By Sarah Gunter
Rising healthcare costs are eating away at employer budgets, and they’re not going anywhere. Worse, if you’re a CFO, you’ve now got to learn an entire industry in order to best understand how to control cost. That’s why Steve Watson, CFO/CHRO created Trendbreakers, a community of Finance, Human Resources, and Benefits Advisor professionals that aim to break the trend of rising costs by sharing their insights about the industry and the best practices. Watson’s work is informed by his hands on experience reforming his company’s healthcare plan and by his journey learning about the industry while getting his license as a broker. On a webinar sponsored by Connect Healthcare Collaboration, Watson spoke about what CFOs should know as they navigate benefits spending.
- Understand the Big Picture
One prevailing issue that keeps CFOs and other executives from taking a more active role in managing benefits spend is a fuzzy line delineating responsibility. It’s often the case that oversight for healthcare is split between finance and HR, leading to significant gaps in communication and understanding. “If sales are dropping year after year, someone’s fired. If the cost of raw materials keeps going up someone gets fired. But with employee benefits, most companies don’t have one person,” explains Watson.
While the compliance and administrative side of benefits is done in HR, it’s likely no one in that department is managing financial risk. Conversely, workers comp is often administrated outside the HR department by those who purchase it and manage the risk. This in itself isn’t a problem, but it becomes one when health benefits and workers comp operate in separate silos without departmental communication. Changes to either plan can impact spending in the other, so it’s crucial to take both into account when implementing a solution. Make sure to evaluate who is in charge of what in order to understand how everything moves together in the big picture.
- Shop Smart
While it’s important for a CFO to be aware of how the finance and HR departments manage healthcare spending, it’s unrealistic to task them with fixing this divide and finding a solution alone. That’s why many companies hire brokers, someone to come in and help manage this area. Brokers can offer valuable insight and experience; however, Watson cautions against blind faith, saying, “There’s a lot of misaligned incentives with brokers we’re not aware of, and we just trust them.” Seeking brokers who focus on high performing health plans weighted on outcomes and cost containment is key. Choose consultants and advisors who share an aligned vision with the plan’s performance.
Bear in mind that, as the sea of benefits solutions grows week after week, brokers are also tasked with keeping apprised of them all – which is no small feat, especially given that the majority of brokers tend to specialize in certain areas. Remember: you’re shopping for a healthcare plan, so be a smart consumer. “If you go to a Honda dealership, they’re only going to show you Honda models—it’s up to you to go out and look at other lots and other models,” Watson says, comparing the process to buying a car. Use the purchasing common-sense you would for any other line-item on your budget; do your research, compare different options, shop around, and hold vendors accountable for promised outcomes.
- Know Your Options
Partnering with the right broker will be easier if you know what kind of plan you’re searching for. Many employers are opting to leave the high, unpredictable costs of their fully insured plans behind and turning to self-insured models. But considering that brokers specialize, it’s likely that brokers who primarily offer fully insured plans won’t have the financial background to really understand level funding or self-funding. A higher level of understanding is imperative here, especially as executives who don’t know better are likely to go by language alone. “The term ‘fully insured’ sounds more inviting to people and safer than the term ‘self-insured,’” explains Watson. Familiarize yourself with the relevant terminology so you know how to have the most productive conversations.
The self-insured model is popular for a number of reasons: more price transparency, the option to pay as you go, and reduced premium costs. But this isn’t the singular solution; it’s important to be aware of the additional or alternative options out there. One route to approach reforming your healthcare plan is trying to turn variable costs into fixed costs. For larger companies, investing in an onsite clinic might be one way to do this while also removing barriers to access for employees; the lack of copays and the convenient location makes it easier for employees to receive care. Other possibilities to consider include renegotiating with PBM’s for better drug compliance and adherence, incorporating wellness initiatives, and introducing health literacy programs. Whatever solution you choose, it’s important to make an educated decision.