LOWERING MEDICAL BENEFITS COSTS BY EFFECTIVELY MANAGING THE HEALTHCARE SUPPLY CHAIN

Does Free Cash Flow Come To Mind When Thinking of Your Insurance Adviser?

Most business owners do not look at insurance professionals as being able to help their business grow and produce free cash flow in the process. This is because, historically, insurance professionals have never been able to manage or reduce costs.

Free Cash Flow

Even knowing that benefits are among the top three expenses companies face, the “strategic plan” put forth by most brokers has been to simply keep that cost from rising more than 10 percent, 15 percent, or some other arbitrary ceiling.

 

FREE Ebook: The Definitive Guide to Health and Benefits Plans for Manufacturing Companies

 

Predictable Cost Savings

Employers are conditioned to believe their benefits costs are going to rise no matter what, so they believe the broker who can make that expense go up by the least amount is providing a valuable service for them. But your manufacturing firm doesn’t have to accept this sad status quo.

DCW Group can actually reduce the benefits expense, creating free cash flow — and do it predictably and repeatedly. And when we do, your dollars are freed up to invest in other crucial business-growth initiatives.

Healthcare consulting firm and independent actuary, Milliman, has studied how employers spend money under any form of benefit plan. What they found was, 20% of the plan cost is a fixed expense, such as plan administration fees. The other 80% is variable. It changes depending on:

  • what you are buying with health insurance;
  • what kind of procedures and claims you are accumulating.

 

Cutting Out the Waste

Variable expenses are manageable expenses. By focusing on inefficiencies in the four verticals of the healthcare supply chain where 96% of claims costs originate:

  1. inpatient,
  2. professional services,
  3. outpatient and
  4. pharmacy,

DCW Group can help you build up your cash reserve.

Here’s one instance, coming from the pharmacy spend. Prescription drug cost-saving does not require employees to change what drugs they get or where they get them filled. With no disruption to your workforce, we start by taking prescription drug rebates away from the insurance company and returning them to you, the employer.

Essentially, drug manufacturers want their drugs higher on the formulary than their competitor’s, so they issue rebates to sweeten the deal. In one real-life example, taking a manufacturer’s plan to an independent pharmacy benefit manager alone would result in a $52,305 savings. If this company operates on a 10 percent profit margin, they would have to do $523,000 in new business sales to create that kind of free cash flow.

Another example. A different self-insured employer’s administrative services agreement said that the insurance company keeps all the rebates. They didn't even provide an admin credit. The pharmacy costs for the group were $1.6 million with rebates of $332,052. In this case, if this company operates on a 10 percent margin, they would have to do $3.3 million in new business sales to generate such free cash flow.

 

Money to Spend

So, how can an insurance professional help you grow your manufacturing business? If we can free up many thousands of dollars currently wasted by your benefit plan, that immediately goes into your free cash flow and operations:

  • You can hire more people.
  • You can invest in new machinery.
  • You can expand to a new facility.

That's what we do every day at DCW Group.

 

For more on how your manufacturing firm can shift focus from the 20% of plan costs that are fixed to the 80% of variable expenses that are being ignored, download your free copy of DCW Group’s Ebook, The Definitive Guide to Health and Benefit Plans for Manufacturing Companies: Control Costs by Managing Your Healthcare Supply Chain.

The Definitive Guide to Health and Benefits Plan for Manufacturing Companies: Control Costs by Managing the Healthcare Supply Chain

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