Stop-loss or reinsurance is a “backup” policy designed to limit claim coverage or losses to a specific amount. This type of coverage ensures catastrophic (specific stop-loss) claims or numerous (aggregate stop-loss) claims don’t deplete your reserves in a self-funded arrangement.
“There are a lot of companies in this stop-loss space, and there are more and more getting into it because the health care law eliminated lifetime limits, and health care costs are driving employers into self-funding,” says Mark Haegele, director, sales and account management at HealthLink.
Smart Business spoke with Haegele about what employers should look for when shopping for reinsurance.
What should employers know about the fixed cost of reinsurance?
The main components of a partially self-funded model are the third-party administrator (TPA) that pays claims; pharmacy benefit manager (PBM) network that contracts with doctors and hospitals for discounts; and the reinsurance carrier, which has the highest cost.
Stop-loss represents a disproportionate amount of the fixed costs for an employer. The smaller the employer, the less risk they’re willing to take, the more stop-loss they’ll need to buy and the more expensive it is. For smaller employers, the reinsurance purchasing decision becomes more relative and important. For example, a self-funded employer with a 500-life health policy might purchase specific stop-loss, paying $200,000 in claims for every member before the insurance kicks in. However, if a 20-life employer purchases $10,000 specific stop-loss, the stop-loss cost will be higher.
How can employers and brokers negotiate with stop-loss carriers?
In the eyes of the reinsurance carriers, there is no perfect model of self-funding components. This opens the door for the employer and broker to play a vital role in controlling the premium and overall stop-loss cost. If you can sell the reinsurance carrier on your vendor alignment — your TPA, network and PBM — you can decrease the premium.
Don’t go to the stop-loss carrier and say ‘I’m a 300-life employer and I want to buy $125,000 specific stop-loss,’ while providing your claims experience. Instead, demonstrate, in a refined and focused way, how you are working to lower the impact of large claims. Your premium might have been X, but you could now get X minus 20 percent. Employers and brokers don’t realize how much negotiation room is available.
How can you demonstrate your management of large claims?
Some ways to control large claim costs are having a dialysis or transplant carve out. You pay a small premium for a transplant insurance policy where any transplant will be completely covered, and then the reinsurance carrier gives you a credit, which often pays for the transplant policy premium.
Another option is working with your PBM. For one reinsurance carrier, more than 25 percent of all of the large claims is represented by prescription drugs. For instance, J-codes — high-cost injectable drugs used for hormone therapy or to treat cancer — often run through the medical plan. Finding a PBM that will further negotiate these J-codes while having a focused managed program can reduce that expense by upward of 30 percent.
When you follow these practices, it helps you when you’re paying your premium upfront with the stop loss carrier and downstream by controlling your overall claims.
How should employers and brokers examine stop-loss carriers to find the best price?
It’s important to know how reinsurance carriers have networks rated. If your network is that stop-loss carrier’s best-rated network, the premium will be lower. Reinsurance carriers evaluate networks with different levels of intensity, and therefore get wide ranging results.
Also, carriers give networks different levels of credibility with respect to discounts. For example, if your network gets a 52 percent discount in metro St. Louis, but the carrier only gives 60 percent credibility to that, that’s only a 31 percent discount. Some carriers give 100 percent credibility to the network.
Mark Haegele, director, sales and account management HealthLink. Reach him at (314) 753-2100 or firstname.lastname@example.org
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Many employers feel they have no control over the health care events of their employee population, seeing themselves as victims rather than informed consumers. However, it’s important to understand there are alternative solutions outside of the “insurance” box options when choosing a health plan for employees.
“As an employer, whether you have 10 employees or 500 employees, there is a whole host of new products and concepts that may make some sense for you — that you really need to explore,” says Mark Haegele, director, sales and account management, at HealthLink.
These options, including small group self-funding, captives, exchanges and co-ops, are growing as the health care industry rapidly changes, based on improved data analysis and the drive to keep overall health care costs down.
Smart Business spoke with Haegele about how these out-of-the-box health plan options work and what advantages they can bring.
What options are available for smaller employers who want to self-fund?
There are a host of new programs under a self-funded environment for employers with 10 or more employees. The 15-life employers may never have thought these options were available, but that’s not the case anymore. Self-funded employers can avoid premium taxes and state-issued mandates, while getting away from insurance company risk and profit. The employer has additional freedom to structure its health plan and can receive more claim information to better manage the health of the employee population, and therefore lower costs. Self-funding continues to be of interest to employers.
How do captives work to some employers’ advantage?
