Of audits, wellness programs, and spouses.

By Kent Grathwohl

Over the past few years, employers have gone to the well again and again, desperately looking for ways to reduce healthcare benefits—primarily by shifting costs to the workforce. And why not? Costs keep spiraling out of control, and managing those costs is a difficult task.

In fact, PricewaterhouseCoopers (PWC) this past June reported that U.S. employers should expect medical costs to increase by 9 percent in 2011. As it turns out, that represents half a percentage point decrease from the current year, but even 9 percent is a serious cost issue for employers scratching to turn a profit.

The PWC study also reported that a majority of the American workforce (a little more than 50 percent) is expected to have a health insurance deductible of $400 or more. This is up from 43 percent in 2010; just two years ago, only 25 percent of companies asked employees to pay deductibles of $400 or more.

Yes, cost shifting does work. But a few, simple, often overlooked (yet very effective) ways to trim costs exist—and they won’t take more out of employee pockets.

The Way It Audit Be
The first strategy seems obvious, but based on experience, you might say it’s been “hiding in plain sight.”

One relatively simple way to trim costs for 2011 and beyond is to dive into eligibility records. Time and time again, we have found examples of employees and/or their dependents who are receiving costly benefits that they are clearly not entitled to.

Unfortunately, maintaining correct eligibility for employers who do not have specific benefit systems in place is the most frequent source of error when it comes to eligibility. These errors can result in a significant cost to the employer.

For example, an employee could be terminated early in the month, effectively losing his healthcare coverage. Oftentimes, employers are covering the terminated employee (and possibly dependents) until the end of the month—when no coverage is required. Larger organizations that don’t experience a huge turnover are more likely to wait until it’s too late to reduce costs by stopping coverage appropriately. The savings needs to be weighed against the administrative challenges of daily terminations and COBRA.

Besides keeping an eye on departing employees, administrators would also be smart to take a hard look at who is actually on the healthcare plan, including employees still with the company. With a divorce rate of 50 percent in America today, employers should realize that employees who have gone through a divorce often have little incentive to pass along their new marital status, with the goal of keeping their ex-spouse on the plan. When we audit client accounts, we often find ineligible spouses still receiving benefits.

As an example, one of our clients had 3,000 employees when we acquired the account. A thorough audit was completed, resulting in the termination of more than 38 ineligible individuals from the plan. At today’s per-member costs, the results were remarkable.

By doing a spousal audit every couple of years, the savings can be remarkable. And there is nothing unethical about it. Ten to 15 years ago, employers didn’t ask for proof of dependents or spouses, but the times have changed, and this strategy can save employers money.

Interestingly, when we ask clients or prospective clients if they match eligibility records against insurance company data, we have consistently found this auditing is not being done. As widely reported in the media, a woman in the Detroit area who had worked for one day at a company received healthcare benefits for a decade!

Auditing eligibility data is not a complicated process, but it does require an expert who knows how to match data with the electronic system capabilities in place on both sides. Employers might be surprised by the results, and the cost savings that can be achieved.

Doing Good by Doing Wellness
For years, the idea of wellness in the workplace drew mostly yawns from employers. The concept sounded great on paper, but the return on investment (ROI) was elusive, so it never gained much traction. Today, things have changed dramatically. Wellness as a healthcare cost-saving strategy is finally getting its due—and for good reason. Wellness initiatives can be created to deliver immediate ROI, something the finance department will gladly embrace. In fact, wellness programs can deliver an average of $150 to $200 savings per employee in a fairly quick manner.

In other words, we’ve seen firsthand that strong emphasis on health, delivered through an effective wellness program, can work. At an extreme, we have one client that is a large manufacturer with employees in five states, using wellness initiatives to keep medical costs rising less than 3 percent per year over the past four years.

The PWC survey reported that improving wellness programs is the No. 1 plan change employers will make in the benefit plan designs for 2011. In the study, two-thirds (67 percent) of companies said they intend to expand or improve wellness programs inside the U.S., while 42 percent intend to increase employee contributions for health insurance coverage, and 41 percent intend to increase medical cost-sharing, including higher deductibles and co-pays.

The basic foundation of a solid wellness strategy is biometric screening. These screenings include testing for high blood pressure/cholesterol, screening for diabetes, and checking whether or not an employee smokes. Employees who participate in a wellness plan and agree to take corrective measures are rewarded with lower deductibles and other cash-based incentives.

In fact, that’s the basic idea. It can make sense to implement a wellness program in conjunction with a high-deductible plan. For example, if the annual out-of-pocket cost for an employee is $2,000, participating in a smoking cessation program would result in a $400 credit. Reducing cholesterol or blood pressure levels would mean another $400 to $1,200 credit. You get the idea.

Wellness and the savings sound great, but to achieve true ROI, you must have solid engagement. We believe 85 percent (or higher) involvement of the workforce is a must. If you are getting participation levels under 50 percent, you will not experience the desired results. Of course, getting a 30 percent buy-in is a slam dunk, because those are the people who want that gym membership or are healthy and active in the first place.

Going Home
Finally, in a related strategy, a third often overlooked way you can reduce healthcare spending in 2011 is by taking your wellness program to the house. Specifically, that means taking wellness to employees’ homes in the form of their spouses.

While it may be more difficult to engage a spouse or other dependents, health plan costs relate to dependents as much as the employee. When we show prospective clients a breakout of the costs associated with the family unit, they show a much higher willingness to engage those people in wellness.

The same guidelines, including biometric screening, are used by both the employee and spouse, but not the children. If a spouse is working, the screening might be an inconvenience, which could cause the spouse to switch the insurance to their employer’s plan to avoid the inconvenience. If that happens, it’s a big win, despite being unintended.

We have had success with using year one to get employee engagement; year two is the optimum time to reach out to spouses. You can do it all at once, but it is a smart strategy to walk before you run on the wellness front.

In the end, the beauty of these simple strategies—from eligibility to wellness—is their realization of relatively quick savings. Why should an employer pay healthcare costs for those who are no longer eligible? And, with a revenue-neutral wellness plan, everyone benefits: Costs are better controlled, and the workforce is healthier, happier, and more productive.

Kent Grathwohl is vice president at Group Associates, Inc., a Bingham Farms, MI. based firm that provides a range of proprietary employee benefit management solutions through a suite of resources and services to employer clients nationwide.