The Illusion of Choice in Health Coverage Negotiations Part 3
admin | March 6, 2019
In the final entry of this series, we share where true choice exists in the healthcare industry. Learn how to tell if your benefits are built on a value-based care (VBC) model in Part 2. In Part 1, we explain the agreements large insurance carriers use to build their broad provider networks; how those agreements mislead buyers; and the impact they have on premiums, quality of care, and out-of-pocket costs.
The healthcare industry is frustratingly complex and opaque. Employers have struggled with rising premiums and poor long-term savings for years. Employees are financially burdened by healthcare costs from sky-rocketing deductibles and out-of-pocket expenses. In this environment, healthcare brokers and consultants demonstrating innovative thinking, who present high-performance networks to their clients, will carve out a position of expertise.
It takes specialized industry knowledge to properly administer a true, VBC benefits program. The process is new, requiring internal changes and with them comes the opportunity to strengthen the consultant-client relationship. That relationship is crucial to creating savings through differential management, utilization management, and reducing unit cost.
Do you have choice in healthcare coverage? That depends.
Healthcare bill charges are not final; there’s an arbitrary amount that is charged and a lesser amount that is paid. Like purchasing a car, you generally don’t pay the sticker price. For a given provider, carriers engage in price negotiation on a grand scale for a large block of business to create a discount scheme and an allowed amount. After services are rendered by the provider, claims adjudication follows, the employee contributes a set amount, then the health plan pays according to the agreed upon discount scheme.
This matters to self-funded employers who must ultimately sign the check for what is paid and at what rate: in-network (IN) or out-of-network (OON) without being given a seat at the negotiation table (learn why in Part 1). The final number on that check must be sustainably reduced. That’s why lowering TCOC long-term is our focus, over discounts.
A dollar saved by a discount has differential charges attached for OON services. Percentages of savings are charged for OON services, which creates profit for major insurance carriers. If an employer saves $500 on a $1,000 OON service—whether it was necessary or not—30% of that (or whatever percentage negotiated) typically goes to the carrier.
Utilization is significant: It’s better to not pay any part of an unnecessary procedure, however deep the discount. A 50% discount on a $1,000 procedure is good, but employers save $1,000 dollars rather than $500 by not paying for an unnecessary procedure. A plan built on a VBC model, like Healthcare Highways Health Plan, doesn’t profit from an employer in this way. We keep employers from paying for unnecessary or redundant treatment.
This eliminates the opportunity to profit from a percentage of your health plan “savings,” in situations of OON (over)utilization. Managing utilization is only one component of a value-based health plan, however. Unit cost must also be addressed.
Employers can manage unit cost or utilization, or they can manage unit cost and utilization.
As both must be managed to lower TCOC, it’s critical to not assume lowering one, lowers the other. That’s the equivalent of squeezing a balloon to make it smaller, which instead simply shifts the air inside it without reducing its volume. Air must be removed, otherwise the balloon’s volume remains the same, in a slightly different shape. Healthcare Highways addresses unit cost through a high-performance network, and then further reduces expenses by reducing over-utilization. Generally, employers can identify their amount of medical spend easily. Figuring out where those dollars went is the challenge.
Companies often shift to being self-funded with large carrier plans, assuming they will gain visibility and greater control over said dollars. Unfortunately, they soon find that transparency alone, doesn’t provide the control expected, leading to frustration. Control of unit cost and utilization to lower overall TCOC requires a re-alignment of three parties: the insurer, employer, and service provider within the VBC model.
Shifting into the self-funded space affords greater transparency, but it comes at the loss of alignment with large insurance carriers. When fully-funded by a large insurer, said insurer has an incentive to control costs at scale, up to a point. Moving to an Administration Services Only (ASO) framework moves the service provider out of alignment with the employer as well, compounding the issue. They also have no incentive to limit company healthcare expenditure.
Without the support of a VBC model, an employer is alone in their efforts to reduce TCOC and improve employee health outcomes long-term. With a VBC health plan, employers and service providers are brought into alignment because both parties mutually benefit from greater collaboration financially and professionally. The employer now enjoys greater visibility, control, and a partner in controlling healthcare expenditure and improving employee health outcomes.
“You won’t have a choice in healthcare coverage, if you ask nicely.”
This kind of shift can no longer be a siloed HR decision. Increasingly, the entire C-suite is becoming involved. HR, benefits, and the C-suite should work together when moving into the self-funded space or refining current saving strategies. Each has a specific, necessary insight into how health plan benefits will work for employees and the company’s profit statement on a day-to-day basis. As the long-standing, unsustainable Fee-for-Service (FFS) model moves further into obsolescence, (read Part 2 to learn more) employers will increasingly become self-funded and transition to VBC health plans.
This disruption is what the taxi service industry experienced with the arrival of Uber (2009)[i] and Lyft (2012)[ii]. Consolidation and restricted competition had allowed the taxi industry to stagnate and consumer satisfaction waned. As soon as a suitable alternative was offered, consumers quickly migrated to a new way of seeking transportation. The healthcare industry, built on acquisition, lacks the flexibility to segment itself in the way the private sector needs it to (read Part 1 to learn why). Like the taxi industry, we’ll look back at the FFS model and wonder how it existed for so long while providing such poor results.
The kind of innovative, industry-disrupting change the healthcare industry requires won’t be accomplished by the simple introduction of an app, plan, or service model.
If employers and their broker or consultant can’t tell the difference between two or three health plan options presented, they must demand new, company-specific options. VBC-driven health plans require expanding the benefits conversation beyond discounts and volume of providers per network.
Companies, brokers, and consultants must be clear and specific in their request for a health plan that is VBC-driven. Because of the difficulty that hospitals and physicians face selling directly to consumers, they need employers, consultants, and brokers to ask for VBC health plans that allow them to partner with members in new ways. Financial alignment with service providers is in the best interest of employees, HR and benefits managers, and the company’s bottom line.
Customization is not the same as innovation. Consultants may be unfamiliar with VBC health plans, accustomed to their limited success within a FFS system. This yields an opportunity for employers and consultants to find a best-fit solution, together. To increase your chances of success and to reduce the operational friction of change, ask for health plans that have already done the work to build a provider network based on above-average service provider performance. Choosing a plan built upon accessible top-performers, that meets company-specific coverage needs, creates a foundation for lowering TCOC while increasing employee health outcomes and satisfaction.
MARC PINNEY | Chief Operations Officer, Healthcare Highways Mr. Pinney’s extensive career began as a sales representative and later Vice President of Sales for Gallagher Benefit Administrators. A Senior Benefits Consultant at Holmes Murphy & Associates after that, he then brought his deep expertise to Healthcare Highways, now serving as Chief Operating Officer.