It takes a village to design employee benefits—or, at least the entire executive team, says OhioHealth Chief Financial Officer Mike Browning.
Every year, OhioHealth’s human resources department surveys its 35,000 employees about their health insurance needs. After reviewing responses, HR staff try to match employee needs with plans available in the market. From there, Browning looks over the proposals, taking a strategic eye of what will keep the Columbus, Ohio-based healthcare system competitive. He crunches the numbers to see how employees’ salaries fit in. Of course, in the end, the CEO needs to weigh in on the benefits offered.
“When you look at a health system, the largest expense is salaries, the second largest is supplies and the third largest is benefits,” Browning said. “The CFO needs to be an integral part in that and make sure that, as we make those investments, they’re made the right way and that they’re what you can afford to do.”
The financial challenges caused by the COVID-19 pandemic are likely to propel even more of Browning’s counterparts to take a more active role in benefit design. And with that, industry experts suggest there could be spikes in value-based payer-provider arrangements, greater attention to creating a consumer-friendly insurance experience and lower overall healthcare costs long-term.
“When you’re a health plan, you want to make sure the services that are delivered are the right services, you want to do wellness care, you want to do things to keep people out of the healthcare environment,” Browning said. “The CFOs that are putting that hat on to do work on the employee benefits side, we’re going to be focused on those value-based care initiatives. If they’ve not been at the table, they’ll be looking at it from that perspective.”
Leapfrog Group CEO Leah Binder said there’s long been a need for a more strategic view when it comes to healthcare costs.
Over the past decade, the average annual premium employers paid for a family of four’s health benefits rose nearly 62% to $15,574 in 2020, according to the Kaiser Family Foundation. Employee health benefits consume more than $15 million annually per 1,000 workers. But in 2020, something historic happened: companies’ healthcare costs went down, as employees avoided the doctor’s office during the pandemic.
One actuarial firm estimated that self-insured employers experienced a 4% year-over-year reduction in worker health costs. Binder said the once-in-a-lifetime drop led an increasing number of healthcare companies’ CFOs to get involved in structuring employee benefits, since they were suddenly aware that prices did not have to rise every year.
“Healthcare costs going down shocked a lot of people; it got their attention,” Binder said. “It created a windfall for some employers; they have seen the promised land.”
Yet while healthcare costs fell in 2020, companies’ health insurance premiums still rose this year.
Dr. Adam Block, an assistant professor of health policy and management at New York Medical College, said the increase has led more executives to look for cost savings.
“The percentage of total compensation that goes to healthcare is raising,” Block said. “It used to be 10%, and now it’s like 40% of the total (compensation).”
Block said long-term care facilities have the most to benefit from a CFO’s involvement in structuring health benefits since these organizations are often responsible for coverage for a large amount of lower-paid workers. But he said every company should be including their CFO in insurance discussions.
Insurers that serve as third-party administrators to self-insured employers may see the biggest change as CFOs stake out a louder voice in negotiations, Block said, noting that these companies charge employers a percentage fee for the number of claims they process. He expects CFOs to negotiate more strongly than HR representatives have in the past over the contracting fee paid.
“Lots of organizations get a large portion of their dollars from third-party administrator fees,” Block said. “I would expect there to be more price competition for those fees.”
As work and care moved from in-person to virtual, many companies rethought the types of benefits offered, added Rick Gundling, senior vice president of professional practice at the Healthcare Financial Management Association. At the same time, businesses received a dramatic call for more behavioral health tools from employees. Healthcare CFOs may also be looking for ways to stabilize their balance sheets.
Their participation will likely result in an easier to navigate, more consumer-centric insurance experience for employees, Gundling said, since accountants generally demand transparency into the cost of the service they are receiving. Long-term, he said this could lead to more payers and providers to institute value-based care models.
“I think CFOs take a more strategic view,” Gundling said. “They may be looking at how other industries manage their healthcare costs. They may help with tools that employees can use to look at their potential providers’ price and quality data to make more informed decisions. They bring more of a consumer perspective.”
Indeed, Carrum Health CEO Sach Jain said that, in 2020, demand quadrupled for the bundled-payment startup’s center-of-excellence program, which offers business customers access to a select network of providers for more than 100 common procedures. The San Francisco-based firm now counts a number of healthcare companies as customers.
In addition to adding providers, labs and healthcare tech companies as customers, Jain said a growing number of providers’ CFOs have reached out about partnering with the startup since its value-based payments offer a steady stream of revenue, and the digital format limits patient time in facilities. In late January, the company announced a new partnership with Cleveland Clinic. This year, Jain expects demand from CFOs on both the healthcare customer and provider partner sides to accelerate.
“We have more demand for the solution at the moment than we can handle,” Jain said. “CFOs are the ones that see the value immediately, that they can reduce the medical spend significantly.”