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Self-Insurance Is Just the Start, Say Health Plan Innovators

Design plans to promote high-quality, cost-effective care, not to reward carriers and administrators

A stethoscope and a calculator on top of a sheet of paper.

Employers are not being bold enough with their self-insurance strategies, said health plan trendsetters speaking at panel discussions at the recent 2018 World Health Care Congress in Washington, D.C.

Much of the thinking behind common health plan design changes is misguided, said health care broker and consultant David Contorno, president of Lake Norman Benefits. "Deductibles didn't work, so we've made them higher. Networks didn't work, so we've made them narrower. It's backward logic."

A change that the experts wanted to see is greater price transparency for health care services. "Any CEO in the country can quickly look up what they pay for paper clips, but when you ask the same question about a back surgery, they don't know the cost," said Lee Lewis, innovative practice lead at benefits broker Arthur J. Gallagher. "There are about 350 procedures that make up 90 percent-plus of all the health care dollars we spend. It's not that hard to figure out the cost of 350 things" and then use plan incentives to encourage enrollees to select high-quality, cost-effective providers.

To that end, consider incentives that encourage employees to use health care centers of excellence, which are facilities that specialize in certain procedures with a record of better-quality outcomes at lower costs. "It's only 35 miles for most people to drive to a center of excellence," said health care futurist and author Josh Luke, former CEO of Avanti Hospitals. "That's less than many people drive to work each day."

A Maze of Costs

For both fully insured health plans and self-insured plans that use an insurance carrier as the third-party administrator (TPA), "the revenue and profit model is built on costs going up," said Contorno. Paying brokers a percentage of premiums, typically through the carriers, is part of the problem. The insurance carriers' view, Contorno said, is "our costs go up, and your revenue goes up, Mr. Broker, so it's a win-win for everybody except for the employer and employees."

Contorno pointed to the wide range of prices for common surgeries, if the price can be found at all, as he described in this video. When investigating costs for his own hernia operation, he was quoted prices at area facilities ranging from $8,900 to $47,500, "and the highest-cost facility had the worst outcomes, with the highest reinfection and readmission rates."

He described the Surgery Center of Oklahoma, where he had his surgery for $3,060, as an example of a best-practice alternative and, he said, a model of price transparency and cost effectiveness, even when taking into account travel and family accommodation costs.

However, he said, "if employers tell their carrier or TPA they want to contract directly with a facility like Surgery Center of Oklahoma, which has a quality record of above-average outcomes for procedures that are offered at 40 [percent] to 60 percent below typical preferred-provider organization pricing, and that you want to pay claims [from such centers of excellence] at 100 percent to provide employees with an incentive to go there, carriers typically will respond, 'Oh, no, we can't do that,' " because their plans are designed to favor a network of local health providers.

Can Fortune 100 corporations "bully their carriers, kicking and screaming, into doing these things? Absolutely," Contorno said. But smaller, self-insured companies lack that kind of leverage.

[SHRM members-only toolkit: Managing Health Care Costs]

Goodbye to Insurance Carriers

Contorno advocates moving to a direct-payer model between employers and health care providers that excludes carriers altogether, strips out hidden fees and pays brokers based on the extent to which they lower employee costs. Next, engage health care consumers to use high-quality, reasonably priced facilities through incentives built into the plan.

One company he helped shift to this model is lawn-care service SavATree, which operates in 12 states with 1,100 employees.

"Ours is a reference-based pricing plan with no carrier and no network," said Valerie Maziarz, vice president of HR at SavATree. With reference-based pricing, employers set a cap on the maximum amount that they will cover for certain medical services that have wide cost variations, such as knee- and hip-replacement surgery. "This year, for the first time, we reduced how much comes out of employees' paychecks," she said.

SavATree uses innovative drug-sourcing strategies outside the pharmacy benefit manager market, and provides its employees with 1,500 zero-cost medications through the plan, Maziarz noted.

The plan typically pays providers a fee based on Medicare prices. "We can vary it, but we found the sweet spot to be 120 percent of Medicare for labs and X-rays, 140 percent for providers and 150 percent for facilities," Contorno explained. "The 140 percent is actually a small increase for most providers."

The majority of savings comes from better control over pharmacy and hospital costs, "and getting employees to better environments where unnecessary [tests and procedures] happen less often," he said.

Employees go to the doctor and show their new ID card without the logo of a big-name insurer as TPA, Contorno said. "If the provider is confused, we give them a call and explain that there are two requirements to take the plan: The doctor must be a licensed physician, and they accept money as a form of payment. I ask, 'Do you accept money as payment? Great, you take our plan.' Once it's explained to them, there hasn't been one provider that hasn't accepted it."

Any pushback from employees during the initial transition about forgoing the use of a known carrier or a specified provider network "is far outweighed a year later when you're offering them better care with fewer dollars taken out of their paycheck and out of their pocket," Contorno noted.

He added, "I want employers to know this is possible, that there are employers doing it and this is not pie in the sky."

Auditing All Claims Is ‘Worth the Bother’

For most self-insured plans, TPAs may only audit submitted claims over $50,000, said Sarah Redgrave, vice president of total rewards at Portland, Ore.-based KinderCare Education, which operates 1,400 preschools across the U.S. staffed by 28,000 teachers. 

"In our [self-insured] medical plan, claims overwhelmingly fall under $50,000 and usually under $25,000," Redgrave said during a World Health Care Congress presentation. "TPAs don't want to bother with these because, individually, the dollar savings are considered small, but they're not small for us" since together they add up to substantial costs, she explained.

To look into the problem, KinderCare hired a firm to run all of its claims through software "just looking for black and white errors," and found extensive mistakes. For instance, a hospital incorrectly treated multiple procedures during the same surgery as if they were separate operations, which jacked up the costs. "It can be difficult to get TPAs to cooperate with this activity, Redgrave noted, "but if there are enough of us who push hard on our TPAs, we can get them to understand that all claims need to be audited."

Another action KinderCare took was to request a list of all claims on a biweekly basis and simply "look for weird things" that stand out, Redgrave said.

"Just by using our eyeballs, we found things that we covered but didn't mean to cover," she added. For instance, "some people were heading to Florida and California from Michigan and other cold places" for rehabilitative services. KinderCare was able to close this loophole "by requiring precertification for rehab, as we do on the medical side, and that alone saved us about a million dollars."

Related SHRM Articles:

Improved Claims Data Drives Use of 'Captive' Insurance, SHRM Online Benefits, August 2016

More Small and Midsize Firms Choose to Self-Insure, SHRM Online Benefits, July 2016

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