Small employers, with help from third-party claims administrators or benefit consultants, join forces to set up their own captives or use a cell in an established captive to cover risk above a self-insured retention. It’s usually made up of similar-sized employers, not necessarily similar in industry-type. For example, a 50-life employer would take the risk up to $50,000 for each member in the health plan. The captive, getting contributions from all employers, takes the risk from $50,000 to $250,000. The re-insurance carrier would risk all costs over $250,000.
By boosting retentions and pooling risks with other employers — who typically agree to put in wellness, disease management and other programs to lower claims costs — employers hope to keep increases in health insurance costs more in check. Also, all contributions to the captive, such as the $50,000 to $250,000 in the example, are tax-free. Finally, by pooling risks, participating employers can hold on to profits — if premiums exceed claims and other costs — rather than surrendering profits to a commercial insurer, as with a fully insured program. Many employers are looking at captives and starting to understand the advantages.
How are employers exploring the use of health care exchanges, both public and private?
Exchanges are new organizations set up to create a more organized and competitive market for buying health insurance. They offer a choice of health plans, certify participating plans and provide information to help consumers better understand options. Private exchanges are beginning to pop up, and in 2014 government-run exchanges will come on line.
Like a cafeteria plan, the consumer has a menu of insurance alternatives, such as five different insurance companies and six different plans, for one rate. While this creates the ultimate choice, exchanges may not be cheaper. Exchanges take away an insurance company’s ability to decline, drawing bad risk like those with major health problems. Many national insurance carriers say when public exchanges start, commercial population premiums will increase by 40 percent.
Private exchanges may be able use their advantages over public ones to lower costs. Even though they cannot decline, they have more control over who is coming in and can make it less attractive for bad risk through higher prices or benefits. Also, public exchanges must take subsidized members — uninsured with income under a certain threshold — who are likely more of a bad-risk population.
Employers are determining whether to continue to offer a health plan or just pay the penalty and send employees to purchase health care off the exchanges. It’s not as simple as it seems — although an employer may pay $8,000 per employee per year to offer a health plan and the penalty is only $2,000 per employee, typically employees demand higher wages when not receiving benefits. Retaining and attracting key employees could be why employers offer benefits in the first place. There are also tax implications with the decision to terminate, including extra taxes. One model found that Company X with 10,030 employees, where 3,000 highly paid employees purchase health care no matter the cost, paid $26 million more to terminate its health plan rather than raise the employee premium.
What role do co-ops play with alternative health plan solutions?
Health insurance purchasing cooperatives allow small businesses and municipalities to band together to negotiate for improved health insurance coverage for employees. The California Health Care Foundation found that under the right circumstances pools can meet cost and coverage goals and expand insurance choices, but it depends on the cohesiveness of a pool’s members and the market in which it operates.
Whatever health plan alternative you find fits your company best, employers do have options outside of the big box. You can get away from typical insurance companies.
Mark Haegele is a director, sales and account management, at HealthLink. Reach him at (314) 753-2100 or email@example.com.
Whether employees smoked used to be a hands-off subject for employers; that was their own business. Today, however, a cultural shift is driving management to take on employee smoking as a way to reduce health care costs and increase productivity, and smoking cessation programs are increasingly being rolled out as part of an organization’s overall wellness program.
“The key is the culture within that employer’s organization — really taking a top-down approach, having the business owner or CEO promote, champion and buy in to the program,” says Steve Martenet, president of HealthLink.
Employers also need to take a long-term approach to the effectiveness of smoking cessation programs because it is difficult to quit, and payback on the investment won’t happen in the first year. Additionally, the program needs to be tailored to each organization’s unique needs.
Smart Business spoke with Martenet about how to effectively employ smoking cessation programs and how doing so can impact the bottom line.
Why should employers care if employees smoke?
First, they should care from a humanistic standpoint, as caring about whether your employees smoke gets to quality-of-life issues. Smoking is the cause of nine out of 10 deaths from lung cancer, three out of 10 deaths from all cancers, nine out of 10 deaths from chronic obstructive pulmonary disease, such as emphysema, and one out of five deaths from heart disease, according to the Campaign for Tobacco-Free Kids.
From a business and cost perspective, there are very real costs in terms of health care and lost productivity as a result of having a work force that smokes. Each smoking employee costs an employer $1,000 per year due to direct medical claims, absenteeism and additional building maintenance, according to National Cancer Institute data.
And when compared to nonsmokers, the Mayo Clinic found in a seven-year study of 30,000 of its workers that the average health care costs of its smoking employees and retirees was $1,275 more per year than those of its nonsmoking employees.
How can employers encourage employees who smoke to quit?
There are steps employers can take to decrease the number of employees who smoke.
