As an anniversary gift to my wife, I recently bought her a Jeep Wrangler. There are over a dozen Jeep dealers in my area, and I perused all of their websites. I also looked online at Jeep dealers well outside our home market and even those that could be delivered to me. My goal was simple, get the most car for my money. I drove past the three closest dealerships and haggled for three days before finally buying her Jeep. The research and expanding my purchase circle probably saved me about $1,500 on about a $32,000 purchase.
When our employees travel, they are required to spend our company’s money prudently relative to hotel rooms, rental cars, and meals. I recognize that we are uprooting them from their homes, probably causing them to miss functions for themselves or their children, and creating the discomfort that present day travel entails. Regardless, we don’t allow excessive expenditures on travel expenses. The extra hundred or more dollars that can be saved per trip with a little research on-line goes right back to our bottom line at the end of the day and helps support higher salaries, more hiring, bonuses, and the perpetuation of our business. Only a handful of our employees travel, but the money they save on trips benefit everyone.
I am sure that everyone reading this article acts and reacts the same way. When spending our hard earned money, most of us are prudent especially when the item we are buying is expensive. I would have gladly driven another 50-100 miles had I found that same Jeep another five hundred to one-thousand dollars cheaper. When I travel myself, I aggressively compare hotel rates through multiple on-line travel sites before settling on the best value (quality/price) before committing.
Why is it then that basically every employer in America has absolutely no requirements for prudent buying behavior on their group health insurance plans? Further, why do employee/members on those plans not manage a plan’s co-mingled money the way they would their own money? The answer to these questions typically range from uninformed to absurd.
Let’s start with the employer side and at the top. I would venture that less than 1% of CEO/CFOs in America provide any incentive whatsoever for the people who run their human resource departments to manage expenditures frugally. I would further wager that an even smaller number tie bonuses or incentives to creating value enhancing cost management programs. Rather, senior executives, at least give the impression, that no news is good news from their HR team and hope to spend as little time as possible involved in that function. This is nonsensical when we recognize that employee benefits are typically the second highest cost item for companies in the service business (after payroll) and the third largest expense for manufacturing companies (after payroll and COGS).
According to a study published by The National Conference of State Legislatures, the cost of healthcare per employee in 2016 was $18,142. Compare this to a cost of $13,375 just six years ago. Beyond the fact that the ACA is a miserable failure relative to its goal of reducing the cost of care by having more people covered, this is also a reprimand to employers who have continued to do nothing outside the norm in finding a way to control their own health insurance expenditures. The same employers who scratch and claw fanatically at other business expenses just look at healthcare costs like a deer in the headlights not knowing or taking the time to learn that plan changes and external services exist that will promote cost reductions of 5% up to as much as 30%. Consider those numbers for a moment.
Let’s say an employer with 500 employees on their healthcare plan and spending the national average lowers their cost of healthcare services by just 10%. Assuming the average noted above of $18,142 per employee that 10% savings amount to annual savings of $907,000 annually which goes straight to the company’s bottom line. To make that number more meaningful, assume that the company values itself for innumerous reasons at 8X Cash Flow/ EBITDA. The business market value of that savings is thus $7,256,000.
If you are not feeling well right about now, join the club. We’ve been turning a spotlight on these issues for the last 13 years and have audited over 250,000 hospital claims to acquire this knowledge.
The opportunity for your company to lower your cost of healthcare by 10%-25% without affecting the quality or quantity of services is immediately available.