After working in the employee benefits industry for the last 12 years, I am shocked that we are so far behind the rest of the country in controlling health care costs. Aren’t we the state of innovation and ideas?
On average, Californians spend 26% more in health care premium than the rest of the country. According to the Kaiser Family Foundation, the average monthly premium for single coverage in the United States in 2018 was $574. The California Health Care Foundation reported that the average premium for single coverage was $726 for the same year. This means that we are spending nearly $2,000 more annually than our neighbors to the East–before we even set foot in a provider’s office. Just as alarming, health benefit costs are rising at two times the rate of wage increases and three times the rate of inflation, according to the Society for Human Resource Management.
While there arecertainly many contributing factors, part of the answer can be found in the way that California employers structure their health plans compared to the rest of the country.
The Kaiser Family Foundation polled more than 4,000 employers in 2018 and found that 61% nationally are utilizing an alternative funding approach for their medical plan. This includes 91% of employers with 5,000+ employees and 50% of employers with 200-999 employees.
In sharp contrast, only 30% of all California employers have an alternatively funded plan. This represents an enormous opportunity for employers to reduce one of their largest expenses.
Significant savings can be obtained just by changing your relationship with your existing carrier. By transitioning to an administrative service only contract (ASO) a company can shed many of the taxes and fees that make up a growing portion of their fully insured premium (10%).
Even more savings (20%+) are achieved by employers who completely “unbundle” their plan. These employers choose to work with a third-party administrator (TPA) so that they can manage the supply chain that is delivering health care – just like they do with all their other business units. Vendors are selected for their quality and efficiency AND they operate with fiduciary responsibility to the employer and the plan. It is no longer an option for them to allow an insurance company – whose fiduciary obligation is to its shareholders – to control the supply chain without transparency.
The Institute of Medicine reports that 30% of health care spending is waste. So, as we head into the sixth straight year where costs will rise by more than 5% it is time to wake up to what most employers around the country have already figured out. Serious innovation and change are in order California.