Guest Column: Group size isn't key factor in controlling coverage costs

When it comes to buying health insurance, bigger isn't always better.

Though I often hear people say that "the larger the group, the cheaper the insurance," that's not really the way it works. There is some sound validity to the law of large numbers, but the cost of providing care is the same whether the patient is a 46-year-old male or a 26-year-old female, and regardless of whether the patient is part of a group of five or 5,000.

The benefit of a large employer is that the risk can be spread among a larger number of people.

The down side is a greater risk because of the size of the group.

Hidden values and cost control

Insurance companies contract with health-care providers for services at discounted rates.

When you look at an explanation of benefits from your insurance provider, there's a category that's labeled "discount" or "provider responsibility."

That is the amount of the bill that the provider has agreed to discount in order to gain your insurance company's business - and what I have termed the hidden value of having health insurance. Simply by being a part of a health plan, you get a better deal.

A few years ago, I had a client who spent three days in the hospital with a heart condition and incurred an ambulance charge. The "billed charges" were $25,000, but after the discounts, the insurance company and the client together paid just more than $6,000.

For small employers, those with two to 50 employees, Missouri offers protection in the form of state regulations, including those for maximum underwriting rate-up factors and guarantee issue, a term used for the guaranteed issue of a policy, regardless of health condition or status. Insurance companies must submit and follow a regulated renewal process designed to help control costs.

The only protection large employers have is their size. I have seen health coverage price changes for large employers with more than 50 employees range from no increase to an increase of 71 percent. For smaller employers, the highest increase I saw in the past year was 48 percent.

When an insurance company decides it no longer wants to insure a large-employer group, renewal is generally priced at a level where renewal is no longer a viable option. Generally, there will be some other insurance company that will want that business and will make some concessions to gain the group's business, but there are no guarantees.

Common challenges

Across the country, there are many studies by entities such as the Kaiser Family Foundation or the Rand Corp. that survey employers about benefits and health care costs.

For the most part, large and small employers alike are raising deductibles, co-payments and out-of-pocket maximums to help offset premium increases, and a small number of companies are considering eliminating benefits.

In the Society for Human Resource Management's 2009 Trend book, a Mercer study showed that the projected increase in coverage costs is 5.7 percent, the lowest rate in 10 years and that the 2003 median family deductible of $1,000 rose to $1,500 in 2007.

In the same study, 19 percent of respondents said they would add a consumer-directed health plan to help alleviate cost increases and shift a greater amount of responsibility to employees, while also reducing premium costs overall for employees and employers alike.

Health care is an issue that deserves our attention and some real options in controlling costs.

Health care coverage is likely the second- or third-largest expense employers have, regardless of their size.

There are some real alternatives to save some premium dollars, but it will take a paradigm shift in thinking for business owners and employees.

Consumer-driven health plans, which give participants the ability to better manage their care expenses and take a more active role in improving their heath, are gaining in popularity and acceptance. Health Savings Accounts and Healthcare Reimbursement Accounts are examples of consumer-driven plans.

The benefits within them are very different from traditional comprehensive plans. An HSA, for example, is mandated by law not to have co-pays for office visits or prescription drugs. HRAs can have co-payments for those, but are always limited in benefit by number of visits, number of prescriptions or costs.

Some will view the benefits as a negative, but when you put a pencil to it and look at what other realistic options are, it can make that decision much easier. Enlist the help of an insurance professional to see if such plans might work for you.

Mike Scott is an employee benefits and compliance specialist for Barker Phillips Jackson, an employee-owned insurance company in Springfield. He can be reached at mscott@bpj.com.