- Educate employees about the dangers of smoking.
- Create an environment that discourages smoking, which includes not allowing smoking in the building and/or on your property.
- Offer smoking cessation programs as part of a corporate health and wellness strategy.
What are some best practices for smoking cessation programs?
A number of tools can be used as part of a smoking cessation program, such as:
- Ongoing support and motivation.
- Personalized plans to quit.
- Rewards for participation and achieving milestones.
- Integrating cessation efforts with health care benefits, such as paying for nicotine replacement therapy.
- Having customized data that reports on the program’s effectiveness.
Each situation is different, depending on how big an issue smoking is for an employer and on the workplace culture, so use these variables to customize the program to meet your specific needs. With self-funded insurance, it is easier to create unique one-on-one lifestyle management programs. For fully insured employers, some insurance companies will offer — depending on state mandates — smoking cessation as part of wellness programs, either embedded into the basic offering or sold as an add-on or rider.
Many employees won’t quit in the first year, so be persistent. Every year, 17 million adults attempt to quit and only 1.3 million succeed, according to AllOneHealth Group. Smoking cessation programs require a three-year investment to break even, with benefits exceeding costs after five years when it has become ingrained in the culture of that organization.
Are cessation programs more effective than charging smokers more for health insurance?
There is a carrot-and-stick approach, and charging more is certainly a stick approach. However, a lot of employers combine the two approaches because it is easier to charge a smoker more if you are providing them with an opportunity to quit. Employers should consult with corporate attorneys before they differentiate what they charge for smoking and nonsmoking employees, as some state laws may prevent fully insured companies from doing this. In fact, the federal government thinks so much of the practice of differentiating that it is built into the health care reform act.
Smoking employees cost more and from an employer’s perspective, the ability to charge more could help offset that health care cost. Still, the addictive nature of smoking means such penalties are more of an incentive not to smoke than a reason to quit.
How does tobacco use impact employers’ costs?
Tobacco costs the U.S. $96 billion in health care expenditures and another $97 billion in lost productivity each year, according to the Centers for Disease Control. There is a huge opportunity for employers to find the right smoking cessation program for the organization. There is already incentive for many employees, as studies have found that 68 percent of smokers want to quit.
An example of the impact on cost is Illinois, which recently more than doubled its cigarette taxes. As a result, 72,700 Illinois kids will not become smokers and 53,400 adults will quit, according to the Campaign for Tobacco-Free Kids. In Missouri, voters will decide Nov. 6 whether cigarette taxes should be raised by 73 cents. HealthLink supports increasing the state cigarette tax, which is the lowest in the nation at 17 cents. Through the tax code, the health of the community will improve. Employers can do this on a smaller scale through an effective smoking cessation program.
Steve Martenet is president of HealthLink. Reach him at (314) 923-4474 or firstname.lastname@example.org.
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Employers — and subsequently, their employees — are becoming more savvy about the decisions involved in choosing and administering a health plan, often a business’s second- or third-biggest cost of operations. Just as safety initiatives can help reduce property and casualty insurance premiums, health insurance savings can often be achieved through self funding, says Mike Debo, senior sales and renewal executive at HealthLink.
“By instituting wellness programs and encouraging routine physicals and post-condition care for not only employees but for covered dependents, employers can reduce premium and claims costs while increasing productivity,” Debo says. “Instituting wellness programs, encouraging routine physicals and promoting post-condition care are especially beneficial to self-funded groups as they see the savings in the form of fewer claims spent, which can reduce reinsurance costs.”
Smart Business spoke with Debo about how increased involvement on the part of employers and employees can lead to lower health plan costs.
What is driving employers to be more involved with their health plans?
For many employers, the No. 1 reason they are becoming more involved is that they have no other option. They may have already maxed out what they can do from a plan design perspective with greater participant out-of-pocket costs. In addition, fully insured employers are constantly getting rate increases, but over the years, often no one has been able to fully explain the increases.
What are some tools an involved and educated employer can use to lower health costs?
An employer’s decisions are only as good as its information. That is why many business owners move into self-funding, where there is greater reporting about their group and its claims, whether medical or pharmacological.
One of the first tools businesses use is to have participant biometric testing, which provides the employer with information on how many people in the group have high cholesterol, hypertension, weight or smoking issues. From that — combined with reporting and claims — employers can create wellness programs and condition management programs. Wellness programs eventually save money from a claims perspective, but it might take a year or two to absorb the initial cost of testing.
