February 03, 2009
Hiking medical co-pays (sort of)
By raising employees medical co-payments from $15 to $25--and then reimbursing them the $10 difference, Hudson Valley Community College saved as much as $470,000 on health insurance premiums, offering a model for other cash-squeezed government agencies.
The sleight of hand savings are described in a recent report of the Office of the State Comptroller, "Containing the cost of Employer-Provided Health Insurance Benefits," and a related letter to the college (here and here).
In 2006, the college faced a 9 percent premium increase for the most popular of its employee Health Maintenance Organization plans. The college learned it could reduce premiums by 7 percent if it increased co-payments from $15 to $25 a visit.
But there was a hitch. Union contracts specified a $15 co-payment. So the college picked up the $10 difference. According to the comptroller's office (here) ,
These co-pay reimbursements to employees totaled $15,440, and the administrative cost of processing the co-payment refunds was estimated at $14,400. These costs combined with the seven percent decrease in premiums resulting from the increased co-payment ($15 to $25) resulted in a net savings to the College of approximately $168,000.
Taking into account the nine percent increase the College would have experienced had it remained with the $15 co-pay plan for 2006, the net savings could have been as high as $470,000.
Missing from the report is what effect the higher, yet reimbursable co-pays had on utilization. Did employees schedule fewer doctors appointments and medical tests? Did some decide it was too much hassle to seek reimbursement?
If medical utilization did not decline, will the HMO be able to offer lower premium rates in the years to come?
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