Start with Revenue in Mind…
By Antonio Williams
Healthcare Expenditure Continues to Eat Away at Employer Revenue
The Rising Tide of Healthcare Cost
According to the Department of Commerce’s Survey of Current Business, Americans are spending $0.17 out of every dollar on healthcare. Recent studies also indicate that the United States ranks number one worldwide in the highest total health expenditure as a share of GDP. Considering how high U.S. healthcare cost has risen in ten-year intervals since 1980, consultants must continually remind their clients how critically important it is to optimally manage this expense in a long-term manner.
So how do employers deal with the rising tide of healthcare costs? How can businesses keep their operations profitable in a world that is volatile, uncertain, complex and ambiguous? Well, as Bob Johansen from the Institute for the Future said, “The kind of strategy that works is to be very clear about where you are going, but flexible in how you get there.”
Healthcare Cost vs. Employer Annual Profitability Targets
Employers have growth goals and financial targets they set out to hit utilizing their most valuable resource – the employee. Productivity is top of mind as they hire the best talent to empower their organization and achieve the maximum results, but for many employers, those results are being offset by year-over-year volatility in healthcare cost.
As corporate strategies get implemented, many companies aren’t even noticing that several key healthcare decision factors are also getting shifted around. Not to mention, the structure of their composite Per Employee Per Year (PEPY) metric is becoming more dynamic.
The major question is: As different organizational changes are happening year-over-year within your company, is the underlying structure of your reporting easily adaptable to emerging situations? There is a fine balance between customization and simplicity that can really put employer-groups in control of the next three to five years.
Take Control of Your Data
Offering differentiated benefits while simultaneously controlling cost is a huge challenge employers face in an increasingly global and rapidly-changing economy. The key is to take control of your healthcare data, alter your paradigm as needed, and rethink strategy in ways that matter en route to meeting larger business objectives specific to your organization.
When companies restructure and more complexity is added from seemingly unrelated business goals, clear vision around heathcare strategy becomes crucial. Organizations have to be looking at Key Performance Indicators (KPIs) through the right lens in order to capitalize on information. One of the most important steps in laying out strategy is establishing new frameworks which cut down any ambiguity found in current data visualizations.
One Size Doesn’t Fit All
Benefits Philosophy & The Pulse of Your Organization
So many employer-groups are receiving canned reports from their insurance carriers as well as their consultant which are not focused on the company’s strategic priorities. These reports may show interesting metrics around utilization, (cost per visit, cost per script, etc.) but many employer-groups are still asking, “So what?”
“What does this mean to our business and how can we use this in the context of our desired outcomes?”
Simplification of KPIs is crucial when delivering measurable results that achieve agreed upon outcomes. This in itself is what positions employer-groups for future opportunities. When data is broken down in the right ways, it becomes easier to tell if quality and insight are being delivered. Once the basic metrics are defined, then begins a cyclical process of discover, design and deliver.
Demographic, economic and clinical characteristics of a group are changing constantly. Things like age, gender and average dependents per employee are shifting as organizations operate on interrelated decisions. Though some of these decisions may seem minor and completely unrelated to healthcare expenditure, they actually could be very crucial turning points. Good reporting, will help delineate, for example, whether absolute costs are growing because the population is growing, or the cost per member is growing.
Ensuring your benefit program supports your business goals starts at the basic measuring points selected to evaluate your program’s performance. Conduct an annual program assessment using benchmarks to see how similar organizations compare. Knowing this will allow you to better define what value means to you and adapt your healthcare reporting to your larger business goals.
In setting your healthcare strategy, there is always an opportunity to make program changes (plan cost sharing, new wellness components, alternative contribution strategies, etc.). It is good practice to always ask your broker/consultant to provide you a number of alternative design and pricing strategies so you can see the administrative and financial impact of making certain changes.
Design changes outcomes so it is very important to design with intent. The design of a program with all of its provisions will have a direct impact on utilization, cost, and employee satisfaction so a good question to ask at each renewal is, “Why is this better than the alternative?” See your employees’ perspective at the point of service when they know the plan provisions they have been selecting again and again at open enrollment. What are their personal goals in selecting this plan among the choices you made available to them? What are our goals in providing those particular benefit options? Are we steering people in the right direction?
At the end of each plan year (or before the new year), it is effective to meet with your consultant to review the past year’s activity, performance, and key milestones achieved. Revisit those strategies and objectives that were set so you can decide on the coming year’s priorities and opportunities.
Major deliverables and accomplishments are reflected in the year-over-year trends in KPIs, so establishing relevant metrics in your reporting format is crucial in the early stages of your cycles. The way companies evaluate healthcare KPIs heavily informs their strategic look ahead.