This newsletter continues with the theme we outlined in the beginning of the year: how to harvest business from your competitors and shore up your own book of business. One way to become a true hero to your clients and prospects is to show them how to engage in loss prevention: most senior executives are very familiar with loss prevention when it comes to loss of materials and other assets, but few understand how to apply loss prevention to one of the most expensive line items in their budget: employee benefits.
Population loss prevention is about managing who is on your medical plan. Especially those for whom coverage is available elsewhere, either through a spouses’ plan, or Medicare. The potential ‘loss’ to be avoided is, if the benefits you offer are better and cheaper than those available elsewhere, you will suffer migration on to your benefit plan. And the additional cost can be horrendous.
The consumer behavior behind migration is pretty straightforward: employees and their spouses compare available plans and choose the option that has the best first dollar coverage and the lowest maximum out of pocket expense for the lowest premium. If an employer offers rich traditional plans and pays most of the premium, they will suffer adverse migration.
Since all similarly situated employees must be afforded the same benefits at the same cost, there is not much you can do to prevent migration onto your major medical plan if you provide traditional major medical insurance and pay most of the premium. You can make employees ineligible if coverage is available elsewhere, but you can’t do that for Medicare eligible employees. And those are typically the most expensive people to cover.
So let’s stop for a moment and think about this. Employees would like first dollar coverage and low out of pocket expenses, for a low premium.
You want to keep them off of your major medical plan if coverage is available elsewhere, because it’s expensive. So, why not give them a plan that gives them what they want but doesn’t involve being on your major medical plan? That is the logic behind providing a high deductible major medical plan, and either a Health Reimbursement Arrangement (HRA) or an embedded gap plan. The HRA or gap plan gives them first dollar coverage and a low out of pocket maximum. It costs a fraction of what you would pay for them to be on a traditional major medical plan. Simply let them choose to enroll in the HRA or gap plan and opt out of the major medical.
While a high deductible plan and an HRA or embedded gap is clearly the best way to manage your benefit population, there are other things you can do:
- “Opt out” HRA: an HRA that covers unreimbursed medical expenses and premiums, up to a set dollar limit, for those who are eligible for coverage elsewhere and opt out of your major medical plan. But be careful here: for groups with more than 20 employees, this can run afoul of Medicare rules for Medicare eligible employees.
- “Opt out” gap plan: The great thing about gap plans is that unlike HRA’s, employees can contribute to the premiums. So if you let them choose, and pay for, a gap plan that covers the holes in their spouses’ plan, for a nominal cost, they will opt for the spousal plan. Again, you have to be careful about Medicare anti-dumping rules. This will need to apply to all people in your group to avoid running afoul of the law.
- Medicare HRA: for groups with fewer than 20 employees, you can provide an HRA that covers Medicare premiums and out of pocket expenses to a set limit.
The main point here is, give them a way to get what they want so that it is to their benefit to opt out of your major medical plan if coverage is available elsewhere. That ends adverse migration, keeps employees happy and significantly reduces benefits costs, all without sacrificing the quality of your benefits plan.