Since March 2020, HR teams have focused on COVID-19 issues – principally keeping employees and customers safe and managing staffing issues. As we begin 2023, employers are beginning to think about a strategic approach to managing their benefit offerings rather than the reactive approach that has dominated the last 12 months.
In taking this step, it is important to focus on the actions that have the greatest impact on both cost to employee (and employer) and employee perception. Our data indicates that the key variables to managing costs and offering employee-centric plans are plan design, choice of funding mechanism, Rx costs, stop-loss negotiation, and on-going plan management.
In terms of vendor choice, there are several options restaurant operators should review prior to making their final choice. Keep in mind, when traditional carrier comparison RFP’s are performed, our results show a claim cost variance of 2 percent- to 4 percent – within a 4 percent margin of error. As a result, the flexibility the carrier offers is the key feature. The critical flexibility questions are:
- Can an integrated MEC be included?
- Can the Rx plan be carved-out?
- What are any additional fees for outside stop-loss contracts?
- Is a co-pay based plan available with a 60% actuarial value?
These questions can and should be asked to determine the best way forward for both employees and employers.
The second step is to develop the program structure. This involves a coordination of co-pay and integrated limited medical plans, which, if developed properly, can yield a 10 percent- to- 15 percent savings. Here is a brief breakdown of the two:
- Co-pay structures instead of High Deductible plans (HSA compatible plans) enable lower-paid employees to access medical services to help manage chronic conditions. This both increases the employees’ perception of the plans and increases the risk management qualities of the program.
- While there is risk to the employee with an integrated limited medical plan if they develop a serious medical condition, a plan that provides prescriptions and access to a doctor for routine services at a reasonable cost is very appealing to both existing participants and non-participants.
Overall, employees want to feel as if they are getting from your brand something they can’t get elsewhere, and access to healthcare, whether for short- or chronic conditions can make a big difference in retention rates, reducing turnover costs in the process.
Self-funding is the most efficient way for employers in the restaurant sector to manage costs year over year. While fully insured plans provide more protection, the cost is untenable: bad years lead to surcharges and good years mean only a trend increase.
Inherent to self-funding is more risk, and understanding the protection offered by stop loss coverage is critical. A good evaluation considers the appropriate risk transfer point, and the pros and cons of lasers and contractual provisions. The growth of catastrophic claims has the stop loss market in turmoil and avoiding unexpected liabilities requires specialized oversight that is often beyond what a typical broker provides. Still, the potential financial impact to self-funding plans is 7 percent to 10 percent savings.
There are two key facts as to why prescription negotiation is important:
- The drug spend is approaching 30% of the overall medical plan cost
- Rebates are averaging 35% of drug costs.
Drug plans are opaque; and the best way to evaluate and manage prescription costs is with a carved-out plan. Prescription discounts and rebate arrangements vary widely by contract, and employers are all paying different prices for the same drugs. Moving from an un-negotiated contract to a negotiated contract or carve-out to a consortium can reduce these costs by up to 30 percent and yield an overall plan savings of up to 9 percent.
On-going Plan Management
2020 was a year unlike any other. Financial hardship has hit employers and their employees, and many organizations are seeking new avenues to reduce benefit plan costs, and offer more support for employees. It is a complex problem, and one we know how to solve.
Effective cost management can only occur with on-going monitoring of the program, with an understanding of the nuances of each group and the evolution of a strategy to meet the needs of both the employer and employees. The support of a dedicated team with strategic consulting beyond basic brokerage and tactical financial analysis makes a difference when employer focus is on cost reduction and employee support.
How we can help
MMA’s Reid Wagner and Jay Wink have extensive experience in the employee health & benefits field, each with 25+ years of experience. You can contact them directly at reid.wagner@MarshMMA.com or jay.wink@marshMMA.com to learn more about how we can help with the strategic management of medical plan offerings and costs for variable hour employers.
*This article was previously featured in Modern Restaurant Management (MRM).