by Mike Bechtol, Redirect Health
The past several years have been marked by dramatic ups and downs in healthcare. From the decline in insurer participation in healthcare exchanges to multiple attempts at “repeal and replace” legislation, the future is full of uncertainty.
Business owners are especially impacted by the instability of our nation’s healthcare system. Despite the ongoing political discourse about improving healthcare, all signs indicate that health insurance costs will continue to skyrocket. For contractors who want to offer an employer-sponsored health plan, it’s a Catch 22. Insurance rates increase every year—often by double-digits—cutting deeply into their profits and threatening the stability of even the most established companies.
But cost isn’t the only issue facing contractors. Even among those companies offering healthcare, many workers can’t afford to pay their portion of a traditional insurance plan and opt out of the coverage. For these employees, workers’ compensation becomes their only option for healthcare—even for issues sustained outside of the workplace. It’s no surprise, then, that workers’ comp claims can easily spiral out of control, cutting into the bottom line and damaging the company’s eMod scores.
Despite all of these challenges, there is a solution that’s beginning to take hold in the construction industry—and it’s proving to be a silver bullet for employers who want to provide quality healthcare and keep their workers’ comp claims in check, but simply can’t afford the cost of traditional medical insurance.
Misperceptions: Fully Funded Medical Insurance
The majority of small and midsized businesses offering healthcare benefits provide a traditional, fully insured plan with premiums, deductibles, copayments or coinsurance. However, few employers understand the rate structure of their plans. Most assume that their rates will stay the same or even decline if their company’s claims are low. It’s a reasonable assumption, but it’s not at all true.
No matter how low their utilization, the insurance carrier will pool their company with other businesses of the same size and in the same geographic area. At that point, their utilization hardly matters—it’s a drop in the bucket of the risk pool—and it’s far more likely their rates will increase, year after year.
Likewise, few business owners understand that the insurance company will keep all of the money they’ve paid into the plan, even if their claims costs fall far below their cash outlay.
Self-Funded Healthcare: A Better Way
In a self-funded health plan, employers create their own benefit plan for their employees, pay health claims directly or through a third-party administrator (TPA). Businesses can choose from a wide variety of plan designs, including partially-self funded and level-funded insurance plans. For employees, the health plan may look and operate exactly the same.
Benefits may include medical, dental, vision, prescription medications and workers’ compensation. In addition, companies that self-fund can tailor their package to address the specific needs of their workers. For contractors, this may mean providing more coverage for injury and chiropractic care. Fully insured medical plans aren’t nearly as flexible. Moreover, employers can determine how they will fund their plan and whether their staff will pay a percentage of the claims costs.
From a cost perspective, a well-designed self-insurance plan yields significant savings. Cash flow improves because employers don’t pre-pay for coverage—they only pay when claims are incurred. They keep any extra money they’ve put into their claims bucket—it doesn’t line the pockets of their insurance carrier. Moreover, businesses aren’t on the hook for insurance companies’ marketing costs or profit margins, a savings estimated at 10 percent to 25 percent in non-claims expenses. Self-funded plans are also exempt from state health insurance premium taxes—a savings that equals 3 percent of the total premium dollar value of a traditional plan.
For contractors, a strategic plan has also shown to bring down workers’ comp costs and provide lower-wage employees with an appropriate avenue to seek healthcare.
Creating a Smart Self-Insurance Plan
In today’s broken healthcare system, the promises of self-funding sound too good to be true. Even so, a well-designed plan may well be the solution for drastically reducing health costs while providing employees with robust benefits.
Simplifying access for employees, helping them navigate the health care system, and understanding the factors that impact costs are key to realizing the benefits of a self-funded plan.
Simplifying Access: Most traditional health plans include deductibles and copayments, meaning employees pay money (on top of their monthly premium) every time they see a doctor. Obviously, this creates a barrier; many people, especially low-wage earners, choose not to seek treatment because the money is an issue. This may result in extra sick days or reduced productivity while on the job. In some cases, health issues left untreated may become dramatically worse—and much more costly.