With a year’s worth of information from claims and wellness programs, businesses can begin to change their plan design to address health conditions, utilization patterns or provide unique coverage for their plan participants. For instance, a business may find its participants are frequently visiting chiropractors because of their job type. With that information, they can look at not only how many visits they are allowing for chiropractors and the cost but also institute a condition management program strictly for back injury care.
Then, they can look at pharmacy claims. Are participants using generics as often as they can, brand names as necessary or mail order whenever possible? What does the employer need to do regarding the pharmacy benefit to not only ensure that people get the drugs they need but also to make it cost effective for the group?
By changing the plan design and addressing the specific needs of a group, employers often find they don’t need a particular program, such as condition management or a 24-hour nurse line, further cutting costs.
How can employers overcome initial resistance to wellness programs and other initiatives?
Most people aren’t going to participate in biometric testing, a smoking cessation program, a weight loss program or a condition management program unless there are cost differentials to participants in the form of incentives or disincentives. Plan participants often think such programs are an invasion of privacy or that they require too much of a time commitment, but when there is a 10 to 30 percent difference in premium costs, they get involved.
How can employers communicate to employees the true costs of health care?
One of the easiest ways is to use a plan with no co-pays, where everything goes toward deductible/coinsurance, so that participants understand how getting an X-ray at an outpatient facility versus a hospital can mean the difference between a bill of $700 or one of $1,800.
Reporting is extremely important because it provides the knowledge to make wise decisions. Communication is equally important, whether via traditional posters and payroll stuffers or new technology smartphones, emails and blast texting.
To be effective, the communication must address how to get the most out of plan benefits and programs while avoiding unnecessary costs to the participant and the group.
How do self-funded plans give employers so much more control of their health program?
Employers have full control, outside of federal mandates, to do what is best for plan participants and plan costs. For example, if an employer has a population with an average age of 45 and people taking off work for elderly parents going into nursing homes or going to the doctor frequently, the employer can bring in a vendor to work with employees on how to make decisions about their parents. This takes pressure off employees. They show up to work more regularly and are more committed to the company because of the service their employer provided.
With self-funding, it’s at least a three-year commitment of time and effort to cut costs and provide better benefits for employees. The employer has to sit down on a quarterly to semi-annual basis to go through reports and have someone scrutinizing claims. Employers with healthy groups may stay fully insured because they think there is no risk involved, but the risk is that they pay $2 million for something that costs $1.5 million. With self funding, employers have a program that they are in charge of, a program better suited for them and for their plan participants.
Mike Debo is a senior sales and renewal executive at HealthLink. Reach him at (866) 643-7094, ext. 1, or email@example.com.
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The Medical Loss Ratio (MLR) mandate, within the Patient Protection and Affordable Care Act, requires insurance companies to spend 80 to 85 percent of premium dollars on medical care and health care quality improvement. This provision just started in August, but how will it impact the insurance industry and employers?
“The MLR Legislation has a perverse incentive; when utilization and costs increase, an insurance company makes more money,” says Mark Haegele, director, sales and account management, with HealthLink.
Smart Business spoke with Haegele about what MLR does and the ramifications for health insurance companies, brokers and, ultimately, employers.
How does the MLR mandate work?
Medical loss ratios refer to the percentage of premium dollars an insurance company spends on providing health care and improving the quality of care, versus how much it spends on administrative and overhead costs and, in many cases, salaries or bonuses.
In August, health insurance companies paid $1.1 billion in total rebates to customers when less than 80 percent (for individual and small group markets) to 85 percent (for large group markets) of premiums were not used for health care costs. Approximately 31 percent of Americans with individual insurance got the rebate, with an average check of $127, according to the Kaiser Family Foundation. Rebates went directly to businesses that sponsor their own plans and they decided whether to distribute them or put the funds toward lowering future premium costs.
Why does MLR create a problem for insurance companies and, subsequently, employers?
Many insurance companies have had to make up a gap of up to 10 percent by balancing their administrative costs in order to pay for overhead, employee salaries, etc., and to run their business. In the individual market, for example, typically 70 to 85 percent of a premium is used to pay for the claim, according to a 2010 report by the American Academy of Actuaries.
Now, if you are an insurance employer, suddenly you have to spend 85 percent of the premium that you take in on claims. That means that 15 percent is the only bucket of dollars that you have for profit, administration, overhead, etc. So, logically, there are only two ways that insurance companies make more money year over year and increase their profits. They can either reduce their administrative overhead by cutting staff or have a claims increase.
For instance, if your premium was $1,000, $850 goes back to claims and $150 goes to profit and overhead. Let’s say next year your premium is $1,500; now the insurance company has increased its potential for profit by 50 percent — to $225 rather than $150. Artificially increasing utilization isn’t good for our health care system, and increasing premiums wasn’t part of the reform game plan.
