Why Healthcare Costs Keep Rising

Administering health benefits and group medical plans for employees is one of the most complex and challenging undertakings companies must grapple with. Understanding the health insurance system is a key strategy in mitigating the risks in terms of time, cost, and money for both you as the employer and your employees.

The dynamics of the health insurance system are at the root of the high cost of care. Below, you will find an explanation of how healthcare costs became so unruly and what your company can do to control those costs.

The Evolution of Healthcare Costs

Since the Preferred Provider Organization (“PPO”) and Health Maintenance Organization (“HMO”) patient-provider models became more prominent strategies for health insurance plans managing benefits around 30 years ago, the cost of administering group medical plans jumped more than 100%. This is faster than wages and inflation – a troubling trend for employers and employees alike.

Impact of the Affordable Care Act

When the Patient Protection and Affordable Care Act (the ACA or Obamacare) was passed in 2010, part of its inspiration was controlling healthcare costs for companies and employees. New rules around the medical loss ratio, or the premium dollars that a health plan spends on medical claims versus the administrative cost, were meant to curb profiteering. The result, however, was the exact opposite.

Why Traditional Healthcare Models Are Failing

Under the ACA’s medical loss ratio policy, companies needed to pay 85 cents of every dollar made to providers. In comparison, the remaining 15 cents could be allocated to administrative costs and, ultimately, profit. The idea behind it was that if profits were capped, overall health costs would go down – but that didn’t come to fruition. This did not incentivize health insurance companies to reduce costs. The cost of care is directly tied to profit under the medical loss ratio system, so it follows that higher costs equal higher profit.

Lawmakers effectively delegated cost management to a stakeholder interested in generating profits. It simply is not working as intended.

Self-Funded Plans: A Cost-Effective Alternative

Luckily, your company can overcome the status quo, eliminate waste, and streamline administration, ultimately providing your employees with more innovative, better, and lower-cost health care.

Implementing Self-Funded Healthcare Solutions

One solution is for your company to assume a self-funded plan model. A self-funded plan is a type of health insurance typically found in big companies where the employer collects premiums from enrollees and pays employees' and dependents' medical claims. You can leverage technology, data, and close relationships with service providers to eliminate the intermediary. You can directly contract with your chosen providers, hospitals, and facilities. This strategy can help companies save up to 30% in costs while simultaneously increasing and improving health benefits for their employees. Health plans and costs are tailored to each employee based on their circumstances, which greatly benefits them.

Working with a risk mitigation service can help you as a company navigate the risks that come with administering a self-funded plan model. Such a service can help you successfully manage your employee’s benefits independently.

Want to find out if self-funded group benefits are a good fit for your business?

Click the link below to take the assessment:

https://www.riskmgmtadvisors.com/group-medical-benefits-assessment