About the Client
The Plastics Fabrication Company
This client, which I will call “The Plastics Company” is a small, thirty year old company with a plant in Houston and another in rural Western Louisiana. They produce plastic resin pellets which is used to make pipe in both the United States and around the world. The plastics company employs a staff of hard working, semi-skilled employees who are usually the breadwinners for their families. The plastics company offers their employees good benefits, particularly good health benefits paid for largely by the company. The company does this partly as a means of attracting and retaining good employees, but mostly because they have a strongly-held belief that an employer has a responsibility for taking care of employees and their families.
In recent years, the plastics company found their health costs steadily increasing each year by double digits. While their medical utilization level was generally better on average than other groups with similar demographics, employees tended to under-utilize wellness care and over-utilize the emergency room for non-emergency situations. To compound matters, the location in rural Louisiana did not always have access to a network of contracted medical providers, causing both frustration and increasing out of network costs.
Initially, the plastics company combatted these increases by gradually raising their medical deductibles and increasing their copays, but their medical premiums continued to increase at an unacceptable level year after year. Standard plan offerings lacked the flexibility to alter the plans in a way that could encourage better utilization and keep costs down. The plastics company also knew that if they passed a larger percentage of the premium along to the individual employees, many of them would simply decline the medical coverage and forego needed routine medical treatment.
The reference based pricing model was successful in lowering medical costs by 13% in the first year by directing care to the most cost effective alternative. Additionally, this model lowered medical premiums by over $30,000. While the group ultimately changed to a plan without Reference Based Pricing in the subsequent year, it enabled them to stabilize their pricing and continue to offer high quality coverage at a reasonable price to their employees.
How We Helped
Working with a plan administrator, we developed a plan design which was better suited to the needs of the employees. Benefits were changed and education was provided to encourage employees to utilize the proper level of medical care. Additionally, a program called Reference Based Pricing was used, which foregoes a medical provider network and instead relies on the carrier negotiating a price for services with each medical provider. This combination of changes resulted in maintaining good benefits and lowering the overall cost of the plan.