The more realistic and impactful method is reduction. Insurance companies are in it to win it; they are not going to sacrifice profits. With insurance companies facing huge budget constraints, what does that mean for employers and their employees? It means a lower level of service because there are fewer people answering phones and less staff to handle claim issues as insurance companies are forced to squeeze their administration expenses.
In addition, employers will want to know if their group is subsidizing other employers. Insurance companies will need to provide information about the cost of claims, how much is being spent administratively and where are the funds going, and how groups compare. The president of an insurance company recently received a call from an employer who was very upset about the payment of his rebate check because he knew that his premiums were artificially high for many years and that he’s been subsidizing other employers.
How have insurance brokers been negatively impacted by MLR?
The U.S. Department of Health and Human Services has decided that agent commissions are not exempt from the administrative calculations. This creates a difficulty because brokers rely on incentives/bonuses from insurance companies to sell their business.
With the MLR mandate, the broker’s commissions have been cut considerably, if not all together. The National Association of Insurance Commissioners recently released a study that reported that a significant number of health insurance companies have reduced commission levels, particularly for the individual market. Brokers and agents are worried that this will run them out of business.
In the era of health care reform, it is important for employers to have consultants to ask questions, which often is the broker’s role and where that person earns his or her 6 to 10 percent fee. This will be even more vital if insurance companies themselves are giving lower service.
Are there other health care solutions not affected by MLR?
Self-funded programs are not held to the MLR and other PPACA mandates. Therefore, consultants who work off commissions could be suggesting self-funding more frequently. If business owners feel their group is not benefiting from MLR requirements, they also could look at self-insured models.
There’s no doubt that the MLR is clearly another driver to push employers to look at alternative methods of health care, including self-funded insurance. This already has been demonstrated by more interest from brokers and others entertaining a self-funded solution; they are not all buying it, but they are all looking at it.
Mark Haegele is a director, sales and account management, with HealthLink. Reach him at firstname.lastname@example.org or (314) 753-2100.
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More than 145 million people — or nearly half of all Americans — live with a chronic condition, according to Johns Hopkins University. That number is projected to increase by more than 1 percent each year through 2030, resulting in a chronically ill population of an estimated 171 million.
So what does this mean for employers that are already struggling to control health care costs?
“There are 29 chronic illnesses that make up 80 percent of all health plan costs,” says Mark Haegele, director, sales and account management, with HealthLink. “The problem is that, with a typical health plan, you are only managing five to seven of those diseases, reaching a significantly smaller component of the population.”
Smart Business spoke with Haegele about how to remove barriers to chronic illness compliance and manage health care costs.
How are chronic diseases typically managed?
Chronic disease management may include an evidence-based care treatment plan, with regular monitoring that follows guidelines developed by the American Medical Association, the American Heart Association and others, coordination of care among providers, medication management, and measuring care quality and outcomes.
How do chronic illnesses exponentially affect employee health insurance costs?
Patients with chronic conditions often are required to take one or more medications indefinitely. The combination of dormant symptoms, coupled with long-term treatment, means that patients don’t always follow the recommended daily regime for disease maintenance. If employees don’t manage chronic illness by following treatment protocols, they may end up in the emergency room or hospital, spending more on health care costs than if they had spent money to stay in compliance through testing and medication.
With the way the health care system is structured, a patient does not know the ultimate cost of going to a doctor. Months later, he or she will get a bill in the mail — hopefully with a corresponding explanation of payment from the insurance company — that might be for $50 or $250. This uncertainty can keep patients with chronic diseases from following wellness and disease management.
In addition, failing to manage chronic illness correctly can lead to complications, which increases costs. A University of Chicago study found that three out of five patients with Type 2 diabetes suffer from at least one significant complication, such as heart disease, stroke, eye damage, chronic kidney disease or foot problems. Consequently, the yearly medical expenses of a person with Type 2 diabetes complications are nearly $10,000, with nearly $1,600 paid out of pocket.
What challenges do employers face with chronic illness compliance?
There can be challenges with many fully insured health plans because benefit designs are limited to support chronic illness compliance. Most health benefit plans have an optional disease management program that impacts 5 to 9 percent of chronic diseases, such as asthma, diabetes, cardiovascular disease and chronic obstructive pulmonary disease. The problem is that many more types of chronic illnesses drive up health care costs, and the benefit design doesn’t change to support the highest chronic disease prevalence among your specific employees. In addition, a voluntary program won’t necessarily reach the employees who are increasing costs the most.
