How self-funded employers can shrink health care costs--instead of benefits--in 2020
Self-funded employers, unlike their traditionally insured counterparts, can deploy certain mechanisms to dramatically impact costs.
As health care costs continue their relentless upward climb, many self-funded employers feel they have one of two choices—cut benefits or increase employee contributions. Either choice continues the undesirable pattern of passing health care cost increases onto employees.
On a national scale, employees already shoulder too much of this burden. Consider that since 1970, pre-tax compensation has increased by over 60 percent, while actual take home pay has increased less than 3 percent. In another sobering example, hospital spending in non-Medicare households is twice that of Medicare households.
Related: Americans fear health care costs could bankrupt them, hurt economy
The good news for self-funded employers is that, unlike their traditionally insured counterparts, they can deploy certain mechanisms that dramatically impact medical claim costs. Referenced-based pricing is perhaps the best-known cost containment solution, but even with this approach, a few key considerations can generate significant incremental savings.
But first, let’s take a closer look at how reference-based pricing can bring down medical claim’s costs—sustainably, so that savings can be passed onto employees. Such a program will aim to achieve a fair pricing and cost structure for all three main players – the employer, the employee, and the health care provider.
Negotiations with the provider, for example, should be based on an intelligent assessment of what constitutes a fair price. In turn, this analysis will draw on historical data, reference-based benchmarks, fair market value and fee for service pricing to calculate the “best” price for each claim. Very often, that price can easily become half of what an employer was previously paying through their PPO network discounts.
Additional savings can also be found with a line item review of medical bills to identify duplicate charges, non-rendered services and other common errors. In fact, a thorough line item review can bring costs down an average of 12 percent. Given that 90 percent of medical claims contain errors, line item bill reviews are critical. Moreover, claim errors don’t just mean the wrong prices. Unnecessary tests and procedures should be considered errors, as well; along with upcoding. It’s important to have practicing physicians audit these claims, as they know what to look for.
When implemented together, reference-based pricing and medical bill review can reduce claims by more than 70 percent. Negotiating direct contracts with providers can meaningfully extend these savings—again, provided the savings were based on fair and respectful negotiations.
The next question is, how exactly to pass on the savings to employees? This is a whole topic on its own, but certainly lower deductibles and out of pocket costs, as well as larger contributions to employee HSAs are possibilities. So, too, are larger end-of-year bonuses. What is certain is that trying to decide how to pass health care savings onto employees is a positive decision to make. By incorporating some or all of the above levers, it’s one that self-funded employers can enjoy making year after year.
Gordon Larson is a known expert in designing innovative health care solutions with a focus on price and quality transparency. Today he is vice president of product solutions at health care cost containment company AMPS.
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