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Thayer Partners Blog

Why the Cost of Health Insurance Is a Strategic Priority

[fa icon="calendar"] Apr 29, 2016 9:00:00 AM / by Chris Wilmerding

Chris Wilmerding

Why_the_Cost_of_Health_Insurance_Is_a_Strategic_Priority.jpgYou know that offering a health plan has its advantages: it’s is a great way of improving morale and boosting your recruitment and retention efforts. But year after year, your cost of health insurance increases. The “trend” in the industry is about a 7% increase for health plans each year due to healthcare inflation. This can make your health plan renewal your least pleasant meeting of the year.

With the costs rising more quickly than the overall economy, it can be difficult to keep up financially. In fact, your health plan expenses are now your second largest expense category, only after salaries. For this reason, the cost of health insurance needs to become a strategic priority. Only then will you be able to contain or even reduce an expense that eventually may threaten your business.

No Solutions from Typical Health Plan Brokers

You know that your cost of healthcare is too high and that your profitability is threatened, so you go to your health plan broker for a solution. But every so-called solution seems to reduce premiums while reducing benefits as well—some solution. Most employers don’t want their employees being forced to pay more out of their own paychecks for reduced benefits every year, and they like even less the idea that the company should pick up the increase in health insurance premiums. What most employers really want is to keep your high-quality benefits, but without paying an arm and a leg for them.

Most brokers are focused in keeping you as a customer—not cutting your costs—and present options from a limited set list of plan designs offered by the 2 or 3 big health insurance companies in your market. Because they are not focused on reducing costs while keeping the same benefits, you feel trapped with your healthcare provider and your high costs. And an insurance broker that doesn’t already specialize in cost-cutting strategies that offer the same or equivalent benefit won’t suddenly get religion, nor will he suddenly develop the analytical skills to design the optimal low cost health plan design for your company.

You CAN Save Money

The misplaced belief that you can’t save money on healthcare benefits is causing you to miss out on a great opportunity to potentially save $1,000 to $2,000 per employee per year. When you make your cost of health insurance a strategic priority and spend 15 to 20 hours evaluating a few cost cutting options, you could save anywhere from $20,000 to $350,000 a year in health plan expenses. Imagine what that could do for your company’s bottom line—it can transform your business in so many ways.

If your insurance broker isn’t offering the cost cutting measures that you need, get a second opinion. Take a fresh look at things and set aside your loyalties for a short period, because those loyalties could be costing you and your employees dearly.

Here is an example of why getting a second opinion is worthwhile. One of our clients came to us looking to cut the cost of health insurance. Based on this particular client’s circumstance, we recommended a high-deductible plan, which reduced its premiums by $131,000. In order to keep the employee deductible in the same range of $500 to $1,000, the client used a health reimbursement arrangement (HRA) to self-insure claims up to the new higher deductible. After a year of this new arrangement, the result was an annual reduction of $95,000 between the reduced premiums and the savings from the HRA or about $1,800 in savings per employee, every year. The company’s cash flow and profitability increased, and there was no increase to employee premiums at plan renewal.

Actual performance and results will vary. This client story does not constitute a recommendation as to the suitability of any investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted.

Take a Stand

Your health plan expense is likely your second biggest expense and growing faster than most other categories. You don’t have to continue doing the same thing and getting the same answers from your health broker and paying for the high cost of health insurance that you can’t really afford. Make health plan costs containment and reduction a strategic priority. Interview new brokers and evaluate new plan designs—consider all of your options. You’re not trapped. There are strategies that will significantly reduce your health plan expense already in the market. You just need to take a stand against high costs and consider different solutions like a high-deductible plan paired with a health reimbursement account or a self-insured plan. Don’t give up.

Helping-a-client-cut-health-plan-premiums-by-95000-

Topics: Cost of Health Insurance

Chris Wilmerding

Written by Chris Wilmerding

Chris Wilmerding is Principal of Thayer Partners, an independent investment management firm located in Westwood, MA providing financial planning and wealth management counsel to individuals and their families.

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