Phil Giles, QBE North America
Phillip Giles, vice president of sales and marketing, accident and health, at QBE North America, explores the different approaches to self-funded medical plans.
Healthcare procedural charges vary significantly, not only across different geographic regions, but from one facility to the next, even when the facilities are within a close proximity. The charges within a single facility, for the same treatment, will also differ greatly depending on the network agreement with each insurance carrier. The price range differentials can be significant, regularly reaching high double-digits. The pricing levels experienced by plan sponsors has significant influence on the cost of healthcare delivery to plan participants.
One of the most effective approaches for controlling the cost of employee benefit healthcare delivery is to understand how healthcare services can be purchased more efficiently by self-funded plans and MSL captives. This discussion explores regulatory issues and complications from healthcare pricing ambiguities, and strategies for implementing more defined pricing structures to reduce the cost of healthcare.
The ACA regulatory wildcard:
Healthcare regulatory changes will continue to be the wildcard throughout 2018. The deteriorating viability of the Affordable Care Act (ACA) has led to continuous calls for its reform or repeal. Thus far, all replacement proposals have lacked conceptual development depth and have proven to be logistically and fiscally impractical. Without a well-developed replacement plan, a full repeal of ACA would be unexpected. Significant evolutionary reform of ACA to enhance insurance affordability and access is a more realistic scenario until a more substantial plan is developed. It is worth noting that a recent industry survey revealed that 35% of large employers supported full repeal of ACA while 51% were opposed. It is also important to point out that, the cost of insurance is a direct reflection of the expected costs charged for healthcare. The only way to make health insurance more affordable, and improve access, is to make healthcare itself more affordable.
Thoughts on Single-payer:
Calls for a universal single-payer system, aka: “Medicare-for-all”, have been among the most popular (and the most impetuous) alternatives to ACA. A true single payer system would compel the abolishment of all private health insurance in favor of a single government run healthcare system as the exclusive remedy for all healthcare in the U.S.
A single-payer system would require the standardization and regulation of all provider charges and pharmaceuticals, probably to a level similar to Medicare. This would essentially restrict the ability of all healthcare providers to set prices and limit their capacity to generate profits. All care-givers and physicians would likely be remunerated at a level that is much less than current compensation levels. A recent survey conducted by the Association of American Physicians and Surgeons (AAPS) found that 90% of its members were opposed to single-payer system. The top reasons cited were as follows: Increased rationing of care (87%), Unaffordable (75%), Harm to patient privacy (66%). Out of necessity, care is likely to be rationed, waiting times would increase, and quality of care would decrease. Fewer individuals would enter the medical profession, which is already a significant problem, and medical technological and pharmaceutical advancement would diminish as research and development costs would be more difficult to recoup in relation to reduced revenue expectations.
Achieving systemic consistency is critical:
There is virtually no regulation or consistency of healthcare charges in the United States. Healthcare systems have great leeway to define prices and determine procedural charges. As mentioned earlier, procedural prices vary considerably from one facility to the next, even within close geographic proximity.
The solution for sustainable affordability will only come from achieving administrative efficiency and containing cost by developing a systemically consistent approach to pricing for all provider charges. The metric point for all charges needs to be based on a universal standard. Medicare with a realistic additional profit margin (e.g., Medicare plus 50%-100% +) and appropriate geographic cost-of-business adjustments would be a logical charge basis. The margin needs to provide adequate financial incentive so that providers will not be compelled to hold back or ration treatment or care. The reimbursement formula should also acknowledge the qualitative patient outcome performance of the provider. This will help contain costs while still fostering qualitative-based, private market competition; both of which will serve to mitigate the cost of insurance. This approach would effectively put every segment of the healthcare chain on an equal playing field. Providers would have the ability to receive an appropriate and consistent profit margin while competing via operating efficiency and qualitative effectiveness. Insurance costs, again, a product reflecting the cost of healthcare, would also stabilize over time.
Alternative networks are replacing PPOs
More self-funded plans and captives are proactively negotiating more well-defined charge limits themselves. Progressive self-insures are replacing traditional PPO networks, and their tendency toward ambiguous discounting, with arrangements having more defined pricing structures, such as narrow networks and exclusive provider organizations (EPOs). These more restricted networks typically have up to two-thirds fewer providers than traditional networks. Larger self-funded employers and group captives having greater concentrations of employee populations in specific geographic locations can work locally to negotiate significantly deeper discount arrangements with select providers in return for increased or exclusive patient steerage from the employer. Alternative network plans are most effective in higher density population areas where provider selection, competition and the potential for leveraged discounting is strongest.
The use of Reference-based Pricing plans is expanding
More employers are realizing that a defined price schedule is a highly efficient way to control healthcare costs. RBP plans provide a well-defined fee structure in contrast to more amorphous “usual and customary” based PPO structures. An RBP plan schedules the maximum amount it will cover for a particular health care service. The schedule can be a universal “cost plus” basis (i.e., Medicare plus 50% - 100% +) for all of the plans’ covered healthcare procedures, or take the form of a defined limit for very specific procedures. Many RBP schedules specifically target high-margin hospital charges such as infusion and dialysis therapies, diagnostic imaging, durable medical supplies, and multi-night hospitalizations. The RBP approach is frequently paired with a high deductible plan structure and designed to encourage increased price shopping (aka consumerism) on the part of employees for treatment.
Alternative networks and RPB plans can be a highly effective form of cost control if they are implemented to mutual equitability for all involved: insureds, providers, and plan sponsor. The combined advantages associated with self-funding and implementation of a well-planned RBP schedule can ultimately deliver decreased provider charges and improved patient outcomes to significantly enhance a plan’s overall financial performance. As self-funded plans have more plan design flexibility, RBP designs have become increasingly prevalent as a cost-containment strategy.
Healthcare value is measured by two components, quality of care and price. The two components can be mutually exclusive. There is little correlation between quality and price with regard to medical care. Just as provider pricing is becoming more transparent, so have the qualitative patient outcome scores of providers. Precise qualitative scoring can still be a difficult measurement, however, when available, it can be paired with pricing data to effectively find the best care at the best price. As mentioned earlier, there is a significant variation in healthcare pricing, even for the most common procedures. The expanding selection and availability of alternative provider networks, along with emerging platforms for enhanced pricing transparency will help self-funded employers and captives define and reduce healthcare charges.
Phillip Giles, QBE North America, Healthcare, Captives, North America, Cayman