Episode 4: In today’s episode, JP Barta, CEO of The Legacy Benefits Group, addresses the fact that Healthcare costs are out of control. We’ll begin the discussion with the 80/20 rule implemented as part of the ACA. We also have 2 other professionals in the studio who will join in on the conversation.
The Affordable Care Act says that 20% of each revenue dollar can be used by an insurance company for administrative and marketing expenses. The remaining 80% is supposed to be paid out for claim.
In a previous episode, JP quoted some statistics from a 2020 Kaiser Family Foundation study, which documented the rapid rise in the cost of health insurance for individuals and families. For 2022, an individual can expect to pay approximately $6,900 and families will pay upwards of $20,000. That increase in family premiums is up 55% since 2010. This is occurring twice as fast and the increase in wages. Based on these numbers, it’s obvious that healthcare costs are out of control.
Meet Today’s Guests
Steve King is a partner at MK CPAs, in Louisville. They work with startup businesses to those that have grown to $10,000,000 or more. Steve’s firm has been serving the accounting needs of clients for the past 22 years. They work with clients across the US.
Henry Sohl is the leader of Sohl Advisors. His Louisville-based consulting firm works with small to medium business owners in the areas of operational development and helping leaders to act with intention and purpose.
Bridging the Gap
When it comes to the cost of employee benefits, there’s an obvious challenge between cost-control and maintaining employee satisfaction. JP invited Steve and Henry to add perspectives regarding what they’re seeing with their clients.
Steve comments that raising prices is the realistic alternative for a company that is capped (by law) at a 20% revenue retention rate and still wants/needs financial growth. JP comments that the major carriers are doing just that. They really have no incentive to keep premium costs low. This is one of the factors driving the increases companies are experiencing when renewing their healthcare plans.
“I’m paying too much in health insurance” is one of the 2 biggest complaints Steve hears each year from his clients. This comment usually surfaces during their year-end tax planning discussions. Healthcare costs can absorb 5-15% of the operating budget for a business. This year, Steve saw a solo practioner’s healthcare expense hit 18% of that client’s total revenue.
JP comments that he’s recently seen groups facing a 50-60% rate increases for health insurance plans. It’s unsustainable. He’s heard from some business owners who are trying to limit their growth in either employees or new business in an effort to avoid certain government mandates. It shouldn’t be this way. Again, healthcare costs are out of control.
Henry observes there’s a conflict in logic of restraining growth to avoid government mandates. Even if a company absorbs a 20% increase for 5 years, it ends up being a 100% increase. It doesn’t make sense. You’ve double your line item expense.
Henry goes on to provide an example of a company’s survey indicated there is a 100% universal dissatisfaction among employees related to their health insurance. This also happens to be the #1 item that’s incurred year-over-year increases in cost. Go figure.
Just because You Have a Benefit, Is It Beneficial?
It’s a question both companies and employees are asking once you take into account the higher deductibles and out-of-pocked expenses. For a $40,000 wage earner, a $5,000 deductible may be an issue. That employee and his/her family may be forced to forego medical treatment and/or tests.
The Common Response Is often a Bad One
When company leaders are trying to grapple with the rising cost of healthcare benefits, one option they obviously choose is to seek out competitive quotes. As JP explained in Episode 3, if you’re coming off a high year of claims, it’s probably the worst time to actually go shopping for a new plan. Carriers are going to evaluate your recent claims history and the quotes will be higher because of it.
JP admits there are some mitigation steps his company can offer, but in reality, the best time to seek new quotes is when you’ve actually had a lower claims year. You’ll have more leverage in the negotiations.
When on-boarding a new healthcare plan, there will always be a resistance to change. Henry comments that everyone knows the health insurance is a problem. Companies will do well to treat their employees like adults and work together to manage the transition. When they do so, employees are more apt to join in and experience better outcomes.
What Are People so Resistant to Change Related to Health Insurance?
Steve comments one factor is simply fear. There’s a perceived risk if the company were to make a mistake and cause unnecessary disruptions for employees and their healthcare providers. Often, this involves a fear of the unknown.
JP explains that there’s another issue at hand. Some employers elect to take the path of least resistance. Disruption drives complaints. Simply accepting the status quo increase may limit the complaints, while ignoring the other limitations forced upon the business we discussed earlier.
The Legacy Benefits Group goes to market via health insurance brokers. He values his company’s relationships with those brokers. Nevertheless, some commission-based brokers focus on getting the renewal deal closed. It can often be a disincentive to working towards identifying and presenting alternatives beyond the status quo options. Now, that’s not to say every broker handles it this way. JP knows many brokers are proactive advocates who do want to make a difference for their clients.
CPA Steve King observes that a typical company would normally take aggressive action were it to identify a line item expense that experiences a massive increase. For many companies however, it simply isn’t so when it comes to the health insurance line item. They may just not see any other options. It perpetuates the problem.
A Lack of Information
JP explains that for many smaller groups (i.e. under 100 employees) they don’t usually have access to claims data. The carrier doesn’t provide specific information about how your group is consuming healthcare and what’s driving those costs. That places smaller groups at a disadvantage.
When JP gets involved, there may be numerous options to contain costs, but there’s still a resistance to completing applications for different plan quotes. Unfortunately, this may be the more effective way to resolve that lack of information issue regarding claims.
When Should a Company Begin Completing Applications?
JP explains that most carriers try to quote approximately 90 days before the renewal dates. JP can begin to put together a strategy. Larger groups tend to have more time. Claims information can often be evaluated throughout the year. However, even smaller groups who are working with the Legacy Benefits Group may have access to that important claims data.
You need to review the available claims data to formulate effective concepts and strategies for your upcoming healthcare benefits. If you don’t have access to claims data, it still may be a good idea to go through the application process so that the carrier(s) can rate you appropriately. It may or may not result in first-year savings, but for many companies it does.
JP states that employee education and the resulting changes in behaviors related to the consumption of healthcare, make it fairly common for the Legacy Benefits Group to save company’s money year over year.
Henry advises that it’s important to engage your employees on a day-to-day basis. Demonstrate that you’re willing to listen. Taking time to understand the key issues and working to a resolution fosters trust. Yes, making change is hard. Dealing with the rising cost of healthcare is hard. But, we get to choose our hard.
JP reminds us that it cost nothing to fill out the applications. The time it takes may result in significant savings. In the worst-case scenario, you’ll simply end up in place you were going to go anyway. What do you have to lose?
To Contact Henry Sohl:
To Contact Steve King:
Phone: (502) 587-9833
Podcast: Make the Numbers Work
The goal for the Legacy Benefits Group is to be able to offer comprehensive, major medical coverage without restricting access to quality care. Again, part of that capability is proven by educating people about how to be better consumers of healthcare.
Are You a Proactive Health Insurance Broker?
It costs you nothing to get a quote. It may enable you to offer much needed solutions to your clients and their employees.
Contact Us via Our Website: www.TheLegacyBenefitsGroup.com
Call Our Phone Number: 855-321-0741
Email JP: JPBarta@TheLegacyBenefitsGroup.com
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The Legacy Benefits Group is here to help you to get the most benefit from your benefits.