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Study: Competitive Bidding Cut Employers' Health Plan Costs

By Stephen Miller  12/12/2008
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By putting their health plans out to bid, companies cut their overall health insurance costs by 16 percent to 18 percent while preserving employee health benefits, according to an industry study of 4,700 medical plans spanning 137 U.S. employers with more than 8.7 million covered workers, retirees and their families.

The analysis was conducted by HighRoads, a provider of benchmarking data for HR plans.

“A great deal of focus has been placed on waste in today’s health care system; however, increased financial responsibility can be exercised along the entire health care supply chain to halt rising health insurance costs,” said HighRoads' CEO Michael Byers. “One of the most rapid and efficient ways to achieve this is to take key health insurance policies out for competitive bid.”

Employee health and benefits programs have become the single largest expense for most American companies. According to The National Coalition on Health Care, employer health insurance premiums increased by 6.1 percent in 2007—two times the rate of inflation. Since 2000, employment-based health insurance premiums have increased 100 percent, compared with cumulative inflation of 24 percent. (Preliminary survey findings released in September 2008 by HR consultancy Mercer indicate that cost growth for employer-provided health plans is likely to slow a little in 2009, to 5.7 percent.)

Using The Lab, a database that updates information on Fortune 500 health care plans in real time, the HighRoads' analysis found that:

Competitive bidding generally stabilized or decreased the ratio of health insurance increases without reductions in coverage or increases in deductibles. In 2008, for example, preferred provider organization (PPO) family in-network deductibles for both requests for proposals (RFPs) and renewed plans were $600 per family.

Companies that take their plans to bid tended to be higher-performing than those that simply renewed their employee plans, based on a stock market analysis of 52-week highs and lows.

“Bidding seems to alleviate the dilemma of cutting costs while trying to preserve employee quality of life. I would think it incumbent on any company to put their plans out to bid,” Byers advised.

Stephen Miller is an online editor/manager for SHRM.

Related Articles:   

Finding the Right Benefits Broker, SHRM Online Benefits Discipline, July 2011

Benefits Brokers: What to Consider, SHRM HR Q&As, June 2011

Get the Most from Your Benefits Broker, HR Magazine, July 2010

Renegotiate Benefit Contracts and Cut Costs, SHRM Online Benefits Discipline, July 2009

Strategies to Maximize Your Health Care Vendor Relationships, SHRM Online Research Articles, April 2009

Study: Competitive Bidding Cut Employers' Health Plan Costs, SHRM Online Benefits Discipline, December 2008

Contracting with Benefit Providers: Tap Technology and Use Teams to Manage Bids, Cut Costs, SHRM Online Benefits Discipline, October 2005

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