It takes time to change employee behavior. Even with the Patient Protection and Affordable Care Act, under which companies have been paying for 100 percent of preventive care such as immunizations and mammograms, there hasn’t been an uptick in services.
How can employers use value-based benefit plans to increase chronic illness compliance?
Traditionally, employers try to save money on health insurance plans by shifting costs to employees and encouraging generic medicine use. Now, some are lowering or eliminating copayments on medications to encourage adherence to regimens through value-based benefit design.
Companies can use a series of incentives and disincentives to shape employee behavior. For example, smokers may have to pay a higher premium than nonsmokers, and employees who undergo a biometric screening each year could qualify for a plan with better benefits.
This is where the flexibility of a self-funded plan can help. If a company has a disproportionate number of diabetics, it can design its health plan to remove barriers to following a health treatment plan by taking steps such as fully paying for diabetic test strips. In addition, an employer can fluctuate employee members between plan levels based on their compliance throughout the year, rewarding good health practices with better benefits.
In a recent study of a 30,000-member business coalition in Clinton, Ill., of 250 diabetics studied, those who followed a value-based benefit plan with aligned incentives had health costs that were half those of other diabetics.
How can employers ensure that adding health care costs by lowering or eliminating copayments saves money?
You can hire professional consultants to evaluate health plan vendors, but effective communication is critical. When looking at programs, those with motivational coaching are the most effective. They get employees on board by motivating them as opposed to informing them of a checklist, then calling to ask why they aren’t following it. In addition, the program should also be communicating both with the member and primary care doctor.
You need to understand your health care population and then monitor progress monthly, quarterly or yearly to see your return on your investment. One self-funded program found that more than 90 percent of the population identified with high cholesterol had gotten cholesterol levels down to normal following a value-based health plan that ultimately lowers overall health care costs.
Mark Haegele is a director, sales and account management, with HealthLink. Reach him at (314) 753-2100 or email@example.com.
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From greater flexibility to lower costs, self-funded insurance is attracting the attention of more and more employers.
“Self-funding plans have been gaining popularity as a way for companies and employees to save money in the face of the recession, recent health care reform and increasing health care costs,” says Mark Haegele, director, sales and account management, for HealthLink. “Health care reform adds a number of taxes and restrictions on fully insured companies that those on a partially self-funded basis are typically able to avoid.”
Smart Business spoke with Haegele about how you can manage a self-funded plan to ensure your company gets the most out of its health care expenditures.
What’s the difference between a self-funded and a fully insured health plan?
With self insurance, or self funding, the employer assumes the financial risk of providing health care insurance. Typically, the company sets up a trust of corporate and employee contributions that are administered in house or subcontracted to a third party. A company can either hire a third-party administrator (TPA) or do the administration itself to save on fees that would normally go to an insurance company. A TPA can also take on fiduciary responsibility with reinsurance to further protect the employer.
When an employer is fully insured, it pays a fixed premium to an insurance carrier that assumes all of the risk.
Why would an employer choose to self-fund?
There are a number of reasons to go with self-funded insurance, and flexibility is one of the biggest selling points. For example, Company A can choose to exclude bariatric surgery on its health plan and Company B can include it, depending on its employees’ specific needs. In Illinois, the state mandates that fully insured businesses must pay for bariatric surgery, so only with self-funding do businesses have the ability to choose.
In another example, under self-funded insurance, an employer can identify disease prevalence and assign benefits to accommodate its employees’ specific needs. So, if an employer discovers a higher incidence of asthma and diabetes in its employee population, as a self-funded employer, it can choose to pay 100 percent of all of the services required to manage those illnesses. This keeps employees healthier — and out of the costly ER and hospital — by ensuring they maintain their treatment protocols for that particular illness.
It’s about identifying the makeup of the employee population, and designing and building self-insured plans to really support that population’s needs; you’re not stuck in a box of what you have to provide, based on what the state mandates or on your insurance company’s systems.
In addition, you can maximize your interest income on premiums that would otherwise go to an insurance carrier, and you can avoid prepaying for health care coverage, improving your business’s cash flow.
Finally, self-funded insurance is only subject to federal law, not conflicting state health insurance regulations and/or benefit mandates and state health insurance premium taxes, which can account for 2 to 3 percent of premium costs.
How common is self-funded insurance and how can a company determine if it is the best option for its needs?
Approximately 50 million employees and their dependents receive benefits through self-insured health plans, which accounts for 33 percent of the 150 million participants in private employment-based plans nationwide, according to the Employee Benefit Research Institute in 2000.
