In recent years, executive teams have been strained to continue to provide comprehensive group health plan benefits within their budgets. Small to mid-sized employers find this task particularly difficult since their smaller groups can experience extreme increases in costs driven by a few major illnesses in their covered groups.
When faced with a large premium increase at renewal time, the first step is often re-bidding with other providers – with a primary focus on the Blue Cross companies, United Healthcare, Cigna, Aetna, and Humana, the so-called “BUCAH” insurers, which dominate the traditional group plan market. Health plan brokers that intermediate this process often suggest raising deductibles and out-of-pocket maximum costs to employees and the coinsurance and copayments that employees pay at the point of service.
This annual cycle of increased premiums (and Company expense) and lowered benefits (and negative employee reaction) has become a strategic threat to profitability and employee satisfaction. Innovative companies have become more open to alternative approaches to group health insurance delivery.
Enter self-insured or self-funded plans using reference-based pricing. This approach depends on close cooperation between companies/plan sponsors and third-party administrators (“TPA”s) to jointly implement strategies to bring down the cost of medical care while taking steps to improve care.
These strategies include pricing of healthcare services based on a relationship to an accepted reference. The most typical reference is the Medicare rates set nationally for each diagnosis and procedure. While most providers charge their commercially insured patients much more, they accept Medicare reimbursement from their older patients. TPAs that specialize in this area can often reach agreements with providers to accept payments, which is a small increase over Medicare payments. Since these amounts are much less than the traditional BUCAH claim for the same care, savings can be very large.
Another aspect of this approach that companies must accept is that of self-insurance or self-funding. Generally, the Company pays both the cost of claims plus a fee and administrative costs to the TPA, as opposed to a single, typically fixed insurance payment to a BUCAH or other traditional plan provider. Careful analysis and purchase of appropriate stop-loss insurance can greatly diminish the chances of unexpected losses. If done well, the Company can realize very significant savings with manageable risks.
A Florida CFO Group partner became an expert in this area as he helped his company with a fully insured health insurance plan that faced a 75% premium increase. This equaled $1.7 million, an increase that would have crippled profitability. The company sought bids from other large healthcare insurance groups (the BUCAHs) but found no relief. After extensive research, and with cooperation from the CEO and HR director, the CFO partner helped the company transition to a self-funded medical plan with a Third-Party Administrator (TPA).
The Company team worked with a new broker, who was familiar with and knowledgeable about self-funded health insurance programs. Their three-year implementation and transition included initially moving to a self-funded plan, that used a large insurance company’s network and Pharmacy Benefit Manager (the “PBM”). Stop-loss insurance was procured to protect the company by capping high claimant costs, both individually and in aggregate.
Once the Company and its employees became comfortable with the new approach, it appointed a new TPA and incorporated reference-based pricing, claim auditing, and direct negotiation of medical facility charges. The company then focused on its prescription benefits and ultimately swapped out the PBM for a more aggressive/hands-on specialty group that was more focused on multiple strategies to keep pharmacy costs down.
This initiative saved the partner’s client $5.5 million in healthcare costs over the last three years. Its employees embraced lowered costs and a medical support team that helped them find high-quality care while eliminating waste – both time and money. The initiative accomplished a true “win-win” outcome for the Company and its valued employees.
Other Florida CFO Group partners have assisted clients in seeking similar solutions. So far, adoption of self-funded plans has been limited but some companies have taken a “half-step” approach with level-funded plans now being offered by BUCAH carriers. In these cases, a lower premium is paid but subject to adjustment based on actual member illnesses and cost of care.
The lesson is clear. Companies will increasingly need to address employee plan cost and quality issues, and newer approaches that incorporate self-funding, reference-based pricing, and partnering with TPAs and member advocacy programs are compelling solutions.
Want to partner with a CFO to help your organization realize these types of savings with your group healthcare costs? Contact us today.