Trimming Healthcare Benefit Expenses: Transition From a Retail Plan to an Alternatively-Funded Custom Plan

Earlier in his career, Paul Seegert held roles that contributed to “the problem.”

Now he’s providing solutions to mitigate them.

Seegert spent more than a decade in management positions at national insurance providers, where he witnessed how “cyclical policies rack up unnecessary high costs for businesses in one of the nation’s priciest marketplaces.”

U.S. health care spending in 2018 eclipsed $3.6 trillion, or roughly $11,200 per person, according to the Centers for Medicare and Medicaid Services. The sector that year accounted for nearly 18% of the country’s gross domestic product.

The insurance industry, an archaic giant, has operated in much the same way for decades, according to Seegert, the managing partner of PCS Advisers in Northern California. Brokers are still compensated on a percentage of premiums. As a result, they earn more when clients spend more, not less.

That contrast, according to Seegert, is “exacerbated in the supply chain” by pricing policies levied by hospitals and other medical service providers, insurance companies, drug manufacturers and pharmacy benefit managers. “The players on the other side all make money so as long as costs go up,” he says. “Employers on the other side have really no defense against this.”

Consolidation in the last decade, fueled by the Great Recession, has driven up healthcare costs in the Golden State, where premiums significantly outpace the nation. The average monthly U.S. premium for single coverage in 2018 was $574, according to the Kaiser Family Foundation. Oakland-based nonprofit, California Health Care Foundation, reported the average California premium for single coverage that same year was $726, or roughly 26% higher.

In real dollars, Californians pay about $2,000 more annually for healthcare services. “California is 10 to 20 years behind the rest of the country in innovating in healthcare and controlling healthcare costs as far as health insurance,” Seegert says. “We should have the best pricing in the country.”

Health benefit costs, according to the Society for Human Resource Management, were rising three times faster than the inflation rate and twice as fast as wage increases—before the novel coronavirus upended the global economy. Transparency, or lack thereof, is a catalyst.

Seegert recently concluded a renewal for a California car dealership with a few hundred workers. Its health insurer refused to disclose the amount spent on individual employee coverage last year, a reverberation of successful industry lobbying efforts in Sacramento over the years. “The employer is in no position to negotiate anything,” he says.

PCS generates revenue through plan development and consulting fees, retainers, brokerage services and/or bills clients based on a percentage of cost savings.

Demand for alternative healthcare plans are rising as the cost of healthcare benefits escalate amid a global epidemic. Benefit costs are projected to increase 5% this year to nearly $15,400 per employee, according to the National Business Group on Health. “Yet our typical client is well below $10,000,” Seegert says.

The Washington D.C.-based trade group, which represents large employers, released its forecast in August, months before the COVID-19 outbreak surfaced in late December in Wuhan, China. The virus is already affecting sentiment among finance chiefs across the country.

According to a March 30 Gartner survey, which queried 317 chief financial officers and other finance executives, 62% indicated their companies planned to cut selling, general and administrative budgets this year as a direct result of the coronavirus.

Healthcare benefits are typically one of the highest costs for businesses. “The interest level in what we’re doing has gone up,” Seegert says. “Whatever the world looks like post COVID-19, our message will be more interesting.”