Tuesday, January 24, 2006

Good news -- You can save a bundle ...

No, it's not a GEICO car insurance commercial. That article I mentioned in the previous entry looks like it will receive the corporate legal department's blessing, but I've decided to drop one point from it.

It's a list of ways that companies can reduce their health insurance costs. As the article made the rounds for comments at the office before submission to the book's author/editor, one person indicated one part didn't quite make sense to her. I finally decided to drop that section rather than revise the article and send it around again (because there is a time factor).

So, what won't you see in the book?

Basically, it addresses something called "Deductible Creep". Many companies, as their health insurance (major medical) premiums increase from year to year, try to keep their costs down by raising deductibles and co-insurance slightly. Let's say the company plan calls for a $250 deductible. That means that employees are expected to pay $250 out of pocket for medical expenses like hospital emergency room visits before the insurance picks up the costs.

Well, in any given year, especially for companies that have one or more employees who make major claims (surgeries, cancers, and other serious illnesses requiring hospitalization), insurance premiums can be increased by anywhere from 2% to 20%. The annual average increase is usually in the range of 8-12%. Most companies celebrate when their insurance agents deliver increases of less than 5%.

Still, if you're paying $4200/year per employee for 100 employees, a 2% increase is about $8040. A 10% increase is over $40,000. A lot of companies will say, "We can just raise the deductible another $250 and save that $40,000."

True, but that makes life harder for employees. The company saves money but the employees who have to pick up that extra $250 in medical expenses see their purchasing power decrease.

Today, after several years of raising deductibles, many companies now find themselves with deductibles in the range of $1500-2000. Their major medical insurance is no longer looking so good. This kind of erosion of medical coverage at the employee's expense contributes to attrition, because there is always an up-and-coming company whose revenues can absorb the cost increases. In fact, as companies expand their work forces, they are more inclined to increase their medical insurance budget significantly from year to year.

Many people feel a $500 deductible is reasonable, and one way a company can hold the line on major medical insurance is to look at the average annual increases over the past five years and allocate that much additional revenue to the budget for the coming year. So, in a year where you get hit with a cancer claim or other major claim, you've budgeted say 7% for your annual increase and the agent says, "It's looking like a 15% increase." Instead of raising that deductible another $500 you may only have to raise it $250.

The article goes into ways that you can reduce those costs for your company and your employees, but this particular point deals more with accounting and budgeting. Insurance is all about managing risk and part of managing risk includes managing your budget. Still, for an article of bullet points, this item seemed a little more complex and confusing than it should be. And since I'm under the gun, I decided to just drop it from the list rather than seek approval for revised wording.

To be honest, I wanted to include this point in the article because I'm just amazed at how many companies say they want to help their employees but they balk at innovative ideas. Instead of picking up supplemental indemnity plans that reduce their major medical premiums and keep those deductibles and co-insurance low, they just raise the deductibles.

Actions speak louder than words. Often, the book-keeper's sense of frustration determines how a company makes its purchasing decisions. The cost of replacing employees who leave to take "better" jobs is seldom if ever factored into a decision to change insurance plans.

Oh well.


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