In the recent inauguration address, we heard the phrase “America First” as part of the explanation for how the executive branch will implement its foreign and domestic policies. Of the 300 plus million Americans subject to the policies being delivered by the most recent election, the vast majority or about half receive their health benefit coverage through their employer. More than Medicare, Medicaid and the individual coverage market combined. What about “Employer First” when it comes to health benefit funding? What would change if the participants in the health insurance market made all decisions with the employer as their first priority? Let’s take a look.
Most employers purchase coverage for their employees through one of two funding strategies. Employers with more than 1,000 employees predominately self-fund the benefit exposure and many buy stop loss insurance to limit cost volatility. While more and more smaller companies are self- funding their employer benefit coverage, most employers with less than 500 employees still purchase fixed cost coverage from one of a few managed care companies. These managed care companies go by the acronym “BUCAS” for Blue Cross, United HealthCare, Cigna, Anthem and Aetna. These companies either offer access to a network of health care providers or for some of the employers they assume the employers medical benefit cost volatility or risk in the form of fixed cost insurance contract. Their first priority, however, is their contracts with the providers. The employers interest are not first when decisions on claim costs and coverage arise. This causes the cost of the employer’s health benefits to increase. If a philosophy of employer first was adopted by the health insurance market, increased benefit spending would subside.
Here are a few examples where not putting the employer first causes an employer’s health benefit cost to increase. Today, one of the biggest driver’s in the health care spend is the cost of prescription medicines. Over the past couple years, pharmacy related costs have risen from less than 10% of an employer’s health benefit spend to more than 20%. Any employer looking to halt the rising cost of its health insurance plan must look at how to buy prescription medication for its employees in the most cost effective manner. Simply allowing the managed care company to buy from whomever they choose will cause the employer to pay a multiple of what the drugs should cost. With almost all BUCA plans, pharmaceutical company rebates and other monetary incentives find their way to intermediaries and not the party paying the bill, the employer. Indeed, the fastest growing profit segment for the BUCAs is their in-house pharmacy. During 2016, United Healthcare’s pharmacy saw a 50% increase in revenue and now is the leading profit center for its business. What kind of cost increases would employers avoid if these companies placed the employer’s interests first and returned any rebates to the employer? A lot.
Managing employer and dependent care delivery is also a major factor in rising health costs. The buzzword “population health management” is used to broadly describe these efforts. Still, many medical expenses are needlessly incurred in hospitals. MRIs, X-rays, prescription delivery, blood tests and other common procedures may cost five to 20 times more than the exact same services performed in an offsite imaging center, lab or independent doctor’s office. While healthcare concierge services with easy phone app access are readily available to make information on quality and cost of providers available to consumers, directing the patients to seek treatment at lower-cost (but equally effective) sites of service would not be in the managed care network’s own interest. Rather, they prefer the business to flow to their contracted providers regardless of cost. This is a clear example of the BUCAs not putting the employer’s interest first. Shouldn’t quality and cost be the paramount consideration when offering employees and dependents medical care?
What can be done by an employer looking to find a health benefit strategy that puts their interests first? For one, take a look at this issue’s article on selecting a TPA. Take note of the difference in services and approach offered by independent TPAs not owned or controlled by the BUCAs. Also see prior discussions on the funding strategy of the stop loss captive and its delivery of control and transparency along with costs savings. Taking control includes the employer demanding its health benefit plan vendors apply an employer first approach. Send 100% of the pharmacy rebates to the employer. Provide access to concierge services aimed at access to the highest quality, lowest cost providers. If any of the participants in the employer’s health benefit plan will not confirm that the employer’s interests are being considered first when buying decisions are made, the employer needs to find a new advisor, TPA, funding strategy and provider network that will. Employer first!