The cost of health insurance has risen by 50 percent in the last decade. During that time, independent physicians reduced profitability, both in percentage and actual return. How can that be?
Administrative costs, regulation and place of service are major contributing factors, as is waste, fraud and abuse. A recent Harvard study shows how to cut one trillion dollars -- a third of the total cost of healthcare -- with no loss in service from the national healthcare system, by removing the latter.
Under the current system with Medicare, Medicaid and traditional insurance, certain regulations have added hundreds of millions in administrative costs. ICD-10 -- a paramount medical listing that matches diagnoses with procedures and billing -- now has 85,000 diagnostic codes and the losses from collecting copayments and deductibles add administrative burdens on physicians. Costly audits and recoup by insurance companies add to the risk. These insurance companies incentivize the wrong place of service, rarely requiring transparency in pricing before a service is used. Google “healthcare waste fraud and abuse,” and your browser will fill with stories where hospitals, insurance and pharmaceutical companies have abused the system are costing consumers and businesses.
With or without the ACA, and despite congress’ almost certain back and forth after the midterms, plan on premiums going up. This rising cost will be especially challenging for small and midsized businesses.
Companies have addressed the challenge by passing more healthcare costs to their employees. According to the Kaiser Family Foundation/Health Research & Education Trust 2016, worker contributions have increased an average of 80 percent over the last decade. Employees in small firms assume a greater share of their healthcare costs than workers from large firms in premiums and higher deductibles.
Why direct care?
Employers are increasingly buying their services direct, as opposed to traditional insurance companies. They are doing so through self-funded plans where they create their own benefits, pay health claims directly or through a third-party administrator (TPA), and buy stop-loss insurance to limit their liability.
A growing trend.
Self-funded plans are almost universal among large employers. In fact, the Kaiser Family Foundation reports that 82 percent of covered workers in large firms are enrolled in plans that are either partially or completely self-funded.
New data from the Employee Benefit Research Institute shows an uptick in self-funded plans beginning in 2013 -- the same time that key provisions of the ACA took effect. Between 2013 and 2015, the percentage of small companies (fewer than 100 employees) offering at least one self-insured health plan rose to 14.2 percent from 13.3 percent, while midsized companies (100-499 employees) increased to 30.1 percent from 25.3 percent.
While large employers dominate the self-insurance space, only 14 percent of businesses with fewer than 20 workers self-fund their healthcare. The statistics are noteworthy, as these small companies make up more than 89 percent of the workforce. If you include self-employed and one-person businesses, this accounts for 97 percent of the workforce. These employers are at a distinct disadvantage when it comes to healthcare benefits; largely, they either pay more for their healthcare or do not provide health benefits at all, making it difficult in the recruiting game.
Extending the benefits of self-insurance to smaller companies where most the workforce resides -- and where no federal mandate requires them to provide any coverage -- is a simple way to significantly increase the number of people insured in the U.S. and at a lower cost than traditional insurance.
The opportunity to insure more Americans.
The average cost of insurance for employers is $6,435.00 with a $6,000 deductible. This is a 50 percent increase in 10 years on the premium and over 100 percent increase in the deductible.
The bottom line is that even if employers pay half the premium for employees, neither the employer or the employee can afford to pay a high percentage of their salary for healthcare. When employers do offer healthcare benefits, over 48 percent of all employees reject the benefit because they’d rather have the extra $500 a month or recognize they can’t use the coverage because the deductible makes utilization prohibitively expensive.
A study published in the American Journal of Medicine showed medical expenses accounting for approximately 62 percent of personal bankruptcies in the U.S. Interestingly, it also showed less than one quarter of debtors -- whether medical or nonmedical -- were uninsured when they filed for bankruptcy
Without meaningful access to preventative care, employees use expensive emergency rooms for care. Employers who understand this need, have an advantage in recruiting, by buying this care direct, and using Self Insurance ERISSA rules to limit their liability only to the upfront primary care they provide.
Self-funded plans do not include marketing costs or profit margins of traditional insurance. The Self Insurance Educational Foundation (Specific advantages of self-insurance) has estimated the eliminated cost at 10-25 percent in non-claims expenses. Self-funded plans also are exempt from state insurance regulations and premium taxes under the federal Employee Retirement and Income Security Act, and are not subject to many of the provisions of the ACA.
Direct payment can reduce the price a provider pays by 50 percent, allowing the provider to eliminate the administrative costs of copayments, deductibles, audits and recoups. By eliminating this, the employer can make primary care more accessible.
The same applies to prescription medications. Costs vary dramatically depending on the pharmacy, the insurer and how the doctor prescribes it. For example, the price of a simple generic antibiotic can range from $12 to more than $50. Simply managing prescription orders can yield significant cost savings.
Self-funding allows companies to tailor benefits packages to the special needs of its workforce. A construction firm or landscaping company may want more coverage for injury and chiropractic care, while a company with a young workforce may choose to offer robust family-planning benefits.
Owning the data.
Big employers know the main factor driving up healthcare costs is the adjusted community rating. Prior to the ACA, underwriters reviewed the medical data and risk profile of a specified group of employees. Now, insurance carriers look at an entire community -- spread out across hundreds of businesses -- and calculate rates based only on the age, zip code and tobacco usage of the population. Because of community rating requirement in the traditional insurance world, employers find that even if they implement wellness programs that save significant money, it makes no difference on their premiums.
Self-funding changes the game. Companies with self-funded healthcare have access to every claim, from prescription medications and primary care visits to emergency room usage and specialist care.
The case for small businesses.
The benefits of self-funding are well documented. Companies are turning to this model now more than ever before, due to increasing costs in today’s healthcare system. Redirect Health, the company I oversee, is a national firm in the direct care sector -- bringing healthcare to employers and their employees at a lower cost. In the long term, it reduces their firm’s risk of losing staff to large employers, and gives them an advantage over the big guys.
But where do business owners get started on saving?
Putting a self-insurance plan for an employer is as easy as hiring a third-party administrator (TPA) to administer the program (like Redirect) and help with compliance. More important is determining the right strategy for your business. Start every plan with giving meaningful access. For some businesses, with higher paid employees, catastrophic care is important so the employer may need a stop loss policy.
Here are my are recommendations for every plan you consider:
- Make primary care and chiropractic care easy and accessible. Unlimited visits and no copayment make it the go to alternative for care.
- Create a gatekeeper. Market it as a concierge service that helps employees navigate the system and prices options. At Redirect Health we use our TelePCP (Primary Care Providers) as 24/7 access to primary care, reducing the need for employees to visit clinics but also to provide pricing and navigation.
- Create variable pricing on deductibles on higher priced healthcare (hospitalization) to incentivize employees use the more affordable option.
- Identify the 10 percent of the people who spend 90 percent of the money, create a care plan for them, and then help them work the plan. As an example -- making sure a diabetic has their insulin, or can get it by a phone call where ever they are in the country, keeps them out of a hospital.
- Buy insurance last.
Welcome to the revolution!