Back to the Basics: Cost Savings and Cost Avoidance

Insights | Back to the Basics: Cost Savings and Cost Avoidance
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You may have heard the ultimate promise of every insurance solution and provider – we need more premium to save you money. It’s important to understand that there is no silver bullet to solve the health care problem, but there are some strategies to help improve your risk profile. 

The first step toward risk mitigation is to create meaningful success metrics to measure savings within your healthcare plan. Don’t be tricked into believing you are saving money because a solution sets an artificially high price then provides a discount and calls it savings. Yes, inflation is real, especially in health care, but it’s important to clearly differentiate financial cost savings and cost avoidance to measure strategic success. 

Here are three practical cost saving strategies I share with the employers I partner with:

1.    Manage Risk Coming on the Plan
Establish a routine audit and proper procedures to verify dependent enrollment and spousal exclusions. It is a fiduciary responsibility of the plan administrators to be diligent with the plan and this is part of that process. The savings from the audit can be verified through both historical data and prospective DxCG models (predictive models that provide cost estimates based on demographics and health care experience). Expected savings range from 1-5% of total health care cost, depending on the last audit conducted and the current process for verification of dependents. 

2.    Chronic Population Management
It’s been proven that 60%+ of health care costs are driven by the chronic condition population. This population includes diabetics, hypertensives and various other persistent conditions. The strategy for chronic care management should start with the primary care provider and be fine-tuned through single point solutions (e.g. diabetes management program). Set realistic goals and success metrics for these programs, such as percentage of gaps closed in disease specific preventive care, medication adherence percentage or program utilization and engagement. Savings for these programs are dependent on utilization, engagement, communication of programs and ease of use. 

3.    Pharmacy Procurement
Pharmacy costs make up over 30% of total health care expenses. Pharmacy is one of the most widely used benefits and has some of the highest inflation rates (+10-14%). When evaluating a pharmacy benefits manager, consider options beyond discounts and rebates. Push for transparency in pricing, strong clinical programs, pharmacy network, formulary differences and chronic disease management. Review the market at least every other year as it is a fast-changing environment. A good procurement process should yield a minimum of 5-10% in aggregate savings. 

There are hundreds of other strategies to implement and consider. Talk to a HORAN benefits advisor today about the best options for cost containment and risk mitigation for your organization going into 2023.