Health Cost Containment Options for Small Employers

Large employers often have the cash and bargaining power to reduce health care insurance premiums. You only have to look at the joint affordable care partnership between Amazon, Berkshire Hathaway and JP Morgan or look at the individual efforts of Walmart, PepsiCo or General Motors, and you’ll see that large employers are pushing for innovative, cost-effective changes.

Some of these innovations already have been implemented, are trickling down and are being adopted by smaller employers who self-fund their benefits — resulting in a winning situation for both employer and employees. Employers with a few hundred employees or more can avoid the expenses associated with a fully insured plan by paying employees’ medical claims with the company’s own money.

However, self-funding can present cash flow concerns. Small employers: Small and mid-size employers can self-fund their health benefits if they purchase stop-loss insurance to cap loss. Any unused money in the claims fund is returned to the employer. Most small employers work with third-party administrators to handle the details and do the negotiation with providers for better deals.

Tired of high prices, some employers are insisting they will only pay the Medicare rate for health services. CNNMoney estimates that the government program typically pays only 80 percent of what private insurers pay. Not all providers are pleased with the move, though. North Carolina State Treasurer Dale Folwell is trying to get hospitals and doctors to accept Medicare rates for the 550,000 employees and dependents who are part of the state’s employee health plan — but is getting strong pushback from the providers.

Small employers can self fund their health care benefits using stop-loss insurance which protects employers against unexpected claims. When they self-fund, they have the option to set a fixed price on the amount the plan will pay for certain health care services; this is called reference-based pricing. While some employers set their own prices, many are beginning to use Medicare prices or Medicare “plus” prices to determine what they will pay. Depending on the plan, employees may or may not have to pay the difference between what the provider wants and what the employer will pay.

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