3 pain points small and mid-sized employers face with health benefit coverage
You’ve probably heard of level funding and reference-based pricing, but maybe you’re still a bit unclear about how they can help.
Small and mid-size employers have some distinct pain points when it comes to offering health benefit coverage to their employees. Rates, benefits, network access and transparency top the list. But, solving these problems can be simpler than you think.
You can use a unique approach that helps simultaneously solve many of their pain points by the employer sponsoring a self-funded health benefit plan and utilizing level funding administration and reference-based pricing of claims.
Related: How reference-based pricing is recalibrating buying benefits
You’ve probably heard of level-funding and reference-based pricing—but maybe you’re still a bit unclear about what they are and how they can help you and your clients. So, let’s dig in—but first, let’s revisit those pain points.
Pain point #1: Cost and value of health benefits
Rising health care costs are causing many employers to question whether they can afford to offer health benefits to their employees. According to the Kaiser Family Foundation’s 2020 Employer Health Benefits Survey, it costs up to $20,438 each year for employer-sponsored family health coverage for covered workers in small firms.
As costs continue to rise, a common way to offset them is to adjust benefits, such as increasing deductible or copays, lowering coinsurance and increasing out-of-pocket limits. At a certain point, when the benefits become too lean, employees’ perception of their benefits deteriorates.
Pain point #2: Network access/disruptions
To find affordable healthcare benefits, employers often change carriers/third-party administrators. When this happens, they can experience a change in provider network. This, in turn, presents difficulties for covered employees who may have to change providers they’re comfortable using.
Another potential issue with networks is specialists that provide services at in-network hospitals but are not always in-network themselves. These services are usually paid at in-network levels, but potentially at the Usual, Customary and Reasonable (UCR) fees.
These specialists can bill members the difference between the amount charged for the service and the amount covered by the insurance company/health benefit plan. In turn, this can leave employees with a potentially large balance of the expense they have to pay themselves.
Pain point #3: Lack of transparency
The lack of transparency can come in the form of employees not knowing the cost of services before seeking care, or from insurance carriers withholding claim information that would be beneficial to have – whether to identify plan spend or improve future plan selection decisions.
Three pain points. One solution.
Level-funding and self-funded reference-based pricing plan designs can be a viable solution to ease these pain points.
This arrangement:
- May be more affordable
- Allows employees to choose and keep the physicians they want
- Provides transparency of expenses with claims data
Let’s get into more detail about how these plan designs work and solve for these pain points.
Level funding in connection with a self-funded health benefit plan is predictable, given it provides the employer level monthly payments regardless of claim activity, which enhances budgeting. Employers fund their maximum liability through 12 equal monthly payments based on consistent enrollment.
Incorporating stop-loss insurance premium in the level-funded monthly payments helps protect against the financial impact of a large number of covered claims, an individual catastrophic covered claim, or both. Here are examples:
- Compared to a fully insured plan, level-funding in connection with a self-funded plan can be less expensive.
- Employers have the opportunity for a refund (which varies by carrier/TPA) if there is a surplus of claim dollars in their claim prefund account at the end of their plan year. On the contrary, if there is a surplus with a fully insured plan, the carrier retains it, subject to minimum loss ratio requirements.
- Transparency from claim utilization reporting is available at various times throughout the plan year to the employer. These reports help show how the plan is running and help identify opportunities for potential changes in future plan designs.
A different way to calculate claim payments
Reference-based pricing is a methodology that calculates claim payments at a “reasonable fee” based on a reference point. A multiple of the Medicare reimbursement rate and/or provider costs is a commonly-used reference point.
Usually less expensive than traditional PPO plans, reference-based pricing plan designs use fixed pricing across providers for healthcare services based on a multiple of Medicare.
For most services, covered employees can select providers that best meet their needs, which allows them to maintain current provider relationships and/or choose a new physician. And there are no or limited network restrictions and out-of-network penalties.
Some carriers/TPAs may include additional concierge services, such as:
- Assistance with finding providers
- making appointments
- Auditing claims
- Educating about balance bills and reference-based pricing
- Supporting members in the rare occurrence of a balance bill (more about balance bills later)
How might you see reference-based pricing used in the market?
- Reference-based pricing for all services
- Reference-based pricing for facilities with a physician’s network
- Dual-option plans with reference-based pricing alongside PPO network
A few considerations
Reference-based pricing and level funding can help solve these employer pain points. However, there are considerations to take into account: For reference-based pricing, a covered employee may receive a balance bill when charges billed by the provider for covered services (up to the plan limits) exceed the Reasonable Fee calculated as payable under the Plan. If a balance bill remains unresolved, the covered employee could face additional financial responsibility.
Note: Some carriers/TPAs recognize balance billing as a concern and may offer concierge services to assist with the resolution of balance bills and/or the Plan can include balance bill protection.
Emphasize employee education
With any health benefit plan, there is a need for employee education and helpful resources. Because reference-based pricing is a newer concept, especially from the covered employee’s perspective, education is vital to understand their plan, access providers, handle a balance bill, and understand their Explanation of Benefits (EOB).
An approach worth exploring?
With some understanding and guidance, you can provide a level-funded and reference-based pricing solution to help resolve clients’ common pain points. An affordable, well-rounded health benefits package that provides freedom of provider choice for most services and transparency of claim utilization may be available. Could this be an approach worth exploring in 2021 for your clients?
It might be worth exploring with your clients in 2021.
Daniel MacLeod, ACS, FMLI, is a sales consultant for Trustmark Small Business Benefits. With more than 30 years of experience with group health benefits, Daniel works with brokers with their sales of level-funded plan designs with stop-loss insurance.
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