The first question we often hear is, “What investment do I need to make?” Two different perspectives produce the same recommendation:
FLATTENING THE TREND.
Healthcare costs for U.S. employers averages over $10,000 pepy. An increase of 10% annually is $1000 pepy. Wellness should earn at least $2 for every $1 invested, so to offset $1000 pepy increases, you’d need $500 pepy investment in wellness.
DOING YOUR FAIR SHARE.
Only 5% of the national expenditure for healthcare in the USA goes towards prevention. Employers also reap productivity returns from wellness, which are 3 times the direct medical savings, so employers should at least match that 5%. So, 5% of $10,000/year also yields $500 pepy. Dee Edington, the wellness guru from the University of Michigan, recommends that in the future employers should increase the wellness investment from 5% to 20%.
The second question we normally hear is, “If we can hardly afford health insurance for our employees, how can we possibly afford $500 pepy for wellness?” We then ask, “Have you considered just dropping health insurance and just paying the ACA penalty?” Most answer that they couldn’t afford to do that, because they would not be able to attract and retain good employees.
Employers that choose to offer health insurance have also – consciously or unconsciously – chosen to be in the business of employee health. The question to ask then is, “Do you want to manage that huge cost reactively or proactively?” Forward-thinking employers obviously want to manage what most call their “most important asset” proactively, just as they mange their facilities, equipment and quality.
The last question is then, “How do we create the funding?” There are so many options that we can say with confidence, “where there’s a will, there’s a way!” Here are some of the ways:
One strategy that has been greatly promoted by the Accountable Care Act is the use of a discount on employee health insurance premiums as an incentive for employee participation. The regulations now allow employers to use up to 30% of the total cost of employee insurance as an incentive for participation or outcomes based programs. And it can go to 50% for programs that address tobacco usage.
With a smart plan design, this incentive strategy can be used to completely fund a comprehensive wellness program – including the incentives. In other words, employers can increase the plan cost for all employees and smartly weigh the amount of the incentives versus the requirements for earning the incentive. The result is that the employees who do not engage or fail to meet the incentive requirements essentially fund the program. Employees who do engage get the new benefit of a comprehensive wellness program, while earning a wellness incentive that offsets much of the new health plan increase. It actually seems appropriate that employees who do not take responsibility for maintaining or improving their health pay more for their health plan than those who do take responsibility. It’s like a safe driver discount for health insurance. An example is illustrated in the CHP Incentive Structure below.
To this end, CHP has a modeling tool that can help employers dial in a design to their own unique requirements. An example is illustrated in Figure 1.
WELLNESS BUDGET IN THE HEALTH PLAN
A very appropriate strategy is to move the wellness budget out of the HR budget, where it sticks out like a sore thumb, and include it in the health plan cost, where the savings will show up to offset the investment cost. Once that’s done, there are several ways to create the funding:
- One simple option is to add an increase of 2% or so to the annual health plan increase for each of the next 3 years, and earmark it for wellness. With increases in the double-digit range, it will hardly be noticed, and in 3 years, you’ll be investing 6% for prevention.
- Another option is to carve out and/or request a wellness budget from your insurance carrier – whether you’re fully insured or partially self-insured (with a stop-loss carrier).
- For the partially self funded, CHP has had success convincing stop loss carriers to accept the cost of our comprehensive “Prima” program as a claim against the health plan without increasing your cost. See the details in the section that follows.
Stop Loss Strategy for Funding Wellness
This solution embeds the proven CHP program into the health plan so that employers do not have to justify wellness independently within the HR budget – where it sticks out like a sore thumb. CHP has presented compelling data on numerous clients in many industries over multiple years. HCC and other major stop loss carriers have accepted the proposition that there is at least a 1 to 1 ROI in effect with the CHP program. That means that CHP’s services pays for itself, and usually much more. Therefore, aggregate attachment factors are calculated as usual with the CHP fees accepted as eligible expenses to be paid through the health plan – and are applicable toward the annual aggregate attachment point.
Stop Loss carriers issue two types of insurance: specific (limit of liability on a single claim), and aggregate (limit of liability on all claims combined). The discount applies only to the aggregate attachment point (total liability for which the customer is responsible for all combined claims).
The Aggregate Liability is determined as follows:
- Each carrier underwrites the expected claims for the account based on past claims experience, the network being used by the TPA, the demographics of the covered population, any ongoing claims conditions, the specific industry and other factors. Each carrier sets the “expected claims” for the account. Note: this will vary greatly from carrier to carrier and account by account.
- In Georgia, each Stop Loss carrier then applies a 25% “risk corridor” on top of the expected claims to determine the attachment point. The attachment point is the dollar value that, once exceeded, determines the aggregate claim reimbursement. (Please note: The risk corridor is 25% in most states, but it does vary by state).
- Where CHP is involved, the Stop Loss carrier will discount the aggregate attachment point by the cost of the CHP services, and then allow the billing for the services to be filed as a claim to the aggregate liability.
EXAMPLE: COMPANY A – WITH 100 EMPLOYEES ON THE HEALTH PLAN
- Stop Loss carrier underwrites the expected claims costs at $1,000,000;
- The Attachment Point is set at $1,000,000 plus 25% = $1,250,000;
- Assuming the cost of CHP Services is $42,000 (at $420 per employee per year), the new attachment point is $1,250,000 less $42,000 = $1,208,000, and the CHP service cost of $42,000 will be paid as a claim, thus further reducing the effective attachment point to $1,166,000.
- Therefore, if the customer exceeds the $1,166,000, 100% of the excess will be returned to the customer as an aggregate claim.
- The net impact on the customer is that if they have a bad claims year, they will be reimbursed earlier and for more of the claims’ costs, including the cost of the CHP Program.
- What CHP sells, however, is the peace of mind that health risks will be reduced – and that associated claims costs will follow.
The Peace of Mind
For Customers: If a Stop Loss Carrier properly underwrites a case, it is very unusual for a customer to have an aggregate claim. This feature of the CHP Program is much more effective the first year a customer moves from fully insured to partially self-funded. At that point, the specter of an additional 25% loss to the customer is very daunting.
Once a customer is already partially self-funded, they become somewhat used to the idea that an aggregate claim is doubtful, even without CHP. Net: it’s the savings from the CHP Program that is the sales proposition, not the discount! The whole idea is that CHP reduces the health risks that cause the chronic diseases that drive 75% of medical claims.
For Carriers: There are two main reasons why a Stop Loss carrier will embrace this approach: First, the CHP Health Management Program protects their risks – not just on an aggregate basis, but also on a specific basis. Secondly, if other Stop Loss Carriers have embraced it, they don’t want to be left behind.
Healthcare Reform has dramatically changed the landscape of health insurance benefits. There is a lot of chaos in the world of healthcare benefits. But where there’s chaos, there’s opportunity. And “necessity is the mother of invention”. The Stop Loss Strategy is a proven, innovative approach to proactively managing health risks and health costs.
The strategies summarized above illustrate a few of the ways that employers can create funding for a wellness program. The good news is that once it’s created, well-designed and well-executed programs generally pay for themselves in the first year, and the ROI just continues to increase from there as behavior changes drive risk reduction and cost reduction. So these funding strategies are basically to prime the pump of wellness, which just keeps on flowing on its own power after that.
So the bottom line is, where there’s a will, there’s a way!