or limited coverage can provider additional savings.
As a result of these factors, saving money on benefit costs long term is a great challenge. Given that increased cost sharing can only go so far, it is difficult to imagine what happens when we've tapped each of these "new" strategies and are still faced with inflationary trends for health care.
Finding the Next Level of Savings:
So how do we save money beyond this point? We've used our deductibles and cost sharing strategies to the best of our ability, we've worked hard to achieve the lowest possible insurance plan costs, and now we know we're still having inflation.
Here's the next step. Buy a high deductible health plan in a self-funded structure, thereby reducing insurance costs to their lowest common denominator. You'll pay for the administrative functions, you'll have insurance protections to protect the employer from bad group experience, but you'll also have the opportunity to save on claims costs through changes in utilization patterns created by the CDHP, and you'll also save by paying for even less insurance once again.
For more ideas that dig even deeper, be sure to reach out to me.
 | Rodger A. Bayne President, Benefit Indemnity Corporation Phone: 443-275-7412 Email: rodger.bayne@benefitindemnity.co |
