The new age of data-driven benefits purchasing

Health care affordability and health care waste are both impacting Americans across the board.

Although half of Americans are covered through employer-sponsored health plans, employers may not always purchase the most optimal health plans due to factors such as data opacity and lack of personalized benefit offerings. Suboptimal purchasing contributes heavily to health care waste, but it can be easily avoided.

Brokers are now in a powerful position to spearhead change that sets new expectations with administrators and vendors on what it takes to be a credible partner. They are helping their clients become more aspirational when structuring their benefits plans by presenting more alternative solutions and diverse saving opportunities.

Market trends

Employers are rapidly educating themselves on ways to reduce health care spend while meeting employee needs as hyperinflation and an economic downturn are driving a shift towards recession-proof, adaptable benefits. Meanwhile, the Great Resignation carries on as point solutions flood the market. This means a comprehensive talent strategy requires proactive health plan changes.

The current market is providing an opportunity for brokers to demonstrate their value. In response to these trends, brokers must re-define how they assess plan economics and identify red flags to help clients make sense of the breadth of data being presented to them.

These are exciting evolutions for the health care industry and implementing these important steps to optimize plan purchasing will improve U.S. health care affordability and overall outcomes.

Plan economics best practices

Variable fees such as pharmacy and medical rebates, spread pricing, shared savings, commissions and overrides make it difficult to do an apples-to-apples comparison of multiple quotes. Although getting a full view is difficult, even the barest attempt often yields surprising results. For example, some groups will be surprised to find that they are paying $10 – $20 per employee per month (PEPM) in shared savings fees alone.

Brokers are increasingly realizing client savings from services that reduce unnecessary utilization and improve the alignment of treatment intensity with a diagnosis. Contrary to common belief, utilization optimization can drive just as much, if not more, savings than network discounts which are no longer the determining factor in cost of care. Network discount only represents price, but health care spend is highly driven by utilization volume and “utilization mix” (e.g., using 3-D imaging diagnostics when 2-D imaging is proven equally as effective). With the right plan, it is possible to see 20% to 30% in savings from utilization without sacrificing network breadth or needing to fight for deeper network discounts.

With so many available health plan solutions on the market, advisors must build a deeper reliance on actuarial science and biostatistics to vet client options accurately. Health care spend is volatile and dependent on each population’s geography, demographics and disease prevalence, and can differ depending on member cost share. All these variables drive material differences in spend, making comparison difficult.

Fortunately, mathematical techniques exist to adjust for these factors. To address this, it’s important to develop unique data and reporting packages. The market is inundated with various analytics vendors and capabilities, so working with a third party administrator (TPA) or another partner that promotes transparency can be crucial to customizing metrics that reflect what a broker’s team can best speak to and validate.

Lastly, brokers stand to gain from learning about alternative models to traditional health plans. TPAs are an example of an alternative model that can offer higher touch servicing, clinical support and customer service. TPAs can increase data transparency for employers and give them control by allowing carve-outs and additions of point solutions. Increasingly, sophisticated TPAs are offering credible clinical and advocacy solutions that translate to greater cost savings and member experience over a large/regional carrier model.

This can be a lift in the short term, but brokers will reap significant dividends long-term: winning new customers, increasing retention of existing customers, increasing talent experience within the brokerage and benefiting from improved transparency.

Strong data transparency means identifying red flags

Finding ways to take options off the table quickly can save brokers and employers valuable time. Brokers can identify several factors that could be considered red flags when it comes to accurate data reporting:

• Data transparency and accuracy. A vendor’s willingness to share data demonstrates a level of trust and credibility. An incumbent vendor unwilling to share data is a sign to seek a change (and unfortunately, all too common). Vendors claiming that certain data “is not tracked” indicate that they are not prioritizing the clients’ most important objectives. Employers are placing an increasing premium on transparency; a vendor’s inability or lack of willingness to share economic details speaks volumes about their intent and credibility as a long-term partner.
• Analyses provided by vendors, like claims projections, should adjust for population, age, gender, disease prevalence and geography and should ideally include plan and member costs. Some methodologies, for example, only adjust for age and gender but visibly exclude disease prevalence.
• Validation and study methodology. If vendor data includes a third-party study, at a minimum, always confirm the external entity designed and performed the analysis. Often, these external parties may just “consult on” or “review” methodology without seeing the data themselves.
• The “too-good-to-be-trues.” If changing from one PPO network to another is supposed to drive 3% higher discounts and reduce out-of-network disruption by 5%, there is likely a questionable set of assumptions somewhere in the analysis. Carriers improve their discounts and negotiating power with providers by narrowing their networks, not broadening them. Pricing that comes in at half the price of other competitive quotes likely means hidden fees.
• Trend guarantees. Trend guarantees are medical cost agreements between a TPA and an employer. If the medical cost claims are higher than what is laid out in this agreement year-over-year, the TPA compensates the employer. These can be a mixed bag as they are often offered with commensurately higher plan prices. The fact that a vendor offers trend guarantees does not immediately translate into credibility or performance, especially when they come attached with a higher price tag. For example, this could be a purely mathematical exercise whereby a vendor increases pricing as they take on more risk, but they use the same baseline of industry average performance in the underwriting model (i.e., a guarantee that the trend of healthcare inflation year-over-year will be managed to 4% while the commercial group health industry average is 6%). This means the vendor can get away with offering trend guarantees without any real performance improvements baked into the baseline.

Validating data across competitors is as much an art as it is a science. Benefits advisors will invariably need to express their judgment on the quality and credibility of claims by certain competitors. A vendor’s willingness and ability to provide external validation, share data, and report on key metrics can be easily validated.

With the pace and velocity of business today, it is difficult to tailor insights to every client at the quoting and pricing phase. Most important is having a clear understanding of a vendor’s credibility and degree of external validation broadly across their claims. Believing that their claims are properly attuned to a specific audience or, better yet, adjusted properly for material variables is a true apples-to-apples comparison.

Justin Tran serves as the EVP of Product at HealthComp, the largest independent third-party administrator in the United States. His expertise is in developing and delivering solutions that reduce healthcare costs, improve quality and provide members with best-in-class experiences.