Employee benefits are a top-three line item for most companies, but many employers have given up on this category of expense. Accepting defeat, they plan on annual 10 percent, 20 percent, even 30 percent or greater rate increases as the inevitable reality of their benefit plan performance. But top manufacturers have a different perspective, managing the expense the same way they manage all other costs of doing business. Benefits are an asset — and they need to perform like one.
The same way that manufacturers expect a certain number of units per hour from a certain machine, the best manufacturers understand their benefits are an investment. As such, they expect a return on the investment:
- satisfied employees,
- little-to-no premium increases.
Variable Versus Fixed Expenses
How is such benefit plan performance possible? Healthcare consulting firm and independent actuary, Milliman, has studied how employers spend money under any form of benefit plan. What they found was, 20 percent of the plan cost is a fixed expense, such as plan administration fees. The other 80 percent is variable. It changes depending on what you are buying with health insurance, what kind of procedures and claims you are accumulating.
It doesn’t matter who the insurance company is, what provider network an employer is using or how their health plan is designed. The 20/80 ratio still applies to the benefit plan performance. Manufacturers and their brokers who zero-in on the 20 percent of expenses that are fixed may squeeze a few nickels out of the carrier, but who cares if the other 80 percent is going totally unmanaged? DCW Group always starts with the 80 percent.
In the same way you invest in, say, automation technology to increase factory production, invest in new ways to manage the 80 percent of benefits expenses that are within your control. Employ the same services you’ve always utilized, just buy them differently. This will immediately improve benefit plan performance.
Milliman finds that of the 80 percent of claims costs that are variable, a full 96 percent comes from just four verticals in the healthcare supply chain:
- Inpatient (31%),
- Professional Services (29%),
- Outpatient (19%),
- and Pharmacy (17%).
In one example from the ‘Professional Services’ category, instituting direct primary care at your manufacturing firm can effectively evacuate claims from your plan and increase access to care for your employees and their families — giving you control of healthcare KPIs like performance, cost and outcome in the same way you would expect to have control of your product supply chain.
Under ‘Pharmacy,’ simply switching to a transparent pharmacy benefit manager (PBM) would allow you to see how your dollars are moving through the system, in the same way you’d want to know the ROI on products you purchase to operate your business.
DCW Group can improve your benefit plan performance by bringing you a smart, strategic health plan design that incorporates these examples and more to incentivize high-performance utilization of the plan.
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.