There’s a myth that self-funded insurance is not cost effective for employers with fewer than 1,000 employees. However, there are many TPAs that offer partially self-funded programs for companies with as few as 10 employees. In most states, including Missouri and Illinois, health care is a guarantee issue for plans with fewer than 50 lives. This means if you have 50 or fewer employees and you try self-funded insurance but it doesn’t work out, health insurance carriers must allow you to have fully funded insurance the following year.
However, if you have between 50 and 100 employees, you need to truly understand your risks because returning to a fully funded plan from a self-funded plan could increase your rates dramatically. Make sure that you have a trustworthy broker and/or lawyer review the plan you’re going to participate in before making your decision.
If a company assumes the risk of self funding, how can it protect itself from a catastrophic claim?
You can purchase stop-loss insurance for reimbursement of claims above a specified amount through a TPA. Only the employer is insured, not the employees or health plan participants, which means you can avoid most insurance taxes.
There are two types of stop-loss insurance, which acts as reinsurance:
- Specific stop-loss provides protection against a high claim on any one individual. The rule of thumb is $10,000 if you have 10 employees, $20,000 if you have 20 employees, etc.
- Aggregate stop-loss offers a ceiling on the amount of eligible expenses an employer would pay, in total, during a contract period. The carrier reimburses the employer at the contract’s end for aggregate claims.
You also can use TPAs to help decrease your risk. A TPA will have existing affiliations with health care networks to help manage the plan and save the most money. TPAs can also help manage the increased complexity of self-funded insurance.
Self funding is more viable than ever for employer groups with as few as 10 employees. Right off the top, employers save 3 to 5 percent of the total cost of their health plan through insurance companies’ risk charge and profit, coupled with the other advantages of plan design flexibility and additional tax avoidance associated with health care reform.
Mark Haegele is a director, sales and account management, for HealthLink. Reach him at (314) 753-2100 or Mark.Haegele@healthlink.com.
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Every employer is facing increases in the cost of health care, which are a function of price, utilization and intensity. And with every employer looking for ways to lower costs, imaging services are a prime target. Imaging services such as MRIs are one of the fastest-growing components of health care; and there are opportunities to help identify and limit all three cost drivers.
“High-cost imaging is something that you, as an employer, want to keep your eye on because it’s trending higher, typically, than the rest of your categories of care,” says Mark Haegele, director, sales and account management at HealthLink. “But the great news is that this is an area that you can control and you can manage.”
Smart Business spoke with Haegele about why imaging services costs are increasing faster than other health care areas and what employers — particularly self-funded employers — can do about it.
What is high-cost imaging and why is its use increasing?
Imaging services are tests such as X-rays and ultrasounds, as well as high-tech imaging including MRIs, CT scans, PET scans and nuclear cardiac imaging.
While some experts say that imaging growth has slowed in recent years, it’s still one of the fastest-growing segments of medical costs, accounting for nearly 15 percent of all health care costs, according to Blue Cross Blue Shield. As an employer, your inpatient costs may be consistent year over year and your physician costs might be consistent year over year, but for many employers, imaging costs are trending much higher than those in other areas.
How can employers address increasing use and cost?
Most managed care companies have drastic variations in their imaging contracts with providers within their network. At Hospital A, the cost of a MRI might be $600, while the cost of that exact same MRI at Hospital B, right down the street, is $4,000.
The discrepancy exists because, as managed care companies negotiate with hospitals, there is give and take on each type of care, from inpatient to outpatient to emergency room to imaging.
Hospital A may have offered the managed care company a good deal on MRIs in return for higher outpatient surgery costs, while Hospital B might need less income from its outpatient surgery but a higher MRI rate. Employers and employees are typically in the dark about these variations within a network.
In addition to educating employees on how to choose where they get their imaging services, you can align incentives or bonuses to drive employees toward lower-cost options. For example, if employees know their MRI co-pay is $25, do they really care if the MRI costs $600 or $4,000? The two MRI choices are both top-quality providers, and more than likely the exact same machine. But if you, as a self-funded employer, can offer the employee a $100 gift card if he or she chooses the $600 MRI location over the $4,000 location, your company saves more than $3,000.
How can employers help control overutilization of imaging services?
Overutilization issues often arise when there is no continuity of care by employees. An employee might go to a doctor and get a CAT scan at one hospital, but the next hospital doesn’t get the employee’s records, so the same test may be repeated. Overutilization occurs most often with aliments that are hard to diagnose, and in cases in which patients are constantly going in for tests for ailments such as migraines or for sleep studies.
Employers should use comprehensive case management to identify employees who have no continuity of care and/or have chronic problems that are most likely to result in overutilization. By managing health care cases closely, employers can help employees identify and retrieve previously done tests.
