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Report: Insurers, brokers are hindering healthcare cost reductions

The Healthcare Performance Management Institute says recent research indicates insurers and benefits consultants are hindering employers' efforts to reduce healthcare costs.

HPM's "Barriers to Reducing and Controlling Healthcare Costs" examines what officials say are misguided incentives that riddle the insurance industry.

"Insurers and brokers have little incentive to help their clients reduce spending on health benefits," said George Pantos, executive director of the HPM Institute. "After all, most brokers and consultants are paid on commission – so the higher the cost of the policy they sell, the more money they make."

Pantos said one major impediment to employers gaining control over their healthcare costs is ready access to the data held by insurance companies – data that is collected and analyzed using software that is often controlled by the insurance companies.

"Insurers and consultants tend to favor their own proprietary software for tracking their clients' health spending," said Pantos. "But in so doing, they tend to keep critical data from employers – data that businesses could use to identify ways to reduce their health costs. It's no wonder that broker-provided plans for businesses large and small continue to increase in cost."

Without greater access to data, employers can't effectively target high-cost areas that lead to increases in premiums. And with few employers indicating they're considering reducing health benefits to their employees, they aren't finding data-driven strategies to fight back against rising rates.

In addition, HPM officials say there is no incentive for the industry to find ways to curb premium increases. Specifically, they cite a "hidden" barrier – the fee structures used to pay insurance brokers – as an impediment to reducing costs.

According to the "2010 Employee Benefits Market Survey" from Independent Insurance Agents & Brokers, 86 percent of respondents said premiums increased for small accounts (those with 50 or fewer employees), with more than half the increases falling in the 11 percent to 20 percent range. For medium accounts (those with 51 to 500 employees), 93 percent said those accounts experienced increases, with 58 percent seeing increases in the range of 6 percent to 15 percent.

"Generally, most broker and consultant compensation arrangements are calculated annually based on a percentage of gross earned policy premium volume – while a handful offer flat fee arrangements," the HPM Institute report states. "Brokers and consultants may also receive additional annual compensation based on sales volume levels. This fee structure often conflicts with incentives for brokers and consultants to improve plan performance."

The HPM Institute is a research and education organization designed to promote the use of business technology and management principles to deliver better and more cost-effective healthcare benefits for employers who cover their employees.