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Talent Management Perspectives

Published December 2009

How to Achieve Health Care Cost Savings Now

  Thom Mangan

As the health care reform debate echoes on Capitol Hill, it remains unclear as to what the implications will be on U.S. businesses. With so many unanswered questions, many employers are adopting a wait-and-see approach. Others are taking steps to reduce health care costs now, but may be missing out on the key to long-term savings.

That's partly because the rules of health care cost saving are constantly changing — laws are updated, last year's innovations are taken into account by carriers and rising costs generally make employers think on their feet each year.

For example, one of the most popular cost control mechanisms for employers was Health Reimbursement Arrangements, such as medical expense reimbursement plans. In most cases, these arrangements offered significant savings to groups of all sizes and plan designs. But this year, there has been a decline in employer groups implementing these funding mechanisms because they no longer provide the savings they did in the past. In fact, many medical carriers now request that a group disclose the employer funding of not only the plan's premium, but also the plan's copayments.

Here are some cost-saving measures that were once considered somewhat radical.

Spousal surcharges: More employers are considering spousal surcharges for employees with spouses who are eligible for coverage under another plan. For example, one midsized employer recently implemented a spousal surcharge program and saved 12 percent off the total plan's premium. Some employers have even mandated that if a spouse has other available coverage, he or she must be removed from the plan. The rationale behind this is that the employer does not have to pay the more expensive employee premium plus the spouse premium. In addition, spouses are often some of the high claimants that drive the group plan to have cost increases.

Dependent audits: Dependent audits also are becoming more popular as a means of cost control. Most employers do not currently require proof of dependent status, such as marriage and birth certificates, when an employee signs up a dependent for medical coverage. This means there may be a number of ineligible dependents on the plan for whom the employer pays — including former spouses long after a divorce.

Other plans may allow full-time students over a certain age to qualify for plan participation, but they only verify the student's status at the beginning of the school term and never confirm the student completes enrollment of the course of the entire semester. Dependent audits have the potential to provide groups considerable savings by removing these ineligible dependents from the plan.

While spousal surcharges and dependent audits result in reduced health care costs for employers, HR managers do need to take into account the impact they can have on employees. Employees often consider their benefits to be an important part of their rewards package, and limiting those packages could impact employee loyalty, productivity and morale.

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