Many organizations have a goal of making their group health plan expenditures cost-neutral for the coming fiscal year. Although that may sound sensible, viewing healthcare spending on an annual basis is actually a bit myopic, disregarding the volatility of healthcare expenses from year to year while overlooking needs and challenges that may lie ahead.
COVID-19 has created an environment of uncertainty for companies when it comes to forecasting and budgeting. From a budgeting perspective in particular, remaining cost-neutral may be required for your company’s total employee benefits spend. And just as your overall business plan is long-term, your strategic plan for group healthcare should go well beyond the coming year.
Constructing your healthcare budget should be a methodical process of analysis and financial planning that:
- Aims to achieve cost neutrality over a period of three to five years;
- Takes into account the organization’s Total Rewards program, rather than your group health plan alone;
- Reduces impact of changes to the plan on current employees.
Having a longer-term plan enables an organization to anticipate extraordinary occurrences and, when they happen, place them in a broader context, lessening the impact of a single, costly event on the healthcare budget. Determining the features and offerings of a group health plan based on the goals of a Total Rewards program enables the organization to make its overall budget cost-effective while offering compensation that attracts and retains a talented workforce.
To help you protect your organization’s long-term future, join Alera Group on Thursday, October 21, for a one-hour webinar, “Forecasting to Avoid Surprises in Your Healthcare Budget.” Members of our consulting and finance teams will provide guidance on:
- Assessing your group health plan
- Implementing a long-term strategy
- Containing costs
- Aligning your Total Rewards offerings with a long-term strategy for sustained growth that includes attracting and retaining talent.
In addition to gaining invaluable insights, participants who remain online for the duration of the 1-2 p.m. CDT presentation will be eligible for continuing education credits from the Society for Human Resource Management (SHRM).
Benefits of Financial Analysis and Long-Term Planning
While the hallmark of a smooth-running business is the simplicity of its day-to-day operations, achieving such simplicity requires complex thinking and hard work. You spend the time designing and constructing your group health plan so when the time comes for your employees to use it, they have the benefits they need and the resources to implement them.
Elements of a carefully designed healthcare program typically include:
- Benefit-level options — Also known as “metal categories,” these range from bronze (lowest monthly premiums, highest point-of-care costs), (highest monthly premiums, low deductibles and point-of care costs), with silver and gold in between.
- Plan type — The most common of these are health maintenance organizations (HMOs), preferred provider organizations (PPOs), exclusive provider organizations (EPOs), point-of-service (POS) plans and high-deductible health plans (HDHPs).
- A savings account component — The health plan you design may offer a flexible savings account (FSA), which the employee can control; a health savings account (HSA), which allows contributions to roll over; or you may offer employs the option of choosing. Employers who offer an HSA may also offer a limited-purchase FSA (LPFSA), which is applicable only to dental and vision expenses.
- Use of a prescription benefits manager (PBM) — As BenefitsPro recently noted, “With robust access to pharmacy data … PBMs can identify opportunities to recover claims, provide education or apply controls to prevent financial loss, improve safety and support claims integrity."
- Stop-loss insurance — This provides organizations that opt for greater control of healthcare spending by self-insuring their medical benefits programs with protection against catastrophic or unpredictable losses.
With prescription drug prices soaring and the COVID-19-driven Great Resignation largely excluding older workers who fear losing valuable benefits, many employers are finding their drug expenditures increasing exponentially. In a recent article underscoring the importance of financial analysis and long-term planning, Harvard Business Review cites workers ages 60 to 70 as the only age demographic experiencing a decrease in pandemic-era job resignations, compared to those ages 25 to 30 and 30 to 45. The piece goes on to outline “three steps that can help any employer more effectively leverage data to improve employee retention”:
- Quantify the problem.
- Identify the root causes.
- Develop tailored retention programs.
All great suggestions. As for the problem of prescription drug spending, forecasting may also lead you to explore other PBMs – a step that not only could lower costs but also provide your employees with better medications.
Success Through Collaboration
Designing a robust yet cost-efficient Total Rewards program — including a valuable group health plan — requires the collaboration of experts from various departments and organizations, including an employee benefits broker who can provide state-of-the-industry products and services. Alera Group is built on a culture of collaboration, with experts in benefits, property and casualty insurance, wealth services and retirement plan services working together and with our clients to provide holistic, forward-thinking solutions.
You’ll experience some of that collaboration during our October 21 webinar, as members of our team combine their knowledge of data analytics, financial planning and health insurance to help you forecast your long-term healthcare expenses and construct a budget that protects your organization while meeting your employees’ needs.
About the Author
Senior Financial Analyst
Lighthouse, an Alera Group Company
Jessica Proctor has almost 15 years’ experience in healthcare-related financial analysis and planning, including her current role as Senior Financial Analyst with Lighthouse, an Alera Group Company. She combines a passion for employee wellness with a clear-eyed approach to analyzing, planning and budgeting employee benefit plans of value to both employee and employer.