Tuesday, February 24, 2009

How simple accounting processes can slow down the runaway costs of health benefits

President Barack Obama is now discussing the "runaway" costs of health care, but for most companies, a simple review of their claims to premium history could help drop their costs for medical coverage for their employees.

For years, the health insurance industry has been targeting their client's human resources department with marketing and the occasional visit for lunch or dinner.  By establishing a rapport with these decision makers, most insurance reps are able to generate a 1o-percent increase in their annual premiums.

According to my friend and client, Stephen Geri, the owner of Diversified Insurance Brokerage Services, most businesses average about a 30-percent to premium ratio on the cost of the actual medical claims paid.   Factor in the 21-percent for administrative costs, and that leaves the typical health insurance carrier with a 49-percent profit before they ask for an additional 10-percent increase.

Business leaders can change this trend right now by asking their human resources professionals to ask for their "claims to premium" ratio for several years.   Working with their chief financial officer or outside accountant, they should review these numbers 60 days before their renewal date on their policy.

And, if a company has the national norm of 30 cents to a dollar as a ratio for the last couple of years, they should tell their health insurance agent that a 10-percent increase is really unjustified.  Furthermore, businesses should establish as a practice that their annual review of benefits include someone from their financial team to help review the claims to premium ratio.

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