LAS VEGAS – Fully funded group health plans can be “a rigged system” on behalf of insurance carriers and service brokers, warned Steve Watson, SHRM-SCP, speaking at the SHRM Annual Conference & Expo 2021.
Many companies are now renegotiating or preparing to renegotiate health benefits with insurance carriers for 2022, said Watson, CEO of Trendbreakers, a health plan consultancy.
As a human resource manager, he once had to tell employees that their bonuses have increased 20 percent while their performance has been watered down. “I’ve decided that I never want to be in that position again,” he said.
The average cost of an employer-funded family plan is now more than $ 21,000, according to the Kaiser Family Foundation. “For many families, that’s the cost of buying a car,” said Watson.
Starbucks spends more on benefits than it does on coffee, he noted. “However, it is likely that Starbucks is much more focused on negotiating coffee beans than it is on the cost of health care services for its employees.”
He recommended employers to use the 2022 year-end negotiations on health benefits to consider changing their health insurance funding to gradually self-finance.
5 financing options
Watson outlined five main funding options for the plan:
1. Pre-negotiated plan, also known as the “fully insured” plan.
However, the nickname “fully insured” can be misleading, Watson said. “It should sound safe, but it is often not in the employer’s best interests,” especially when an employer has 75 or more insured lives (employees and dependents) in their plan.
With pre-negotiated plans, employers negotiate a fixed price for the plan each year, regardless of the employee’s health needs. He told of a company whose premiums rose 2 percent in 2020, making it pay its insurance carrier $ 6 million; however, employee claims that year were only $ 3.4 million.
“Ask who will benefit most from this approach,” advised Watson.
2. Pre-negotiated shared savings plan, also known as a tiered plan.
A tiered plan option could be suitable for companies with 75 to 100 employees, Watson said. It is often a stepping stone towards self-financing “that retains some of the predictability of a fully insured plan”.
3. Operator-based usage-based plan with a cap, also known as a partially self-financed plan.
A partial equity plan is a further step towards self-financing, with separately negotiated plan components for plan management and claims.
4. Third-Party Administrator (TPA) -based usage-based plan with a cap, also known as a self-funded plan.
Here the employer assumes the financial responsibility for the medical claims of the enrolled and for all administrative costs incurred. “This approach typically involves negotiating a network of healthcare providers with an insurance carrier, a pharmacy network, and stop-loss insurance, as well as planning administrative services through a TPA,” said Watson. “The more services that are bundled, the more expensive the plan becomes.”
5. Create your own plan, also known as a reference-based pricing plan.
With a reference-based price plan, employers use a TPA that specializes in this approach to build their own network of health care providers by making direct contact with doctors and hospitals. Reference-based pricing is typically used as the basis for price negotiations, in which healthcare providers are paid a small multiple over the Medicare reimbursement rate.
A continuum of cost savings
Employers can save 5 to 10 percent on healthcare costs by going through each of the tiers above, with a 20 to 40 percent cost differential between the first and last tier, Watson said. He recommended organizations with fully insured plans – if they have more than 75 employees – to go through these planning phases step by step and “as the process progresses, find out what the obstacles are to the next step”.
He also advised finding a broker who works with the types of plans the organization wants to transition to, noting that “when you go to a Honda dealer, you are only shown Hondas”.
Pay attention to the brokerage fee
Insurance carriers can pay performance brokers commissions of 5 to 20 percent of the cost of the plan, Watson said, “The broker gets a raise if you pay more if the incentives are misaligned.”
When a broker is paid with commissions, asking for help transitioning to a lower cost plan means “expecting the broker to do more work to get paid less,” which is unlikely to get the broker on board.
Carriers can also pay broker bonuses for the sale of a certain number of fully insured plans or enter into revenue sharing agreements with brokers.
“Ask brokers how they’re paid,” advised Watson.
He noted that under the new transparency rules that will come into effect in 2022, brokers must disclose their compensation before they are hired to provide services and when contracts are extended or renewed. If an employer does not receive these disclosures after the next year, they should request them.
Watson also recommended:
- Perform a stewardship review with your current broker.
- Concentration of efforts on the transition to the next level of plan funding. Discuss the experiences with like-minded people who have done this.
- Start by meeting the leadership team to explain the cost savings potential of moving to self-financing. Continue to focus on business benefits.
“Your plan includes savings of at least $ 1,000 per employee.” said Watson. “What could your company do with this money?”
more transparency
In a separate concurrent session at the conference, Keith Lemer, CEO of WellNet Healthcare, a national health services company, described self-funded plans as “more affordable and transparent,” but acknowledged fear of “monthly volatility” in claims payments as a deterrent for many employers.
Evidence shows these fears are unfounded, Lemer said. With stop-loss protection against unexpectedly high damage, self-financing usually lowers employers’ costs.
Trying to get aggregated data on health outcomes from recalcitrant insurance carriers often proves impossible, Lemer said.
“In many cases, the highest quality providers – centers of excellence – are also the cheapest,” he noted, because doctors or facilities specialize in certain services, be it joint replacement or cancer treatment.
“The solutions that got you into this mess [of rising costs] may not be the solution that gets you out, “WellNet senior vice president John Augustine said during the meeting. Trying to control rising premiums by shifting costs to employees means” workers taking less money home with them. ” taking, not taking their medication, and even quitting “. going bankrupt because of their own health bills.”
Insurance carriers “have a financial interest in increasing claims costs,” said Augustine. In addition, many fully insured group health insurers are bundled in many states; [in your organization’s plan] will have little effect on premium costs in the future “.
He advised, “Be ready to take a step back and ask hard questions of your advisors and porters.”
As Watson said, tiered plans are an opportunity for employers to “step in” with self-financing and help management familiarize themselves with the idea of moving away from insurance carrier plans.
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