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New strategies for reducing business health care costs

by Tony Novak, CPA, MBA, MT
, revised 11/29/2011

Employers of all sizes nationwide share a common battle to reduce health plan price increases through active negotiation and redesign of their insurance plans. Of the companies surveyed by a benefits consulting firm in 2003, the average original proposed health plan price increase was 17.7%. After negotiations, the average increase was 11.5%. Savings were realized on prescription drug plans, higher deductibles and office visit co-payments. Health insurance companies are more willing to negotiate with employers now because health cost inflation has not been as high as high as expected in recent years.

One high profile example is the California Public Employees Retirement System (CALPERS) that originally faced an overall 31% premium increase from California Blue Shield and Kaiser Permanente. After re-examining their plans, the increase was reduced to 16.4% and 18% respectively.

The original survey was published by Hewitt Associates, a leading provider of consulting services to the large firms. Since then,  many other benefits consultants have reported similar experiences. Smaller businesses may not have access to a professional benefits consultant, but the same principles may apply to reduce health care cost increases.  Employers can reduce costs by redesigning benefit plans with more cost-effective features. Certain health plans specifically designed to cut costs for smaller firms like Health Savings Accounts (HSA) and Health Reimbursement Arrangements (HRA) may result in larger savings than were achieved by the larger employers in the Hewitt survey. By eliminating the administrative cost component of processing minor claims, smaller firms can renegotiate cost increases to minimal levels.

Status: outdated but available for reprint

These strategies were 'new' at the time of original publication but are generally considered 'worn out' by 2011 at republication.

This article is available for republication in its entirety without charge after obtaining the express written permission of the author.

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Opinions expressed are the solely those of the author and do not represent the position of any other person, company or entity mentioned in the article. Information is from sources believed to be reliable but cannot be guaranteed. Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues or a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Tony Novak operates as an independent adviser under the trademarks "Freedom Benefits", "OnlineAdviser" and "OnlineNavigator" but is not a representative, agent, broker, producer or navigator for any securities broker dealer firm, federal or state health insurance marketplace or qualified health plan carrier. He has no financial position in any stocks mentioned. Novak does work as an accountant, agent, adviser, writer, consultant, marketer, reviewer, endorser, producer, lead generator or referrer to other companies including the companies listed in the articles on this web site.   |  (800) 609-0683  |  Cell/Text: 856-723-0294  |