McKinsey report : Self-Insureds should seek long-term contracts with TPAs.

A report by McKinsey management consultants has predicted that in just a few years the average Fortune 500 company will be spending as much on health benefits as it earns in profits. The report identified fragmentation of health plans operating under different state laws with union resistance to reform as the main reasons for failure to control health costs and also mentioned that some economists believe health benefit costs to be a reason that many companies do not hire more aggressively. The report called for a employers to take a more strategic and integrated approach and to work with their employees to establish what employees needed against what companies could afford. Whilst recognizing the need to create incentives to use benefits more efficiently the report also warned against passing too much of the cost on to employees as employee costs can discourage some employees from seeking preventative care or medications leading to higher costs in the future. As part of a long-term strategy to reduce costs the report suggested that self-insured employers might consider multi-year healthcare administration contracts with third party administrators and linking part of the compensation to the administrator's effective management of long-term expenses arising from chronic diseases such as diabetes and cancer which involve costs that can take several years to fully materialize.