In efforts towards cost-reduction, organizations are developing innovative approaches for healthcare coverage. Besides salaries, healthcare is the other principal employee-related cost that is incurred by employers. As such, any strategy for reduction of healthcare coverage costs is always welcome. For Seamus Company, the healthcare coverage costs have grown, and being a non-profit company, such incremental costs can be straining. The outlined strategies are therefore recommended for shifting the company from the currently used fee-for-service healthcare coverage model to the managed care organization (MCO) based model that will enable the company to reduce healthcare coverage costs through a partnership with external organizations.
Healthcare Strategies and their Implications
- Sustainable Strategies for Seamus
For Seamus Company, the most feasible strategies for healthcare coverage cost reduction include working with health maintenance organizations (HMOs), preferred provider organizations (PPOs), and consumer-driven high-deductible health Plans (CDHP). Each of these healthcare coverage models entails a partnership between the organization and healthcare networks through which the covered individuals can access healthcare services. With the HMO plan, Seamus Company would partner with an organization offering health plans in which members are limited to accessing care from doctors or medical practitioners within the managed organization’s network. In most cases, such organizations limit coverage to individuals working or living within a specific geographical area (Wagner and Kongstvedt 22). The reduced costs that come with the limitations will see Seamus spending less in healthcare coverage. Choosing an HMO with non-profit status can also reduce costs further as such organizations are exempted from federal tax.
Working with PPOs will enable Seamus Company to spend less in healthcare coverage. With PPOs, Seamus will be able to pay less for high-quality services as long as they are accessed within the PPO networks. Additionally, the selected PPO may also offer to pay for services accessed outside the network on referral basis hence reducing the overall healthcare costs incurred (Wagner and Kongstvedt 28). PPOs however have several similarities with conventional Medicare and can result in incremental taxes. Seamus can choose to restrict its employees to accessing care only from practitioners in the network to avoid incremental costs or to ask them to pay out of pocket in case such incremental costs are incurred.
Choosing to work with a CDHP can also be another cost-effective approach for Seamus Company. The CDHPs come with three-tier payments, where a health service account (HSA) or a health reimbursement account (HRA) is set by the employer to save healthcare costs from tax-free deductions from employees (Cigna 2-3). Employees also pay a deductible cost of healthcare and the employer tops up with direct payments to the service provider. The plan will give Seamus the flexibility to choose healthcare providers such as in PPOs and has lower premiums than both PPOs and HMOs.
To be able to make the right choice among the three options presented, Seamus Company will have to implement the principles of planning and budgeting and financial reporting. Planning and budgeting will be essential when comparing the costs and benefits of the different options and ensuring that the selected option is also aligned to Seamus’ budget. Financial reporting will be important when evaluating the performance of the different organizations in delivering service relative to the costs.
All the three options provided are also aligned with Seamus Company’s organizational goal of reducing costs. Each of them offers low cost health coverage. The HMO option presents lower flexibility in the choice of healthcare providers, which is the compromise for low cost. They also work with organizations which offer all the services from insurance coverage to healthcare service delivery, hence the discounted costs. PPOs on the other hand, present variable costs depending on the flexibility practiced by the members. By restricting access to care to among practitioners in the network, Seamus will realize its goal of cost reduction. A CDHP will aid in the realization of cost reduction through the shared payment plan as well as the HSA/HRA.
- Increased Service Benefits for CDHP
When using the CDHP option, Seamus is most likely to face variable consumer financial risk. The effects of CDHP on the company’s financial risk will depend on the company’s usage characteristics. While CDHPs reduce the general catastrophic risks associated with access to healthcare services, they can result in heavy out-of-pocket expenses for members with chronic conditions (Leung and Escarce e89-e90). Seamus Company previously used standard healthcare plans with no provisions for such high-expense chronic conditions. The same approach could be replicated in the CDHP partnership to reduce consumer financial risk and enhance the company’s potential for achieving its goal of cost reduction. Additionally, patients with chronic conditions could be required to make out-of-pocket payments for additional costs as they are likely to drive the financial risks and the premiums required of Seamus Company higher. Application of different deductible amounts for different members can also help in reducing the financial risks.
The financial benefits that are likely to be enjoyed by Seamus Company include tax advantages, savings on premium costs, and reductions in medical costs. The tax advantages associated with CDHPs come as a result of the pretax deductions, which imply that both the company and the employees pay less tax for the duration of healthcare coverage by CDHPs (Leung and Escarce e90). Also, the shift from traditional fee-for-service healthcare plans to a CDHP automatically comes with a reduction in the cost of premiums hence the company would be spending less than what is currently being spent on healthcare (Escarce e90). The shared payment when employees are required to make out-of-pocket payments is also likely to motivate the Seamus Company employees to make less costly decisions when accessing healthcare due to cost awareness hence creating a financial benefit to the company. Seamus will therefore benefit from the service delivery model of the CDHP of choice as well as from the individual decisions of employees.
