Reducing Health Costs by Managing Risk
Reducing Health Costs by Managing Risk

Reducing Health Costs by Managing Risk

_By Tom Wagoner, Certified Health Care Reform Specialist and President of Accelerated Benefits

Imagine for a minute that you own and manage a fleet of 100 delivery trucks. Part of your employment policy requires your drivers to take their trucks to the local Quick Lube every 5,000 miles for an oil change and maintenance. One year after implementing the maintenance program, 10 trucks have been turned in for service with a blown engine.

Your purchasing department, with great enthusiasm, tells you although the engines cost $10,000 each, in the future they have negotiated a 10% discount due to the volume of service you provide the repair shop.

Meanwhile, your fleet manager audits the driver’s records and finds out that 90% of the drivers NEVER brought their trucks in for scheduled maintenance. What would you do?

# Continue to allow the drivers to ignore their scheduled maintenance and celebrate the $1,000 discount you are getting on the $10,000 engine repair?
# Terminate the drivers who are non-compliant?
# Create an incentive program to encourage the drivers to comply?
# Penalize the drivers who are non-compliant?

Employees who are reckless with their own health and ignore scheduled maintenance (regular physical exams and biometric tests) are just like the truck drivers. Their machines are going to break down! These breakdowns (heart attacks, strokes, diabetes, cancer, etc.) can cost hundreds of thousands of dollars!

Employers who address the high cost of medical insurance by changing companies every year, increasing deductibles and co-pays or increasing the costs to their employees are addressing the symptom and not the cause...just like our purchasing agent.

Let’s go back to Insurance 101. Risk management is a strategy that will work whether you have two employees or 200,000. There are essentially four ways to manage risk: avoid the risk, transfer the risk, reduce the risk or retain the risk.

Ideal use of these strategies may not be possible. Some of them may involve trade-offs that are not acceptable to the organization or person making the risk management decisions. But, we can start with the following basic methods.

Risk avoidance

This proactive strategy requires the employer to eliminate the possibility of the risk manifesting itself in a negative occurrence. As this method relates to health insurance, we could use one of the following strategies:

# Don’t hire any new employees.
# Don’t offer a health insurance plan to employees.
# Institute a testing program to screen out employees who may be predisposed to incurring health issues due to the job they are performing.

Risk reduction

This strategy involves methods that reduce the severity of the loss or the risk of the loss from occurring. As this method relates to health insurance, we could use one of the following strategies:

# Implement extended waiting periods or using the new Affordable Care Act one-year measurement before employees are eligible to participate in the medical plan.
# Eliminate or cap coverage under the medical plan for non-statutory illnesses and treatments.
# Use strict managed care programs and disease management programs.
# Offer the maximum premium differential (30% to 50%) for wellness programs.
# Employ reference-based pricing to encourage employees to select lower-cost providers once a claim is incurred.

Risk retention

This strategy involves accepting the responsibility and cost of loss when it occurs. True self-insurance falls into this category. Risk retention is a viable strategy for small risks where the cost of insuring against the risk would be greater over time than the total losses sustained. All risks that are not avoided or transferred are retained by default. As this method relates to health insurance we could use one of the following plans of action:

# Self-funded insurance plans
# Partially self-funded insurance plans
# Health reimbursement arrangements (such as securing a High Deductible Medical Plan while the employer reimburses the employee for a portion of the deductible)

Risk transfer

This means causing another party to accept part or all of the risk, typically by contract or by hedging. Health insurance transfers some, or all, of the risk to an insurance company. Insurance is one type of risk transfer that uses contracts. At other times, risk transfer may involve contract language that transfers a risk to another party without the payment of an insurance premium. As this method relates to health insurance we could use one of the following advanced health plan options:

# Health Savings Accounts
# Defined-contribution medical plans
# High Deductible Health Plans
# Utilization of a PEO (Professional Employment Organization)
# Employee Medical Expense Reimbursement Program
# Spousal waiver programs
# Individual medical plans (either on the exchange or off the exchange)
# Gap insurance programs
# Symbiotic or skinny health plans
# Smoker, non-smoker rates
# Probationary medical plans
# Integrated enrollment in Medicaid and Medicare


The above strategies can reduce insurance costs by up to 25% immediately without changing plan designs or carriers. The process starts by identifying the risks, evaluating options, mapping out a strategy, setting up an implementation time table, communicating the initiatives, monitoring participation and results, and then re-evaluating the strategies on a continual basis.

Make 2014 the year that you drop your health insurance rates and lower your renewals! Manage the risk, and lower costs will always be a by-product.


Reposted with the permission of Columbus CEO Magazine.

This content is intended for educational purposes only and should not be considered legal advice.

More to Discover

How to Make Tax-Free Disaster Payments To Employees

How to Make Tax-Free Disaster Payments To Employees

The pandemic is putting a big strain on everyone, maybe most of all your team, and you want to do everything you can to help.In a national emergency, employers have the freedom to offer unlimited tax-free financial assistance to employees who need it, with minimal administrative burdens. These disaster payments will be exempt from both federal income and employment taxes. What Disaster Payments Cover Disaster payment to affected employees can cover a broad range of “personal, family, living or funeral expenses (not covered by insurance)”. These may include: Unreimbursed Medical Expenses This can range from vitamins and over-the-counter medications to co-pays. Cleaning Products Disinfectant and hand-sanitizer for employee’s homes can help...

Paycheck Protection Program (PPP): What You Need to Know About Payroll Protection

Paycheck Protection Program (PPP): What You Need to Know About Payroll Protection

You need payroll protection. The federal government wants to help. Here’s what you need to know. The Paycheck Protection Program (PPP) As part of the $2 trillion aid package unveiled in the Coronavirus Aid Relief & Economic Security (CARES) Act, $349 billion was dedicated to the Payment Protection Program (PPP). This offers federal guaranteed loans to businesses with fewer than 500 employees to cover payroll and other essential costs.The federal government is focused on releasing funds quickly and with as little red tape as possible, giving small businesses a big boost right when they need it. And here’s the best part—if you use the funds to retain (or rehire) your employees, the loans don’t need to be repaid.View Payroll Protection...

Paycor's COVID-19 Command Center

Paycor's COVID-19 Command Center

We're excited to announce the release of Paycor's COVID-19 Command Center, a new analytics solution that delivers instant insights for crisis management. With the COVID-19 Command Center, you'll be able to: Prepare with real time insights Plan with actionable data Respond with the help of HR experts Recover quickly by playing the long game now Discover how your organization can make the best possible decisions with real time data, actionable insights and expert HR counsel.

Families First Coronavirus Response Act: Tips to Manage Employee Leave Scenarios

Families First Coronavirus Response Act: Tips to Manage Employee Leave Scenarios

Coronavirus Response Act On March 18 the Families First Coronavirus Response Act was enacted to help individuals, families and businesses. The legislation requires employers with under 500 employees to give sick leave and paid family medical leave to eligible employees.Eligible businesses are now able to take advantage of new tax credits to offset the costs associated with paid emergency leave and sick leave benefits implemented under the bill, including credit for health plan expenses affiliated with the new leaves. Below is a list of scenarios your employees may experience during this time. Scenario 1 A full time employee is sick and believes they might have COVID-19. The employee is visiting a doctor to seek a medical diagnosis and...