Healthcare costs continue to squeeze the bottom lines of almost every manufacturer with a sizable workforce. At the same time, the growing disparity between the pace of employee wage growth and healthcare costs is creating a scenario in which employee disposable income is actually shrinking. 

The good news is that, by becoming savvy negotiators, employers can reduce their healthcare costs while simultaneously aiding the financial needs of their employees.  

The challenge is that a vast majority of companies are neither structured, nor prepared, to maximize financial opportunities as they relate to benefit plan management. In addition, companies may not be receiving the best deals, as forces are working against them that benefit other parties. These include:

• Insurance companies that want to control the deployment of services, provide proprietary services, maximize fees and premiums and sell other services

• Healthcare providers that are not focused on cost and quality

• Pharmacy benefits management companies that do not provide insight into financial arrangements and may not be passing savings on downstream

• Brokers and consultants that are compensated from insurance companies and service providers and financially benefit when more services are purchased 

This is a tough road to go down without knowing how to spot conflicts of interest and negotiate optimal terms and arrangements.  Complicating matters is the fact that benefits managers who oversee these programs often feel their hands are tied when making decisions. Scrutinizing the current benefits plan creates more administrative work and forces managers to re-evaluate the current situation, often deterring them from managing and negotiating ideal vendor arrangements. 

Furthermore, a number of misconceptions prevent companies from attaining the best arrangements. These misconceptions include: 

• That the size of a company guarantees a good price

• That a good relationship with a vendor ensures the best deal 

• That the internal team has a lot of experience and is effectively managing the arrangements

It’s important to use the same rigor in procuring benefits as it is in purchasing other goods and services. You can uncover redundancies, waste and underperformance in benefits plans and vendor arrangements without compromising the quality of services provided to your employees.

How can you negotiate better deals?

Ongoing contract reviews, vendor management and optimization of current arrangements are key.  Understanding where there might be a conflict of interest and ensuring visibility into all options must be kept top of mind.  

1. Inventory your services and contracts. Document and collect service provider contracts, plan documents, summary plan descriptions and other pertinent vendor reporting. Understand data ownership, performance guarantees, and audit and termination provisions.   

2. Create a negotiation roadmap. Assess your company’s current programs and arrangements and understand the contract value and importance of each service.  Do the contracts reflect what was purchased and are the terms understandable and clear?  Can more value be added to enhance plan performance? Are there additional products and services that are being considered? Prioritize the approach and timing of negotiation discussions in order to create a game plan. Create your value proposition by painting the picture for your vendors so they can understand your perspective.  For instance, is the current year claims experience an anomaly? Has there been a change in your employee population? Are you only paying for the things you need when you need them and are you receiving what you pay for? It’s important to benchmark and evaluate the market so you know if there are competitive alternatives available. In addition, identify and utilize available innovative technology solutions and non-traditional service providers, such as auction-based vendor marketing and procurement platforms, internet and mobile-based tools, cost mitigation through medical management and alternative Rx programs.    

3. Negotiate with confidence. Ensure that you’re prepared going into the negotiation. For example, understand who the decision maker is, craft the questions you plan to ask, and know your needs versus wants. Identify alternatives, deadlines and walkaway prices and terms.  se your research to know your limits and set your target goals. Ask effective questions and carefully listen to the responses. For example, inquire if the program is an apples-to-apples comparison to a competitor or incumbent. Are the networks comparable? Are there any access restrictions? Be careful to control your emotions and not be reactionary.  Ask more questions, using phrases like, “tell me more…” Focus on building a relationship for the best possible outcome and long-term partnership.  Don’t make the first offer and don’t accept their first offer immediately.  Finally, it’s important to negotiate with enough time so as to not make a decision under pressure.  

4. Evaluate programs and contracts. Establish key metrics, monitor contract terms versus performance and market conditions.  Monitor industry players, connections, incentives, and potential conflicts of interest relating to contracted services.  Conduct regular reviews and audits of contracted services and pricing.

5. Adjust programs and terms. Manage with flexibility to adapt to changes that will maximize vendor performance and overall plan management.  Keep an eye on market circumstances, the economy, business conditions, demographic and regulatory changes. Regular adjustments to the program based on vendor evaluation are critical to avoiding subpar outcomes and continuing to drive performance and superior outcomes. 

The key takeaways to benefits negotiations are eliminating historical misconceptions, negotiating with vigor and monitoring with diligence. With a rigorous approach to proper planning, role definition and negotiation, companies will optimize plans and vendor arrangements, maximize financial terms, and increase the value of their programs.

Krieg is the president of Risk International Benefits Advisors which specializes in helping companies optimize their employee benefits plans to reduce overall costs for companies and their employees.