Besides the financial benefits, Seamus Company may also experience various financial drawbacks with the plan. These drawbacks include: costs of administrative requirements, back-end administration investment costs, and the potential for exposure to higher financial liability. Working with CDHPs requires investment in robust and extensive information-sharing systems, decision support tools and investment in provider cost and quality evaluations, all of which drive up the initial costs of the plan (American Academy of Actuaries 13). The back-end administrative costs are incurred in the processing of claims, where Seamus may be subjected to different processes depending on the chosen provider. Similarly, poor decisions by the employees at the point of access can increase Seamus’ financial liability. These factors are however not mandatory in all plans and may vary from one option to another, hence the need for the company to make informed choices.
Seamus is also likely to benefit from the increased usage of CDHP services by employees. The most significant impact of such plans is increased employee satisfaction, which can result in higher productivity among employees. Increased productivity translates to better organizational performance, meaning that Seamus Company will be growing.
- External Healthcare Benefits
External healthcare partnerships provide an opportunity for organizations to benefit from low costs while the employees benefit from the elaborate healthcare services. One of the key benefits associated with external healthcare partnerships is the reduction in healthcare costs due to shared service delivery models (Grouse 558). Various forms of healthcare benefits come with different models of cost distribution; while some involve the insured individuals participating in the healthcare payments, others involve organizations that combine healthcare insurance with healthcare service delivery, which allows them to give lower cost services. Another financial benefit that could be earned through healthcare partnerships is the reduction of financial risk due to risk distribution among the partnering organizations.
External healthcare partnerships also come with various financial drawbacks. One of the potential drawbacks is the cost of the evaluation process for ideal partners. Collaboration between the external partners and Seamus Company will require the company to choose a partner with shared objectives and intentions; to do this in-depth due diligence on many potential partners will be mandatory, which can be costly in terms of time and money. The financial expense in the process is a financial drawback that Seamus will have to experience. The legal and taxation issues that are pertinent to such partnerships can also present complexities that result in financial challenges (Allen et al. 5). Specific requirements for the organizations that get into partnerships and the benefits of such partnerships imply that such organizations could probably put in place demands for financial commitments from would-be partners.
Considering the advantages and disadvantages of external healthcare partnerships, the decision to go into an external healthcare partnership will be beneficial for Seamus Company because of the ability to meet the needs of patient populations at minimum costs. For Seamus Company, the current objective is to reduce healthcare-related costs and healthcare partnership would be one of the ways to achieve this. If Seamus Company works with external partners who can address the population needs specific to Seamus’ employees, it will be possible to reduce both time and costs incurred in health management. The saved costs can then be channeled to other uses, which can result in higher revenues in the company.
Reduction of healthcare-related costs is an objective that many companies in the contemporary times are actively pursuing, and Seamus Company is not left behind. Various strategies have been proposed for the company namely HMOs, PPOs and CDHPs. These options present various benefits and challenges, and the utilization risks and benefits will vary from one option to the other. It is recommended that Seamus Company should evaluate all the available options and then go deeper into evaluating specific potential partners under each option. The most optimum service provider and category should be selected based on the cost and care quality. Some of the benefits that would be gained by partnering in healthcare coverage include reduction of premiums and reduced medical costs. On the other hand, the partnership-based health plans also come with financial risks such as the costs of investment in the decision making tools and communication systems that would facilitate collaboration between the healthcare plan provider and Seamus Company.
Allen, Patrick M., Michael J. Finnerty, Ryan S. Gish., Mark E. Grube, Kit A. Kamholz, Anu R. Singh, J. Patrick Smyth, et al. “Guide to Healthcare Partnerships for Population Health Management and Value-Based Care.” American Hospital Association, Jul 2016. www.hpoe.org/Reports-HPOE/2016/guide-to-health-care-partnerships-pop-health.pdf. Accessed 16 June 2020.
American Academy of Actuaries. “The Impact of Consumer-Driven Health Plans on Healthcare Costs: A Closer Look at Plans with Health Reimbursement Accounts.” Public Policy Monograph. www.actuary.org/sites/default/files/files/cdhp_jan04.4.pdf/cdhp_jan04.4.pdf. Accessed 16 June 2020.
Cigna. “Maximizing the Value of Consumer-Driven Health Plans: A Closer Look at HRA and HAS.” Cigna, 2017. www.cigna.com/static/www-cigna-com/docs/employers-brokers/882377-cdhp-white-paper-final.pdf. Accessed 16 June 2020.
Grouse, Lawrence. “Medical Partnerships for Improved Patients’ Outcomes – Are they Working?” Journal of Thoracic Disease, vol. 6, no. 5, 2014, pp. 558-563. www.ncbi.nlm.nih.gov/pmc/articles/PMC4015008/pdf/jtd-06-05-558.pdf. Accessed 16 June 2020.
Leung, Lucinda B. and Jose J. Escarce. “Consumer-Directed Health Plans: Do Doctors and Nurses Buy In?” The American Journal of Managed Care, vol. 23, no. 3, 2017, pp. e89-e94. www.ajmc.com/journals/issue/2017/2017-vol23-n3/consumer-directed-health-plans-do-doctors-and-nurses-buy-in. Accessed 16 June 2020.
Wagner, Eric R. and Kongstvedt, Peter R. Types of Health Insurers, Managed Health Care Organizations, and Integrated Health Care Delivery Systems. In Kongstvedt, Peter Reid. Essentials of Managed Care. Jones & Bartlett Publishers, 2013. samples.jbpub.com/9781449653316/Chapter2.pdf. Accessed 16 June 2020