Shift to paying out-of-pocket costs instead of expensive claims.
Seeking control over healthcare costs is a challenge every organization faces, and there are many tactics to consider.
Raising deductibles, cost shifting, and benefit reductions can lower costs for employers, but they have the most onerous effects on employees. Wellness programs, generic mail order drugs, and employee education are also commonly used methods, but they don’t have much of an overall effect. In reality, none of these tactics are very effective at lowering costs. Fundamentally, the best way is to reduce claims because claims drives costs.
Interestingly, the least used strategy is the most effective. Some employers offer a highly significant incentive for spouses to waive coverage and join their own employer’s plan. Commonly referred to as a Medical Expense Reimbursement Plan (MERP), this program offers to pay all out-of-pocket costs for the spouse if they waive coverage on the employer’s plan and elect other group coverage.
By eliminating all out-of-pocket costs – co-pays, deductibles, and coinsurance – 100% medical coverage is now being offered. Now, the employer will only be paying out-of-pocket costs and not medical claims, resulting in significant savings. And, unlike medical claims, the employer’s liability is now capped by the ACA, which limits individual out-of-pocket costs to $10,600.
The net effect of the MERP is multi-fold. Participating employees will save $1,000’s annually, while employers will realize an immediate savings from premiums, medical claims, and pharmacy claim reductions, as well as offering better coverage for employees.
100%
guaranteed savings
$1M
typically saved for every 1,000 employees or members who are covered by your plan
5 - 15%
savings in first year
At first glance, reducing medical claims may seem like an impossible task, but the MERP provides an innovative way. Today, spousal costs are typically 15-20% higher than the employees’ and amount to about 40% of all claims. Employers have tried various means to offset the cost of spousal coverage, but the conventional practices are not effective. Here are some other examples.
Spousal surcharges are generally used as the strategy to compensate for their added costs, discourage participation in the plan, or have them seek alternate coverage. For healthy working spouses who have access to their own coverage they might go elsewhere, but an unhealthy spouse is more likely to stay on the plan and pay the surcharge. The net effect is that the surcharge does not reduce claims and has virtually no effect on offsetting the high medical claims. In fact, it may lead to the unintended consequence of creating an adverse selection problem.
Cash-in-lieu programs are used to reward spouses to opt out and secure alternative coverage, but the net effect is essentially the same as having a surcharge ... the good risk leaves and the high risk claimants stay.
Spousal carve-outs are also used, but this is the most aggressive and drastic alternative that an employer can choose since it prevents all spouses who are eligible to obtain health insurance through their own employer from enrolling in the company’s healthcare plan. Moreover, an employer should consider the impact such a decision would have on the ability of the organization to retain and attract talent, as well as employee morale.
By executing our MERP program, measurable and predictable results will reduce the number, size, and frequency of medical and pharmacy claims this year and every year, beginning with the first month.
When a spouse foregoes their own employer-based health insurance plan and elects to be on your plan, it's because your plan has better benefits, costs less, or both. As such, your plan is subsidizing the spouse's plan by assuming the risk and subsequent costs.
If a working spouse is eligible for group health insurance with their employer, they can waive your health plan benefits and enroll in their own employer's medical plan. The enrolled member and/or dependents can also elect to move to the spouse's health insurance plan when open enrollment occurs.
A union or organization can start the initial implementation of a MERP at any time of the year. Individual members will sign on during their open enrollment period or following a Qualifying Event. On average, members selecting the MERP will save about $5,000 per year.
Example of Savings for Plan Sponsors
Without A MERP
$15,000 Premiums
$120,000 Claims
= $135,000 Total Spent
With A MERP
$0 Premiums
$0 Claims
= $0 Total Spent
(Less the average savings of $5,000 a year to members in out-of-pocket costs)
Savings to Plan Sponsor = $130,000 ($135,000 minus $5,000)