NEW YORK (TheStreet) -- Companies looking to trim costs might want to consider moving to a self-insured health care coverage plan. These plans come with added risk but give employers flexibility on cost and allow for negotiations over bloated medical bills -- and it could also be an important step in preparing a company for acquisition or initial public offering.
"Health care is one of the top five cost drivers for any organization," said Steve Kelly, CEO of ELAP Services, a company that provides the service of helping companies that are self-insured lower their medical bills.
Healthcare costs in the U.S. are projected to hit $3.207 trillion this year alone.
One reason so much is spent in the U.S. on health care is a lack of transparency in medical billing and that everyday items often cost patients far more when purchased in a hospital rather than a pharmacy. For instance, on hospital "gross charges," one ELAP audit found a $29.99 charge for a gauze pad that can be bought at a drugstore for $1.99.
This is a problem that self-insured organizations can tackle with the help of firms like ELAP. Here's how it works:
Organizations that are self-insured pay their employees' medical bills as they come, rather than paying premiums to an insurance company, which then pays the bills. Companies like ELAP act as a middleman and negotiator. When the bills come in, they are audited carefully and scrutinized for charges that are beyond their actual costs, as reported to Medicare. From there, medical providers are allowed to keep a fair margin above cost, typically 12%-to-25%, with the savings returned to the employers.