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How to hold down health care costs

Employers looking to self-fund need to consider these factors


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To self-fund or not to self-fund, that is the question. As the fully insured market continues to get hit by rates increases, more employers are looking to self-funding as an opportunity to escape the choke hold of ever-increasing premiums.

Watching the popularity of self-funding grow is exciting, but I advise employers to proceed with caution. Self-insuring the health plan opens an employer to great opportunity but looking to self-funding as the ultimate destination may bring great disappointment.

Simply put, self-funding is a vehicle, not the destination. It is not the solution. It is an avenue providing an organization with the opportunity to do some incredible things with its health plan. Look at it this way, without a destination in mind or a road map to get there, an automobile is useless. However, if you have a chosen destination with a clear set of directions to get there, an automobile becomes an efficient vehicle allowing you to arrive at your destination successfully.

In the case of self-funding, I hope your destination is control. Control of costs and control of how health care services are purchased inside your plan. With that, I have some good news. There are employers out there who have already created the road map. There are industry rebels who are already helping self-funded employers successfully arrive at their destination ahead of everyone else.

You see, if you research these employers and industry rebels, you will find they all share one thing in common. The status quo has no place in their world. Their road maps do not include shopping carriers, increasing deductibles or employee contributions. They do not focus on beating up vendors over administration fees and stop loss premiums. No, they all understand that self-funding is about control.

They understand that to control costs you must control claims. If controlling claims does not have an important role within your road map you could be in for trouble. About 70-80 percent of your overall costs reside here so claims-focused strategies are a must. The best strategies focus on changing how the health care services are purchased. With that in mind, let's look at three strategies that will have your self-funded vehicle speeding to success.

Value-based Primary Care

A sound claims-focused strategy starts with giving your plan members access to value-based primary care. Value-based primary care is a model based on quality not volume (like most primary care physicians we see today). It exists outside the typical insurance model.

The payment structure is based on “membership fees”, not network discounts, freeing up the physician to spend more time with the patient. Under a value-based primary care model, patients often spend 30-40 minutes with physicians. As a result, the quality of the visit increases leading to better diagnosis.

In addition, the physician is not incented to refer specialty care downstream to a particular hospital or other medical facility. In fact, when specialty care is required, a physician under the value-based primary care model will help the patient access providers who are beacons for cost, quality, and outcomes.

This primary care model leads to effective treatment plans, a reduction in unnecessary procedures, and services provided at a fair price. Your plan members save money through better care while your health care costs drop. Direct Primary Care and onsite/near site clinics are two examples of value-based primary care.

Reward members who seek care with high-quality providers

Next, you need to be rewarding your plan members for seeking care with high-quality providers. Now, you might be saying, “But isn’t that why we have a PPO network?” This is a common response. In fact, employers across the country are looking to provide employees with the largest and widest PPO networks as a means of increasing choice so let’s talk about that for a minute.

What does the acronym PPO stand for? Preferred Provider Organization and I emphasize the word “preferred”. Look at any PPO network today. You are hard-pressed to find a physician or hospital that is not in the network. For most practical purposes, the health insurance industry has determined that such networks should be “all-inclusive.”

So how can this network be preferred if everyone is included? Many insurance carriers seem open to including any provider or medical facility willing to agree to its negotiated fee structure. The more medical professionals and facilities in your network, the better the network is, the thinking goes and that’s where the problem lies.

As you think about the network you offer your employees, there are three things you have to understand. First, larger networks can lead to greater plan costs. Choosing to provide a large, national network for your employees is often a decision of convenience.

Greater access will often lead to greater employee satisfaction, especially for an organization with employees scattered across the country. However, buyer beware. A large network may not be helping you drive plan costs down. To understand this, let’s first look at price.

Within one network, the price for one procedure within a small geographic area can drastically vary from one facility to the next. In some cases, the price variance can exceed 500 percent. Second, a network discount can be very misleading. A discount is not a discount when the price is too high or the purchase is unnecessary in the first place.

For example, if I told you my iPhone was worth $2,000 but agreed to sell it to you at a 50 percent discount I would still be ripping you off! Network discounts can be misleading when analyzing specialized services such as diagnostic imaging, surgeries, and inpatient stays, which tend to drive the majority of a health plan’s claims costs. The problem here is two-fold.

First, just as with the iPhone example above, large network discounts do not mean much when providers and medical facilities are allowed to charge 400 percent or more of the limit allowed by Medicare. Second, solely focusing on the size of the network discount could lead you to ignore quality and outcomes.

You need to be asking if the discounted service is necessary or appropriate in the first place. An unnecessary procedure avoided is cheaper than the best network discount will ever be. Last but not least, networks often block creativity.

I recently had an interesting conversation with a national insurance carrier about a mutual client. After a thorough review of the client’s claims activity, we uncovered several in-network facilities that were providing imaging services (MRIs, CT scans, etc.) at a low cost — much lower than the same services provided at the local hospital.

Knowing this, the client wanted to give plan members incentives to choose low-cost facilities for imaging services by agreeing to have the health plan pay 100 percent of the service, saving money for both members and health plan. However, the insurance carrier said no to our request, as it had a duty to “keep the rest of the network happy.”

Folks, a carrier-owned network is where plan-design creativity often goes to die. To win the health insurance game, we have to look outside carrier-owned networks to create change and reduce costs.

The lesson here is simple: By rewarding your plan members who seek care at high-quality health care facilities, your plan members will receive the necessary care, at the right time and at a fair price, positively impacting the number, the size and the frequency of your medical claims, resulting in reduced health care costs and happy employees.

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Andy Neary

Andrew Neary is a health care strategist with an emphasis on employee benefits for VolkBell, one of the largest insurance and human resources consulting firms in northern Colorado. He has more than 13 years of experience in helping employers impact the rising cost of health care through innovative long-term strategies. He has a true passion for creating an engaged, educated and empowered workforce, which is the foundation for a successful benefits program.

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