How To Contain Healthcare Costs

A vital factor in operating a profitable manufacturing company is properly managing each element of your businesses’ supply chain. Why shouldn’t the same hold true for your company’s healthcare plan? Right now, manufacturers continue to accept rising premiums on subpar plans that are increasingly passing the buck to employees as a cost of doing business. There is a better way, and it starts with understanding that the vast majority of healthcare expenses are variable — and therefore controllable.

Use the table of contents below to find out how:

Why Costs Increase

Why Insurance Carriers’ Misaligned Incentives Won’t Reduce Insurance Costs

Manufacturing firms want to know, why are our health insurance rates continue to increase year after year? It’s simple. You're trusting the insurance carriers to manage the health care supply chain, and they have no incentive to reduce insurance costs.

By acquiring hospitals, providers, and pharmacy benefit managers, the insurance carriers are able to retain more of your premium dollars at their wholly owned subsidiaries. 80% of your health insurance cost is variable, and therefore controllable. Those dollars are being managed by someone, and it’s in your best interest to make sure you and your insurance broker are managing those dollars, not insurance carriers.

80% of Your Manufacturing Company’s Health Insurance Expenses are Variable. Stop Buying Based on Price!

Independent actuary and health care consulting firm Milliman finds that in any form of health plan 20% of the plan cost is a fixed expense, such as plan administration fees or stop loss premiums. The other 80% of health insurance expenses are variable. Plan cost changes depending on what services your employees are getting, where those services are being performed, and what kind of claims you are amassing.

Of the 80% of claims costs that are variable, 96% comes from four verticals in the healthcare supply chain: Inpatient, Professional Services, Outpatient, and Pharmacy. Brokers who zero-in on the 20% of expenses that are fixed may squeeze a few nickels out of the carrier, but who cares if the other 80% is going totally unmanaged?

Common Mistakes

Do You Recommend Price as the Sole Consideration for the Products You Manufacture?

Treating health insurance like a commodity and choosing the lowest priced insurance plan has caused manufacturing firms and their employees’ significant financial pressure. Rising premiums for plans that ultimately shift more financial burden to employees have been accepted as a cost of doing business.

Manufacturers that understand how applying healthcare supply chain management can lead to long term and sustainable cost reduction will beat their competitors who chase the lowest acquisition cost.

Don’t Accept Industry ‘Trend’ Data as an Excuse for Your Manufacturing Firm’s Annual Benefit Premium Cost Increases

When informing manufacturing clients of yet another annual premium increase, brokers will commonly reference industry “trend,” or the average percentage by which health plan costs are rising each year, as a benchmark to validate their performance. The problem is, health insurance trend a fake number.

For years you’ve probably been told "The claims are the claims. We can't do anything about the claims." The typical broker mindset is that as long as your costs don't go up as much as the average “trend,” then they’ve done a great job for you. Who cares what the data shows? You should be focused on managing your costs in the most effective way possible.

Charging Employees More (For a Lesser Plan) is NOT a Health Insurance Strategy to Lower Costs

Putting in a Health Savings Account alongside a PPO may reduce an employer’s costs in the short term, as premiums are cheaper when the plan doesn’t cover as much, but every year those costs will keep going up. Instituting a high-deductible plan is a one-year bandage, not a sustainable health insurance strategy.

Manufacturers don't have to offer less benefits. In fact, the only way to do reduce cost is to offer a better benefit, and offering a better plan starts with giving the employees an incentive to make the right decisions. There is an optimal way to access the health care system, and the way you do it today. True cost savings only comes from better utilization of the health plan, not plan design changes and parlor tricks.

The Solution

Benefits Cost-Savings is Within Reach for Manufacturers Who Understand These Four Healthcare Supply Chain Verticals

When we ask manufacturers what they’re doing to control the 80% of their health insurance costs that are coming from four key areas in the healthcare supply chain — inpatient, professional services, outpatient and pharmacy — they do not have an answer.

To generate the greatest benefits cost-savings and disrupt the least amount of people, DCW Group advises manufacturers to address the four verticals in this order: Pharmacy, Inpatient, Outpatient, and Professional Services.

Learn How Manufacturers Are Reducing Healthcare Costs by Offering a ‘Free’ Option to Employees

Employers and employees have almost no access to information on quality and cost when it comes to health care. We don’t walk through the grocery store blindfolded filling our carts only to arrive at the register and not know any of the prices.

As the plan sponsor, it’s in your best interest to ensure your employees are incentivized to utilize the least expensive, top-quality providers that you designate as Centers of Excellence. By waiving deductibles and out-of-pocket maximums for these facilities. By offering free health care, you can ensure your employees are going to the best facilities and saving money. Talk about a win-win.

How to Know If Your Manufacturing Firm’s Benefit Plan Helps or Hurts You Competing For Qualified Workers

The average employer/employee cost share for a manufacturer in the Midwest is roughly 75/25, or $6.08 per hour. The U.S. Bureau of Labor Statistics found that in addition to benefits, the cost of wages per hour worked has grown by an average of $4.51 in the last eight years to $25.84 per hour.

While these numbers provide some benchmarking perspective, if you’re a manufacturer competing for qualified workers you need to take a look at how well you’re managing your health care supply chain. Lowering the overall cost of your benefits means you can become more competitive by paying a higher percentage of employee benefit costs. Or increase wages. Or both.