Tuesday, May 5, 2009

As major carriers change their "DME" costs, it's time to check the fine print of your employee health benefit plans

If you own a company, and several of your employees are diabetic, it's a good time to review your health insurance policy and have your representative explain the "DME" function of it.

In the health insurance industry, a "DME" pays for the medical strips that diabetics use to test their blood levels. Until recently, the DME coverage had a cap of $2500. Now, the cap has been dropped to $500 with most carriers. With an average expense of $300 per month for these strips, the DME coverage is now going to provide almost two months of coverage.

Diabetics are not the only ones impacted by the change in coverage. If you have an accident like injuring your knee playing softball and the doctor prescribes a special brace, the typical cost for one is about $1500.

There are some solutions to this coverage. The insurance carriers will tell you that it will cost you an increase of four-percent for the entire policy to continue with the higher level of DME coverage of $2500 per person. However, the better solution is to ask your insurance professional about a MERP or a medical expense reimbursement plan. That way, when a worker needs his or her diabetic supplies or a knee brace they can have the MERP pay the costs over $500.

The insurance companies know that most of their customers will never read the fine print on topics like the DME. So, executives need to either read their policy or more importantly, hire an insurance agent that understands these unique clauses in their policy. Better yet, an intelligent insurance broker can provide them with the alternatives to provide a more effective type of coverage for their work force and their families.

Friday, May 1, 2009

Why a 10 to 15-percent increase in health benefits is usually not warranted

This is a column submission for the San Antonio Express News that my friend and publicist, Matt Scherer, wrote for me. I wanted to share it with you before it gets published as the information is very timely and helpful.

Mark Twain once noted, “There are lies, damned lies and statistics,” and if Samuel Clemens was alive today, he would probably add health insurance professionals to this classic quip. As someone who has worked in health benefits for nearly 40 years, I am amazed at the half truths shared within my industry.

For example, one of the biggest misconceptions in my industry is that the cost of health insurance should increase by 10- to 15- percent annually.

The health insurance industry spends lots of money on advertising and publicity so most business decision makers accept an increase when their health insurance policy is up for its annual renewal. Yet, if most businesses audited their claims to premium dollar ratio, they would truly question the need for an increase within their policy‘s costs.

For most businesses, the normal ratio hovers around 30-percentage points. That means that for every dollar a business spends on health, dental and vision care, the insurance carrier clears 70 cents. Since most health insurance companies program their administrative costs at 20 to 21-percent, that leaves them with a healthy profit.

Business executives can negotiate the costs of their health care if they request their premium to claims ratio data about 60 days prior to renewing their policy. If they have a low claims to premium ratio, businesses have a bargaining chip with their agent or carrier.

For example, one carrier has a better coverage of doctors within a certain community or even zip code. By having their sick employees and/or family members use doctors in the network, a company can lower their costs. While understanding the premiums to claims ratio, businesses should also consider a medical expense reimbursement plan (MERP) as another option to decrease their health insurance costs.

With a MERP, companies can use a higher deductible for catastrophic claims to lower their costs. Using a MERP, a company can change the deductible from $1000 to $5000. With the savings from the higher deductible, the company then places the savings into their MERP account. When an employee or a family member needs to go to a hospital, the firm can then have their work pay the original deductible ($1000) and then pay the remaining amount ($4000) from the MERP funds.

As most companies have only 3-percent of their work force who annually need hospitalization, the risk is much lower than most would think. I’ve worked with companies to set up a MERP fund, and most have a large reserve within two years that they can then transfer the ongoing savings from their higher deductible plan into other financial reserves. Truthfully, I have had several firms that had claims within the first couple months of changing to a higher deductible, putting them into a position to have withdraw funds to pay for these unexpected medical emergencies. However, over the long-term, the companies were able to build up their MERP reserves to cover the cost of the higher deductible.

Businesses have some choices in selecting the best coverage based upon their willingness to accept risk. The educated executive team can truly lower their costs by understanding the risks involved and by sifting through the health insurance industry's "lies and statistics."

(Stephen Geri is the president of Diversified Employee Benefits Service, a Texas health benefits consulting firm.)