Local government impact of rising group medical and insurance costs, and what can be done


The single most costly employee benefit for any organization is health insurance, and the price is going up. From 2003-2009, the costs per hour worked for employee health insurance increased from $1.03 to $2.00. These costs continue to increase from 5%-7% per year. The reality is that employee health insurance costs will continue to be a drag on operating  budgets that are already stretched too thin.

Cities and counties are service provider organizations whose budgets are heavily dependent on head count. The greater these benefit costs, the fewer the personnel. This could result in lower service levels in important areas like public safety, environmental protection, safety inspections, and infrastructure maintenance, to name just a few.

Many human resource organizations have made an effort to control these costs. They've implemented programs to improve the health of their employees and/or identify life style choices that reduce the individual’s risk of developing or worsening already existing problems.  Examples include wellness, health screening and consumer driven health programs, cash incentives and others. These programs require separate funding which further adds to the cost of this important benefit. The question is,  how does the organization determine if these programs are having the desired effect on health benefit costs? Many organizations use group health insurance premium costs as the sole measure for program effectiveness.

One must go several steps further to truly measure cause and effect of these programs on medical and insurance costs. HR organizations need to track things like:

  • Employee and dependent participation in the program
  • Employee demographics
  • Changes in behavior/life style
  • Medical costs over time
  • Number and types of workers compensation claims
  • Safety classes attended
  • Group health insurance claims, submitted by type and amount
  • Cost of prescription drug claims and the relation to claimant history
  • Type of work done by the employee/dependents
  • Health insurance premium costs and other relevant data.

This information needs to be tracked and analyzed over time, and related to past claims history of all employees/dependents covered by any plan. It is important that this same analysis be done for those not participating in the various incentive programs as a control group.

The key to analyzing the immense amount of relevant data to answer performance questions is having state of the art data integration, data quality, business intelligence and predictive analytics tools. With those tools, HR can easily tell which programs or combination of programs are helping control or reduce medical and insurance costs, including workers compensation costs, and which are not. It can predict the likely future costs given the employee history and demographics. Programs can then be developed to control costs in advance. The strategies for cost control are limitless if one can understand the relevant data and the interrelationships among the various data elements.


About Author

Bill Coleman

Advisory Industry Consultant

Bill Coleman works with SAS local government customers across the US to understand best practices and solutions. Coleman applies his more than 30 years of experience as a senior leader in city and local government to guide SAS product and marketing management. From 1994 to 2008, he served as Town Manager of Cary, NC, the seventh-largest municipality in the state with a population exceeding 130,000. Coleman was responsible for planning, organizing and directing municipal operations, which included more than 1,000 employees and 11 departments providing a full range of municipal services. Under his leadership, Cary was the first municipality in North Carolina to work on performance enhancement system. The system was designed to help the town maintain its high quality of life by improving resource allocation and operational efficiencies throughout town government, beginning with the areas of public safety and development services.

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