The Pros and Cons of Bidding out a Health Plan

Employer-sponsored insurance plans are widely acknowledged as a valuable employee benefit, but also can be quite costly for employers. In an effort to manage tight budgets while still staying competitive in their recruiting and retention efforts, employers are always on the lookout for sensible ways to trim costs from their employee health plans. Some employers are starting to bid out their insurance plans each year in the hopes of finding the most competitive cost. This article examines the pros and cons of this strategy.

Pros

Bidding out insurance plans each year (or at least relatively often) can be a great strategy for encouraging competition and striving for best price.

• When employers renew the same plan year after year, they may miss out on other options that might be better suited for their company.
• Initiating an openly competitive bidding situation gives the upper-hand to the employer—providers know they are competing equally for the business, so they will present the company their most competitive offer.
• Studies have suggested that companies can save money simply by putting their plans out to bid more often.
• Because small companies have a smaller workforce and HR department, putting their plans out to bid every year can be an efficient cost-saving mechanism for them.
• Though it may be unwise for larger companies to put plans out to bid every year, those with numerous plan options can realize substantial cost savings from bidding out each plan every few years.

Cons

As employers know, cost is not the only important component of choosing an employee medical plan. Despite the potential for cost savings, putting plans out to bid too often can have considerable drawbacks as well.

• Switching plans too often can create employee dissatisfaction and affect morale. Employees may be forced to switch health care providers, adapt to a new payment method or settle for a decrease in their benefits. This can be frustrating and confusing. It is important to understand how a change will affect your employees.
• Many plans work best when allowed to run for multiple years, so switching too soon may negate potential future value the employer could have realized.
• For larger companies, implementing the sweeping change of a new health care plan is a significant undertaking; changing plans too often may be unreasonably burdensome on the HR department.
• Putting plans out to bid with the goal of finding the lowest cost can be problematic if the process ignores the overall value and benefits of the plan. A good plan should balance cost and value for both the company and the employees—aggressive price bidding situations often don’t reflect this goal.

This Benefits Insights is not intended to be exhaustive nor should any discussion or opinions be construed as professional advice. © 2015, 2018 Zywave, Inc. All rights reserved.