Is Cheaper Better? Tips for Designing Your Health Insurance Plan

As employers, it’s easy to get lost in the numbers.

 

These days, our heads are spinning as we search for cost savings.

On the surface — If it looks like a good deal, we take it.

But when it comes to health insurance for your employees, it’s well worth the effort to dig a little deeper.

Sometimes the “cheaper” option will cost more in the end.

It’s important to strike the right balance between affordability and accessibility.

This involves not just looking at the plan design, but also how the costs are distributed between the business and the employees.

A holistic approach looks at:

1. The cost of the premium
2. The cost to the business
3. The cost share with the employees
4. The cost to use the benefits

Let’s explore a real-world example to understand how these factors can impact both the employees’ choices and the company’s bottom line.

The Pricing Dilemma: What Went Wrong?

In this scenario, one of our clients presented their employees with three different health insurance plans.

Here’s a breakdown:

Deductible	Co-Insurance	Max Out of Pocket	Primary / Specialist Copay	Employee Monthly Premium	Cost Difference
$2,000	0%	$3,000	$35 / $60	$784	$67
$3,500	20%	$7,000	$50 / $75	$717
$4,000	0%	$4,000	Deductible	$733	$16

 

It’s no surprise that every employee chose the plan with a $2,000 deductible and a $3,000 maximum out-of-pocket expense. Who wouldn’t?

The cost difference between this plan and the others was minimal—only $67 per month.

For employees, this plan was a no-brainer: after meeting the $2,000 deductible, they would only need to pay small copays for doctor visits, prescriptions, and emergency room visits.

Once they hit the annual maximum out-of-pocket of $3,000, it’s FREE and their healthcare costs are covered at 100% for the rest of the calendar year.

While this plan design appears better on the surface, it fails to encourage employees to be conscientious healthcare consumers.

Here’s why:

• We want to provide employees with affordable healthcare both in their cost per pay period and the cost of care when they use their insurance.
• We also want employees to be good consumers. The low out-of-pocket costs make it easy for employees to seek care without considering the financial implications, leading to higher overall claims.

The above plan was not designed to accomplish either of these priorities.

Incentivize Smart Choices

How do we create an alternative plan?

Our main objective is to have healthy employees.

The goal should be to create a health insurance plan that’s affordable for employees while also encouraging them to make cost-effective healthcare decisions.

We need to ensure they have the healthcare they need while also controlling the claims fund.

Here’s what we suggest.

• Prescription Drug Copays:
  

In the above plan, the prescription drug copays are $15 for generic, $35 for tier 2 medications, $55 for tier 3, and 20% co-insurance to a maximum of $250 for specialty drugs.

What should it be instead?

Consider lowering the copay for generic drugs to $3, while keeping higher tiers at $35 or more. This encourages employees to discuss drug costs with their doctors and opt for more affordable options when available.

• Primary Care vs. Specialist Visits:

We want to encourage employees to go to the doctor and seek care in the early stages of an illness. We know that 85% of medical conditions can be treated in the primary care doctor’s office.

Set a low copay for primary care visits, around $10 to $15, while increasing the specialist visit copay to $75.

This steers employees toward their primary care physicians, reducing the need for costly specialist visits.

• Promoting Telemedicine:
  

Ensure that all employees have access to a telemedicine network, regardless of their plan type. Educate employees to use telemedicine as the first point of contact for illnesses, which can be effectively managed without an in-person visit. A telemedicine service should also be able to call prescriptions into the employee’s pharmacy.

• Emergency Room Utilization:

Emergency rooms are the most expensive places to receive care. However, in the above plan, at a $250 copay, employees were incented to use the ER.

Heck, for $250 they get all the lab work, e-rays, and high-cost imaging (CT, MRIs included). If the employee went for treatment at the doctor’s office, they could be sent to the hospital for an MRI at the cost of over $1,500, which comes directly from their deductible.

While employees need to seek ER care in critical situations, a $250 copay encourages unnecessary visits.

A higher copay for ER visits, coupled with lower costs for urgent care or primary care visits, can help direct employees to more appropriate and cost-effective care options.

 

The Results: A Sustainable Plan for the Future

By restructuring the plan in this way, it reduced the renewal for our client by 3%.

More importantly, it sets up the plan for a much more realistic renewal next year.

Our goal is to keep renewal increases below 10% annually, ensuring that the plan remains both affordable for employees and financially sustainable for the business.

As a business owner or employer, your objective should be to offer a health insurance plan that supports your employees’ well-being while also managing costs effectively.

Don’t take the numbers at face value. Dig deeper to explore alternatives.

Remember, a holistic approach to designing health plans involves four main things:

The cost of the premium
The cost to the business
The cost share with the employees
The cost to obtain care

When you aim for this balance, then you will have a sustainable plan that offers the care your employees need.

 

Braden Benefit Strategies, Inc. is a group health insurance agency based in the Atlanta Metro area, specializing in small businesses with 20 to 300 employees. Our mission is to provide expert advice to help you manage one of the largest expenses on your P&L while ensuring your employees have access to quality, affordable healthcare. We would be honored to become your trusted agent. Call us today to find out how we can help you at 770-447-9843.