A smart self-funded plan builds in routine health services at no cost to the employee. Treatment of common conditions like sinusitis, flu, cough and colds, conjunctivitis and minor injuries is inexpensive for the business, but highly valuable for employees. For contractors, this also provides employees with an alternative to workers’ comp for minor injuries requiring only first aid.
Stop Loss Insurance: To mitigate their risk, self-funded companies often purchase a stop-loss insurance policy for catastrophic illnesses and accidents. With this coverage, the business pays employees’ health claims up to a certain dollar amount, protecting the company from unexpected financial loss.
Care Coordination: Most companies that self-fund hire a TPA to help administer the plan. Employers who want to realize the full benefit of self-insurance may also consider partnering with a third-party organization to help manage the coordination of care for their employees.
The healthcare system is complicated and confusing—for business owners and their staff. In many cases, people don’t know what to do when they’re sick or injured, but a third-party care delivery coordinator can help employees navigate a cumbersome system, ensuring they get the care they need, at the most appropriate site of service and at a fair price. A partner organization protects businesses from overpaying while serving as a healthcare concierge for employees.
Care Management: In the healthcare system, 10 percent of patients spend 90 percent of the money, but costs can be controlled by providing a higher level of care management to people who suffer from diabetes, hypertension, heart disease, cancer and other chronic or complex diseases. For example, simply ensuring diabetics are taking their insulin as directed can prevent serious and costly episodes. Building in care management, either directly or through a care coordination partner, will yield significant savings for companies that self-insure.
Fair Pricing: Most self-funding plans use reference-based pricing to ensure costs are fair. Medicare is considered the standard in fair pricing. For example, the fair price to deliver a normal, healthy baby in a hospital is $5,000; the going rate in a traditional insurance plan is $15,000. This cost is baked right into premiums and reflected in high deductibles.
By negotiating fair pricing and self-funding the cost (either directly or through their care coordination partner), a business whose covered employees and dependents deliver seven babies in one year will save $70,000.
Interestingly, many traditional insurance carriers offer self-funded plans, but their reference prices are much higher than Medicare. For example, their reference price for an MRI may be as high as $1,500, while the fair price for the service can be as low as $300. For a construction company with a total of 20 MRIs in one year, negotiating fair pricing saves $24,000. It doesn’t make sense that an insurer would set such high reference rates, but it’s just a symptom of a much larger issue. Nothing in today’s health system makes sense.
Place of Service: When it comes to managing costs, the place of service has the single greatest impact on healthcare spending. While an MRI may cost $4,000 at a hospital, the exact same MRI is just $300 at an offsite imaging center. There is no difference in quality. The same is true of X-rays, blood and urine tests, and other common procedures. In general, hospitals charge five to 20 times more than independent labs or doctor’s offices.
Moreover, a visit to the emergency room averages about $3,000—a big hit to a company’s health claims budget—but the majority of people who seek care at an ER are at the wrong place. They need a primary care provider to treat a respiratory infection, or an X-ray for an injured arm. By eliminating 10 unnecessary ER visits each year, companies will save up to $30,000 in claims costs. When employers truly understand the impact of place of service, they take action to ensure their employees seek the right care at the right place.
Pharmacy Costs: Dramatic cost variations are true at the pharmacy, too. Prices of common antibiotics vary greatly depending on the pharmacy, the insurer and the way the doctor writes the prescription. A simple medication may cost $40 at a corner store pharmacy—but just $10 at a supermarket pharmacy. If a company’s employees fill 500 prescriptions each year, this $30 difference adds up to $15,000. It’s a clear and simple choice to order prescriptions through a lower-cost pharmacy—and an easy way for self-funded companies to protect themselves from overpaying.
Self-insurance might just be the best-kept secret in healthcare. A well-designed plan provides companies and their employees with real benefits without breaking the bank.
Mike Bechtol is director of Care Logistics for Redirect Health, a Gold ASA sponsor. For more information about self-funded health plans, contact Redirect Health at (888) 995-4945 or nextsteps@redirecthealth.com.
