Cost Control in Health Insurance

Junior (College 3rd year) ・Healthcare&Medicine ・APA ・2 Sources

In insurance, cost-control is important as it affects the profit margins of the organizations, and also affects the financial well-being of the insured party. Cost control is also vital as it determines the quality of health service and its sustainability. There are two main insurance plans for employers to consider. In the employer-sponsored health plans, the organization that employs an individual agrees to remit premiums to a secondary institution to cover the risks to the employee (Kuttner, 1999). These are often fully insured schemes whose premiums are based on the employee demographics. However, in a self-funded plan, the institution assumes the risk of the employee.

As such, the employees can seek medical services, and the employer assumes the responsibility of covering costs and monitoring the quality of service offered to its employees. The two plans differ in cost-control measures. The control over the riders in the health plan allows the employer some element of cost control. Riders are add-ons for a health policy that can expand the scope of the benefits. Employer-sponsored health plans offer riders to the employees during open enrollment (Kuttner, 1999).

The choice of riders is often controlled by the employers to control costs. Also, there are additional costs to the employee in terms of deductibles, that are imposed to cover these services. The option of riders is often not included in such plans to conserve money and cut costs. Enrollment periods are a means of cost-control for the employer-sponsored health plans. The employers can define a set period during which the benefits of the plan are locked (Claxton, et al., 2013). This measure reduces administrative costs. For most employers, this period is often one year. Therefore, any new employees may have a waiting period.

The employees are usually offered packages that have different coverage at different costs. While the involvement of third-party administrators may seem like a source of extra costs, they are an avenue through which the employer can cut costs. The employer-sponsored health plan lacks third party administrators since the coverage is outsourced to the health insurance company. However, the third party administrator area ubiquitous part of the self-sponsored health plan. Third parties are involved in the collection of premiums and assessment of claims. The organizational involvement in the employee care also gives the employer better control over the health insurance schemes and programs. Most health plans are not portable, and this is a cost control measure for the employer. Employer-sponsored health plans are not portable between jobs. While the self-funded health plans are also not portable, they offer some degree of flexibility that allows the employee to continue enjoying the benefits of the plan. If the employee should choose to use one of the networks of providers such as under COBRA legislation, there is an option of retaining the insurance.

However, this coverage is only for a limited period and is often more expensive since the employer is no longer obliged to cater for a section of the cost. Creditable coverage reduces the waiting period for employees. One of the requirements of insurance companies is that the person covered should bot have a pre-existing condition since this delineates them as a bad risk (CMS, 2017). However, with the creditable coverage, this changes. Employees who were covered in a CHIP program can be issued certificates to show that they had insurance coverage. This certificate allows them to circumvent these exclusion criteria when changing providers. As a result, the cost to the insuring agency increases while the covered party benefits from the cost reduction.


Claxton, G., Rae, M., Panchal, N., Damico, A., Whitmore, H., Bostick, N., & Kenward, K. (2013). Health Benefits In 2013: Moderate Premium Increases In Employer-Sponsored Plans. Health Affairs, 32(9), 1667-1676.

CMS. (2017, May 9). Guidance: Employers/Unions & Medigap Issuers – Which Notice of Creditable Coverage to Provide? Retrieved from Centre For Medicare and Medicaid Services: Kuttner, R. (1999). Employer-sponsored health coverage. New England Journal of Medicine, 248-252.

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