Self-insured employers pay more for procedures than fully-insured plans: Why?
While the self-insured approach has been considered a less-expensive alternative to fully insured plans, it turns out self-insured employers wind up paying more for colonoscopies, endoscopies and ER visits, says a new report.
The study, using data from the Health Care Cost Institute (HCCI), may be surprising to some because the self-insured approach has been considered a less-expensive alternative to fully insured plans by many brokers and employers. By opting for self-insurance, employer plans take more financial risk, but the risk has been considered justified by the savings on health care.
The study pointed out that because of the additional responsibility that self-insured plans have; they are considered to have more incentive to seek out lower prices of health care services. However, although there are variations, the Health Affairs study found overall that more services have higher costs under self-insured plans.
“We found that unadjusted prices were higher in self-insured plans for most of the services we studied, with the largest differences found for endoscopies (approximately 8% higher in self-insured plans), colonoscopies (approximately 7% higher), laboratory tests (approximately 5%), and moderate-severity emergency department visits (4%),” the study said. “When patient characteristics, plan type, and geography were adjusted for, differences were generally smaller but were consistent with these findings. Higher prices in self-insured plans suggest that there may be opportunities for employers to lower prices and for policy makers to act where employers have limited leverage to negotiate with providers.”
Areas where fully insured plans saw higher prices were in the areas of CT scans of the abdomen and some types of emergency department visits.
A ground-breaking study
According to one of the study’s authors, Aditi P. Sen, PhD, director of research and policy at HCCI, this is the first study of its kind, where differences in the prices for common services are compared between the two models of insurance.
“Our goal in this paper was to provide the first national, service-level price comparison between self- and fully insured plans and to document this kind of variation in prices across services,” Sen said. “The initial goal of this study was to see if there is a difference between prices of common health care services in self-insured compared to fully insured plans to see if employers are negotiating lower rates.”
A decline in negotiating power?
The results, Sen said, may show that employers are increasingly in a weaker position to negotiate lower prices for health care services. “Prices are one component of the overall cost of plans, and the piece we focus on in this paper,” she said. “These prices are the result of negotiations between employers and health care providers such as hospitals and physicians. While we can’t observe how these negotiations occur in our data, there are a few factors that might be at play. First, the health care provider market is increasingly consolidated, which considerable evidence shows results in higher prices.”
In addition, many employers do not have the kind of market share that brings leverage to these kinds of negotiation, Sen said. And she pointed out that most employers often rely on third party administrators to conduct provider contract negotiations. “These TPAs are not the ones at risk so they may have limited incentives to negotiate,” she noted.
Also, Sen pointed out, it is very difficult for the employer plans to get real-time price information, and without that information, they are limited in their ability to identify and target high prices.
Areas for more research and action
Sen noted there were some areas where more data is needed: for example, administrative costs were not something the study looked at. In addition, the study was not able to look at what factors cause some services to have higher prices than others.
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“My main take-away from this study is that self-insured employers are currently not negotiating lower prices for employees in self-insured plans despite their incentives to do so—likely in large part due to market dynamics—but that there are opportunities to take a more active role in demanding and using health care price data to at least be aware of prices and potentially take further action,” Sen said. “These actions could include joining a purchasing alliance with other private and public employers to improve leverage in negotiations and/or pushing for state or federal policy action to address high health care prices.”