| A long time ago in a galaxy far far away… an employer-sponsored PPO plan’s premium for a single employee was $99. The deductible was $100, coinsurance at 90%/80%, and the out-of-pocket maximum was $500. Almost 30 years later, that same plan design barely exists, and if it did, it would probably cost between $1,200-$2,000 per month just for a single employee.
The most recent transformation in health insurance purchasing came with the advent of the high deductible health plan with a health savings account. These plans reset the premium basis and afforded many employers the opportunity to pass on some of the savings back to their employees tax-free into their earmarked accounts. The learning curve was steep and remains complicated to this day. |
No wonder so many people hate health insurance. It’s complicated to use, expensive, and hard to navigate. |
Never before has purchasing health insurance become so complicated. If employed, you have a choice of taking your employer’s HDHP with HSA or a more traditional plan with the option of participating in an FSA. Knowing how to navigate through these channels and understanding the interaction between deductibles, coinsurance, and copays is confusing enough. Then there are qualified and non-qualified medical expenses and the option of taking a limited purpose FSA. If you take your employer’s coverage but end up losing your job, you can continue coverage for 18 months. If you’re in California, then you can take an additional 18 months or go into Covered California and hope to get a subsidy…. Complicated stuff even for those in HR and employee benefits.
A health plan that is easy to understand and use. Flexible to meet the needs of various health conditions. And of course, affordable. |
Life is complicated enough. No wonder so many people hate health insurance. It’s complicated to use, expensive, and hard to navigate. Unless you are provided the tools and resources, not even those in the healthcare industry know how to choose a health plan or doctor. In fact, most people are making important choices in a health plan and healthcare provider with very limited data. |
What is needed is a health plan that is easy to understand and use. Flexible to meet the needs of various health conditions. And of course, affordable.
There are a few pitfalls when an employer purchases a health plan.
First, the coverage is going to be expensive. Whether the plan is fully insured or self-funded, coverage will be provided for the most basic of preventive services as well as the most complicated of medical services. But for the most part, somewhere around 20% of the population drives approximately 80% of the claims costs. Most people only use a fraction of their health plan, meaning that there is a lot of unused services.
| Second, employees are usually going to select a provider (doctor or hospital) on a most random basis. For hospitals, most people select a hospital based on geography and distance from where they live. No one knows how much a hospital charges or the quality of healthcare received. If one were to select any other type of provider, they only need to go to a site like Yelp to see how many stars a particular restaurant, plumber, or gardener has received. Gathering such information in the healthcare world is coming along, but the data isn’t readily accessible for most people. |
For the most part, about 20% of the population drives approximately 80% of the claims costs. |
Third, there is risk that cannot be controlled. There are health related risks involved with any employer-sponsored plan. Regardless of what your organization does to manage costs, there are potentially members who have high cost claims that are ongoing. There is usually very little you can do for these cases except to manage to the worst case scenario. Take, for instance, an organization that has a hemophiliac costing the plan $400k – $500k per year. They may have the choice of continuing to pay this amount each year, or elect to have this insured go through new gene therapy which could end up with a one time cost of $1.5M.
So what is a plan sponsor to do?
By moving to a model where all services are copay-driven completely simplifies the purchasing process. |
Simplifying benefits by eliminating deductibles and coinsurance is probably a good first step. If one goes to a restaurant, it always lists out the cost of the food items. A burger costs $15, fries cost $5, and sweet tea (yum) costs $2. One never goes to a restaurant and has to pay the first $5 of cost, and then 20% of the cost of the burger, before the restaurant gives you unlimited refills… While the HDHP with HSA solution framework has afforded savvy users a small nest-egg in their savings accounts, it’s still complicated for most Americans. By moving to a model where all services are copay-driven completely simplifies the purchasing process. A user will now be able to know how much each service costs based on a copay, just like how you purchase any other commodity. |
| Incentivizing members to use high performance, lower cost providers is the next step. An employer should provide price transparency and empower employees with information about provider safety grades. Most members select a provider based on geography (e.g. that hospital is close to home so I’ll go there to have my baby delivered). But that isn’t always the best choice for the member or the plan. In fact, far too often, we find that choosing a provider by geography may result in poor outcomes. Employees end up using a provider that isn’t so stellar and the employer’s health plan ends up paying a significant amount more for services that could have been rendered at a much better facility with much better outcomes. |
Provide price transparency and empower employees with information about provider safety grades. |
Along this same theme, an employer can provide a meaningful incentive by charging employees less when they use high performance/lower cost providers. So if a member is given a choice to use Provider A who has a high safety rating and is lower in cost, versus using Provider B who has a low safety rating and is higher in cost, the plan is designed so that it costs less to use Provider A.
By identifying services that may only be accessed 3-7% of the time and making them optional, a plan may be able to reduce its cost of insurance almost immediately. |
Last, by identifying services that may only be accessed 3-7% of the time and making them optional, a plan may be able to reduce its cost of insurance almost immediately. It is often said that 20% of employees drive 80% of the claims costs. Knowing exactly where your plan falls in this utilization ratio and knowing which minor services are not frequently utilized is key to being able to design a plan that is smart and works for the employer and employee.
In our research, plans that have been designed in such a framework have an opportunity for significant savings (from 10% to over 30%), improved user experience, improved benefits model, and better health outcomes. |
It has been 15 years since the advent of the high deductible health plan and health savings account. The time seems ripe for a shift to the next generation of health insurance solutions. If healthcare technology can disrupt how the medical community treats health conditions, why can’t there be a new disruption to change the how employers purchase and how employees use health insurance?
Learn more about our disruptive solution:
Here is the link for information on CorePlus, or click below to schedule a quick phone call.
Alan Wang is the President of UBF and serves as the lead consultant. He has delivered the UBF solution set throughout the world and is highly regarded for his areas of expertise. You can follow him on Twitter @UBFconsulting.
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