Would One Big Claim Make Your Employee Benefit Plan Unaffordable?

Insured group insurance plans for health and drugs, typically have a cap number that limits the exposure of an employer to large claims.  Beyond the cap, the amounts paid are pooled, in some cases across the entire industry.

You, as an employer, need to know how much that cap is and how it is changing.  Question to ask your employee benefits consultant.  1) If there is a big claim by an individual, how much of it affects our experience and therefore future premiums, and how much of it is shared?  2) How is that cap number changing?  

Nothing like that has ever happened,  so you might wonder why you care.   Here are three examples.

  1. A person with Hepatitis C has a prescription for “Harvoni” a newly approved treatment that can cure the disease.  Problem for employer is that the patient will require a 90-day course of treatment of one pill per day, at US$ 1,125 per pill.
  2. A person with Multiple Sclerosis takes HP Acthar. This drug helps manage the disease but does not cure it, so probably a long term commitments at around $200,000 per year.
  3. The champion was recently reported.  Wellmark Blue Cross Blue Shield of Iowa says it spent $18 million on medical bills for just one patient in 2015.  Future cost  will be somewhat lower. 2017 is projected at just $10.5 Million.

Be sure your plan design assesses and deals with the long shot costs.  There two points to consider.

  1. A plan with a low maximum may leave an employee with no choices at a difficult time.
  2. A plan with no cap on how much will be treated as specific experience for the employer will make the plan unaffordable.

There are several ways to limit exposure to healthcare claims.  From claim management and investigation to promoting good health among the members of the plan.  Poor design leads to more problems than fraud.  As management specialist W. Edwards Deming points out, quality is the result of system wide action and design.  He claims that quality problems in more than 85% of cases are problems of design and management.

Avoiding things that cannot work requires both insight and  action.  Managing employee benefit plans effectively can save significant sums over the future.  Be aware of the trends and keep in touch with your consultants.  Ask for their input.

It is less costly to prepare than respond to a catastrophic event.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

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