Self-funding is a very hot topic these days for a number of reasons. For small group employers offering a self-funded plan this means they can charge a composite premium rate based on the employee population versus the community rates that are based on each individual enrollee’s age. For all employer sizes this also means that they are not subject to all of the taxes under the Patient Protection and Affordable Care Act (PPACA), which alone can translate into a savings of 3% to 4% of their premiums.
However, could self-funding be one of the keys to locking down the inflating cost of health care?
In recent years, insurance carriers came out with products called Consumer Driven Health Plans (CDHPs). These plans all had very high deductibles and many of them did not cover any services until the deductible had been met. Some were Health Savings Account (HSA) compatible, meaning that if you enrolled in a qualified HSA plan, you could also open a Health Savings Account and deposit funds on a pre-tax basis that could be used for qualified medical expenses.
These plans were generated with the thinking that if the consumer knew how much it was going to cost for them to get that MRI, or that shoulder surgery, then maybe they would think twice to determine if it was really necessary. Or they may shop around at different pharmacies to see where they could get their medication for the least amount and thereby reduce the spending and reduce the cost of health care and health insurance premiums.
Unfortunately, this plan backfired for a number of reasons. First, the premiums were so low on many of these plans that it was worthwhile for someone with severe health problems to enroll and then pay for their procedures with tax-free money. And the best part was that the insurance carrier paid for all in-network claims at 100% after they met their deductible. For example, if you expected to be undergoing knee replacement surgery, you could pay your $2,500 deductible with tax-free dollars, and have no other out-of-pocket costs for the rest of the calendar year for medical procedures. This resulted in huge premium increases to offset the amount of claims and utilization the carriers were experiencing under those plans.
Second, many people, especially in low income areas, did not get the care they should have received because it was too expensive, and then had higher cost of care later on to treat something that could have been prevented, or caught at an earlier, more treatable stage.
Third, the concept of CDHP plans did not address the fact that the people who have the highest cost of medical care per year ($48,580 on average) are the aging population above 85 years old. They are mostly enrolled in Medicare, and Medicare Supplement plans, not CDHP plans. Their spending has not been affected as a result of this strategy and the 85 and older population is continuing to grow at a steady pace. In fact, it is the largest growing age bracket. Medicare pays a very low rate for services to providers, and in order to cover the expense, the provider charges those with private insurance more for the same services to help cover their losses. When Medicare was created, four taxpayers helped to subsidize the cost of medical care for one person on Medicare. By 2050, it is projected that this ratio will be one-to-one. Every taxpayer will be subsidizing the cost of care for someone that is enrolled in Medicare. Can you imagine what will this do to insurance premium rates and the overall cost of health care?
But what is the answer? Is there a key that will unlock the door to reduced health care costs? In reality, the door most likely has many locks, and each component that factors into the cost of health care will need to be addressed if we are really going to find a long-term solution. But could one of the keys be self-funded medical plans?
Living in the Information Age, we know that data can tell us a lot. Whole industries are based on the simple collection and analysis of data. When a plan is self-funded, it gives employers access to data. This claims data allows an employer, with the help of an Employee Benefits Advisor, to analyze where they have the highest areas of utilization, where there may be some unnecessary spending (for example, employees seeking emergency room services when they could have been easily treated at an urgent care facility), and areas where the plan benefits are not being used (such as acupuncture benefits), and modify the plan accordingly to reduce spending and reduce premiums. For example, the employer could increase emergency room copays and reduce urgent care copays to encourage more utilization of lower cost urgent care facilities, instead of going to the emergency room, and cut out acupuncture benefits, thereby reducing the plan premiums and overall claims spending for the following plan year.
This helps the consumer, or employee make better choices, and helps to address the needs of the employees themselves, instead of asking them to utilize an insurance plan that was just taken off the shelf, so to speak, and making it work for them.
Another way that self-funding plans can have an impact on health care costs is their focus on wellness. It has been well established that the healthier a group is, the fewer claims they will experience, and the higher their presenteeism will be in the workplace. So it is no wonder that when an employer implements a self-funded health plan, it wants its employees to be as healthy as they can be and, in many cases, implements a wellness program that may include issuing Fit-Bits (i.e., biometric/fitness trackers) to all of its employees, sponsoring biometric screenings on-site for employees and spouses, and offering flu shot clinics, as just some examples.
So we know that employers can have an impact on the cost of health care by modifying their benefit plan designs to meet the specific needs of their employees, encouraging wise utilization, and implementing wellness plans. But what about the carriers themselves?
Cigna has implemented a Collaborative Care Program with more than 120 physician groups in 29 states, including provider groups Palo Alto Medical Foundation (PAMF) and Brown & Toland in the San Francisco Bay Area. According to Peter Welch, the Northern California President of Cigna Healthcare, Cigna and PAMF were able to reduce their inflation trend by 5% compared to other providers in the San Francisco Bay Area through this collaboration. The Collaborative Care Program includes a number of different critical pieces that range from clinical care coordinators, to health education and access to clinical programs that address disease management for chronic conditions, to Cigna providing detailed reports to the providers showing efficiency and quality of the care provided to their Cigna patients. These reports help to identify trends and cost outliers, and allow the provider to target opportunities where they can improve care and cost effectiveness of procedures.
Cigna and its providers participating in the Collaborative Care Program have successfully reduced health care costs through their combined efforts, which is wonderful. Could these collaborations between carriers and providers, in conjunction with wellness programs in the workplace, and employers implementing customized benefit plans through a self-funded insurance plan with the help of their trusted benefits advisor be the key to unlocking the door leading to reduced health care costs?
What about the long-term effects? If providers can become more effective at offering improved quality of care, and we as a society can be healthier, is it possible that as our population ages, the average annual spending for the 85 and older age bracket could go down? If we implement a healthier lifestyle during our careers, will we have fewer complications and medical conditions that we will need to be treated for as we age, and thereby reduce the number of times we need to see a doctor when we’re in our 70s, 80s, and even into our 90s? Can we put an end to shifting the cost of Medicare from the government to the private sector?
When it comes to reducing the cost of health care, every player has to do their part. I am encouraged by the progress that programs like Cigna’s Collaborative Care Program have made, and I am looking forward to seeing more. Every time I read a story about a company that implemented a self-funded health plan and wellness program, and how it helped to reduce their costs, boosted company morale and presenteeism, I get all warm and fuzzy inside. We can do it!