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Generate a Surplus From Your Benefits Expense; Re-allocate to Personnel and PP&E

Feb 25, 2020 9:00:00 AM

Your benefits expense does not have to continue to grow at 10% or more each year. Once you take control of those costs that have been out of control for years and improve your employee healthcare benefits, you can take the surplus and invest in:

  • People (wages, salaries, and better benefits to retain and attract talent);
  • Property and Plants (building new, and/or renovating existing facilities to accommodate higher productivity); and,
  • Equipment (replace depreciating capital assets with newer technology that allows your company to remain competitive and expand into new markets).

Benefits Expense

Would you like to be able to generate a surplus from your benefits expense? All it requires is a change in your role as a decision-maker, from passive to active, to realize valuable savings for your company. The more you understand about how you pay for your company’s essential healthcare benefits and the triggers you can influence to create savings, the more effectively you’ll be able to make changes in the way you provide these benefits.

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Where the Money Goes
Your healthcare expense includes several components. Some of the main line-items you pay for are:

  • Premiums,
  • Marketing expenses, including brokerage commissions and fees, and
  • Insurance company profit

Depending on the type of healthcare benefits plan you have (self-funded, fully-funded, consumer driven health plan, etc.), you also pay separate out-of-pocket expense for claims or benefits administration expense to a third-party administrator. You may choose to pay 100% of these costs or share some of these costs with your employees. It is important to understand what expenses you’re paying, and to whom. This knowledge is crucial in helping you to determine the areas you can pinpoint for cost containment strategies to create a surplus from your benefits expense.


Eliminating the ‘Misaligned Incentive’
If you were told, for example, that it was possible to lower your healthcare benefits plan expenses by negotiating costs directly with a local hospital, would you believe that to be true? Chances are you would not, because it is not something commonly discussed between employers and their insurance brokers. Traditionally, most brokers are compensated by commissions, a retention or renewal bonus, and/or a service fee for maintaining you as a client.

Cost containment strategies (such as directly negotiating fees with hospitals and other healthcare service providers) are rarely discussed if no financial incentive exists for the broker to have such a discussion. Think about it, if your plan costs go up by 10% or more annually, what incentive does your broker have in suggesting you lower your expenses? In some cases it would result in a reduction to their income! The truth is, very little incentive exists for your insurance broker to lower your expenses.

The broker compensation model in place creates a ‘misaligned incentive,’ working not for - but against - your interests when it comes to lowering costs and creating surplus dollars that you can redirect into your company. This isn’t to suggest that a broker may not look to act in your best interest, as often they do, but eliminating this misaligned incentive and creating a better system of compensation which encourages innovation and rewards results based on performance (i.e. fee-for-performance) is a way to achieve a benefits savings.


A Different Approach to Managing the Expense of Your Healthcare Benefits
Simply accepting yearly increases should no longer be an option for you. It is time for you to roll up your sleeves, take out your accounting ledger, and look for creative ways to “trim the fat.” This doesn’t mean sacrificing the quality of benefits you offer or passing that burden to your employees, but it does require your active participation in the process to identify and demand the savings you need to create a surplus for your company.


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Robert Gearhart
Written by Robert Gearhart

BOB GEARHART JR. is the CEO of DCW Group and responsible for helping its clients better manage the healthcare supply chain - to improve benefits and increase earnings.

As a nationally recognized speaker on Healthcare Supply Chain Management, Bob frequently appears on radio, television, and in print to provide insight into the ever-changing landscape surrounding healthcare in America. Bob also co-authored the Amazon Best Selling book, "BREAKING THROUGH THE STATUS QUO: How Innovative Companies Are CHANGING THE BENEFITS GAME To Help Their Employees AND Boost Their Bottom Line."