Why Standard Benchmarks Miss the Mark - and What to Use Instead

Simple solutions are worth striving for, as too often we run into overly complicated ones that don’t live up to the promises they make. But when things get overly simplified, it can create more problems.

The Standard Benchmark

One of the most common benchmarks to measure health plan financial performance is Average Cost Per Employee – based on two things:

• Total Plan Costs: How much in premium (if fully-insured), or claims and fixed costs (if self-funded) was paid out in the year?

• Enrolled Employees: How many employees on average were enrolled on the plan in the year?

The simplicity of the metric sounds nice - Want to compare your spend vs. another larger industry competitor? It just makes sense to get a nice, easy average per employee and you can see how you’re running.

But though the metric can be directional, it can also COMPLETELY HIDE underlying trends that serve as key differentiators (or areas of opportunity) between your health plan and a competitor's.

The Complicated Questions

1. What if I have more employees enrolling on the plan?If more employees are enrolling in your plan out of all those eligible compared to your competitor, how is that getting accounted for? If 80% of your employees are enrolling on the plan, but your competitor only has 40% - the total costs for the plan could be drastically different.

2. What if I have more families?If your employees are, on average, bringing more kids and spouses onto the plan than your competitors, is it fair that your “enrolled employee” is similarly weighted as theirs? According to Milliman, a family of four is around 4.5x more expensive than an average individual on the plan.

3. What if my health plan is better for employees?The metric only accounts for plan costs – nothing from the employee. If my plan is richer and my employees pay less in out-of-pocket costs, does that mean I’m always going to be “above” benchmark? And how are employees’ contributions towards the plan per pay period being evaluated?

4. What if their employee population isn’t like mine?If your company is slightly older than your competitors, you’d expect that you’d be spending more on healthcare than they are – solely because of your demographics. If you’re younger, you’ll probably be spending less – but where is that accounted for?

5. What if healthcare is more expensive where I’m at?

Prices for healthcare services vary significantly by state – with some states like Iowa being less than 200% of Medicare prices, while others like Wisconsin being over 300% (RAND). If your competitor is in a cheaper state for healthcare, how is that accounted for?

6. Where do I even start if I’m looking to reduce spend?

If you’re costs are above benchmark, most businesses wonder “Is there a way to lower them?” But if just looking at one number, identifying the most reasonable place to start becomes nearly impossible. Is it my medical costs? Pharmacy costs? Number of people on the plan? Or something else entirely?

So what’s the alternative?

The 3C’s – Benchmarking, Built Better

About 15 years ago, our team recognized that not answering these questions led groups to become more confused, or even worse, grow complacent, because they thought they were “in line with benchmark”.

To combat this, we developed the 3C’s Benchmarking Process – providing groups with a logical and understandable framework to identify how they’re performing and where there is opportunity.

3 categories, 7 metrics, and a dashboard that compares you to the benchmark, delivering the insight needed to answer the following questions.

1. Coverage: Who’s on your plan?

   • Breaking down employees participating and dependents enrolled.

   
   

2. Consumption: Is healthcare being utilized efficiently?

   • Outlining medical and pharmacy cost benchmarks.

   • Accounts for ALL the potential questions that come up around plan design, demographic adjustments, and geographic price adjustments.

   
   

3. Cost-Share: How are you splitting the bill?

   • Reviewing how your plan design, employee contributions, and overall cost-sharing structure compares to benchmark.

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Bottom Line

Benchmarking many times is the first step in the process towards understanding if you have a problem (or strength) with your health plan. Average Cost Per Employee might be easy, but it can completely miss the mark in providing findings that truly tell you how you're performing.

If you want to make smarter, data-driven decisions about your health plan, let’s connect and run through your 3Cs today.