The gaming industry’s profits are under assault on all fronts; higher fees and taxes, lower table limits, high employee turnover, tightening labor markets, stricter government regulations, changing competitive markets, higher interest expenses and growing capital demands are all culprits. With all of this as the backdrop, most executive teams are spending a lot of time just fighting the fire du jour. Oh, and operating costs are going up faster than revenue and squeezing profits.
Health insurance expenses are the fastest growing operating cost for employers — in some cases, family health costs are exceeding annual employee paychecks. Unless something changes dramatically, health insurance costs will consume all casinos’ profits. Since 2000, employment-based health insurance premiums have increased by nearly 90 percent according to the “Employee Health Benefits: 2006 Annual Survey” by the Henry J. Kaiser Family Foundation.
As one might expect, insurance carriers have been reaping enormous profits. Carriers and brokers have declared record profits for the last five years. Keep in mind, carriers are always going to avoid risk and maximize profit. It is the nature of all businesses — but the insurance industry has made it an art form.
Insurance carriers often view the gaming and entertainment industry as “non-preferred.” The reality is that the claims cost for gaming employees is lower than the national averages for all industries.
Demographically, gaming employees tend to be attractive to carriers, yet casinos usually receive higher-than-average rates. Casinos are often unfairly rated because there is a perception that their employees are more likely to utilize healthcare.
While on the job, casino employees are subjected to overeating, drinking and smoking. Their lifestyles outside of work do not mirror what happens at the casino. However, carriers tend to focus on the negatives, opposed to the positives.
High insurance premiums can place a strain on a company’s profit margin. Human resource departments can help keep companies viable by finding ways to cut benefit costs without losing much-needed coverage. One way to combat high insurance costs and misperceptions is to conduct a health insurance audit. An audit of a company’s health plan will provide a clear, unbiased picture of what the rates should be. It takes the “subjectivity” out of the process and allows for a fair and valid re-underwriting of the group. It is a thorough review of the underlying assumptions of risk being made by the carrier and a powerful tool to guard against being unfairly overcharged for insurance.
In an industry like gaming, companies may be paying very high insurance premiums based on unlikely risk factors. An audit can reduce premiums to a fair level based on real risk.
A health insurance audit can also provide a financial boost for companies by cutting health care costs without compromising employee coverage or reducing employee contributions. Not only is the company saving money on insurance premiums, but it is ensuring better coverage for its employees and increasing its own profitability. Ultimately, an audit will benefit the employer and employee while reducing turnover.
For example, one large gaming company that owns and operates casinos in Nevada, Louisiana, Indiana, Missouri, Argentina and the Bahamas underwent a health insurance audit that began with a thorough examination of the company’s existing premium costs. Based on actual risk, the auditor determined what the rates should have been. Next, the auditor searched for discrepancies between the rates and the real risk. Finally, once the auditor had identified the differences, the company began the process of negotiating with its carriers to achieve unilateral price reductions. In the end, the company was able to reduce its premiums by more than $2.5 million per year without cutting its benefits.
The auditor found that the company had been unfairly rated; it was being massively overcharged based on erroneous risk assumptions made by the carrier. The carrier had been using data that was more than 15 years old and based exclusively on its experience in Atlantic City. The auditor showed the carrier the true actuarial risk derived from employing risk-modeling software programs and contemporary underwriting tools. The carrier ultimately agreed to reduce the rates.
Companies that do not audit their health and life benefits are subject to high costs and risk losing their competitive advantage in the workforce. The use of an insurance consultant, paid on a contingency basis, costs companies nothing and can bring them enormous savings. If an auditor is only paid based on a percentage of what he or she saves the company, that auditor will be motivated to get rates lowered, and the company has no financial risk in the process.
Dixon Greer is President of Liberty Benefit Insurance Services, a full-service insurance consulting firm based in San Jose, Calif.
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