By Brian Tolbert

Bernard Health


Benefits are typically the largest expense item in a company’s budget next to payroll. Traditionally, managing the benefits budget hasn’t been like managing other business expenses, as employers have had little to no transparency into these costs. While most employers would be averse to accepting annual increases of 10 or 15 percent on other business expenses, they have never been able to apply the same level of scrutiny to their healthcare spend.

But things are changing. As healthcare spending continues to rise with no end in sight, maintaining the status quo is simply no longer an option. Fortunately, action steps similar to those you’d take in other parts of your organization are available for your health plan.

At Bernard Health’s 8th Annual Health Reform Luncheon, our team explained how small and mid-sized company leaders can think about their benefits like a CFO. Here are some of the highlights.

Employers’ Healthcare Problems won’t be Solved with an Insurance Solution

When faced with a big premium increase at renewal, the natural next step for many employers is often to look at other carriers and shop for a better rate. However, moving from carrier to carrier doesn’t address the issues that are actually driving up healthcare costs for employers.

In particular, rising and often inaccurate claims are contributing to higher costs for employers in fully-insured health plans.

Are Insurers in the Best Position to Drive Down Claims?

Insurance costs can be broken down into two parts — administrative costs and claims spending. Most employers would like to do a better job of containing their claims spend, but fully-insured health plans offer little to no transparency as to where the employer dollar is actually being spent.

Further, a piece of the Affordable Care Act may actually be incentivizing insurers against helping employers reduce their claims spend. The “Medical Loss Ratio” requires insurers to spend 80 percent of all premiums collected on claims, with the remaining 20 percent put toward administrative costs, marketing, and profit.

In other words, the maximum profit insurers can collect is 20 percent of premiums. As a result, the avenue to profit growth is to increase premiums altogether, especially for those not surpassing the 80 percent threshold.

Employers are left to question whether insurers are best positioned to help employers lower medical claims, and what really drives annual premium increases of 10 percent, 15 percent, 20 percent or more.

To get out of the status quo of premium increases, employers who are frustrated with rising costs may have to change how they look at their health plan and how it’s financed.

Alternate Financing

In order to get better insight to an organization’s healthcare costs and to deploy strategies to contain them, the group has to move away from the fully-insured model. The major difference between fully-insured and self-insured plans are that the employer pays the claims up to a certain stop-loss threshold. The benefit of self-insuring is better control over healthcare costs and the cost-savings potential of lower-claim years.

When you make this move, healthcare starts to feel a lot more like other parts of your business.

Strategies for Lowering Claims

There are three main ways to reduce claims spend and “think like a CFO” when it comes to benefits.

  1. Audit: Industry groups estimate 80 percent of medical bills contain errors, and employees are often over-billed. Insurers don’t always have an incentive to audit these bills and drive claims down, so this area presents a big opportunity to reduce cost pressure in the benefits plan. Part of the administrative costs in a self-insured plan can include auditing services to ensure bills are accurate.
  2. Avoid: Employers can take steps to direct employees to lower-cost sites of care by working with medical management organizations. These groups ensure patients are able to receive the care they need from the most cost-effective and highest-quality hospital or doctor.
  3. Negotiate: Increasingly, employers are finding that they can receive better value in their healthcare spending by contracting or negotiating directly with hospitals or provider groups rather than relying on insurance company negotiations.

Ultimately, as healthcare costs continue to eat up larger portions of employers’ budgets, many organizations are finding that they can recognize significant savings by moving away from the fully-insured model. There are several steps organizations of all sizes can take to obtain more transparency and better value in the health plan.


Brian Tolbert is practice leader for Bernard Health Benefits. For more information, go online to