In addition, education can result in a decrease of utilization. A recent National Imaging Associates study found that a large percentage of MRIs are ordered to meet patient demand rather than to meet a true diagnostic need.
What is intensity of imaging services and what opportunities exist for employers to decrease these costs?
Intensity is when employees receive PET scans, when their problem could have been diagnosed with CAT scans. The intensity level of the service is higher than it needs to be, and therefore, the costs associated with that are higher than they need to be.
There are doctors who automatically run all MRIs, which translates into thousands of dollars, when they could have first run a CAT scan, which, in comparison, costs hundreds of dollars. For example, more than 10 percent of chest CT tests are ordered with no claim evidence of a previous plain film of the chest, according to a National Imaging Associates study.
In a self-funded environment, through physician profiling and comprehensive medical management, you can help reduce inappropriate intensity levels of services to employees. There are imaging programs in which employees call to pre-certify services, and if a higher level of care was ordered than is necessary, that can be managed down to a lower level of care.
By looking at all three factors — price, utilization and intensity — employers and employees can work together using benefit design, education and aligned incentives to lower the cost of imaging services.
Mark Haegele is director, sales and account management, at HealthLink. Reach him at (314) 753-2100 or Mark.Haegele@healthlink.com.
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The cost for work-related injuries in the U.S. in 2011 was $192 billion, with 60 percent of that directly related to medical treatment for injured workers, according to a recent UCLA-Davis study.
As a result, it is paramount that businesses get a handle on their workers’ compensation expenses, says Jeffery Hey, director, Anthem Workers’ Compensation.
“The best way to do that is to work with a managed care organization that has experience with, and knowledge of workers’ compensation and that has relationships with employers in order to mitigate risks for the company and reduce expenses, while ensuring that the injured worker gets quality care,” says Hey.
Smart Business spoke with Hey about how a managed care network can help you save costs, get workers back on the job more quickly and ensure that injured employees are receiving quality care.
What is the current state of the workers’ compensation market?
Workers’ comp is managed by each state’s government. Half the states allow employers, either directly or indirectly, to channel injured workers into networks, while the other half do not. For those employers that have the capability to channel into a network, you have to consider which networks are good, which have experience with workers’ compensation and which have the right mix of providers and facilities. For most companies, workers’ comp premiums are their second-largest operating expenses, so it is critical that employers gain control over how injured workers are treated.
How can employers begin to channel injured employees to a select subset of providers?
It’s essential that the employer knows how to set up a subset of doctors, facilities, hospitals and clinics to treat their injured workers. Unfortunately, most employers don’t have that experience, nor that expertise, to make those determinations.
Partnering with a managed care network can help you navigate the world of workers’ comp. Managed care networks help ensure that the injured worker receives quality care while emphasizing standard treatment protocols, case management and controlled access to medical care. In addition, they can also help manage the cost portion of the equation.
When selecting a managed care network to partner with, be aware that not all networks have experience working with workers’ comp claims. You need to find a network that has longevity, has experience with workers’ comp claims and is familiar with light duty and return-to-work protocols. The network should also be familiar with the paperwork required by the state and the state fee schedule.
Keep in mind that workers’ comp is a much different, proactive paradigm than the health side, and your PPO networks aren’t necessarily going to be the best fit for your workers’ comp needs, which include aggressive intervention for a faster return to the workplace.
A third party administrator, broker, or agent can help you determine whether a managed care network is appropriate for your needs.
Once you’ve identified a potential network, how can you test its capabilities?
Before making a selection, run test bills through the network and do comparison shopping. The managed care network should be willing to take your bills and run tests and show discounts back to the business. Even though the workers’ comp medical side is not all about discounts, discounts will save you money.
If you find a great provider network that can also help you out with medical case management use and fee schedule compliance, all the better. Discounts are very important in terms of the overall equation of determining whether the network is a good fit for your company.
Also consider how big that network needs to be and what types of reports you should be looking at to make sure not only that workers are getting quality care, but that you, as the employer, are getting a good return on your investment.
What else does an employer need to consider when selecting a managed care network?
Make sure that not only is the network strong but that there are specialty firms that can be brought into play to interface with the network to make sure that injured workers get the quality care they need and that the employer has a good handle on the cost of the treatment provided to the injured worker. Get aligned with the right medical case management, if appropriate, to make sure you are managing your costs and getting that injured worker back to work as soon as possible. In addition, you need to know that, within that network, there are physicians specializing in occupational medicine who are skilled in diagnosing and treating work-related injuries and who understand that getting workers back to work is in line with their functional capacity to provide good medicine.
What things should employers be aware of when working within the workers’ comp system?
If the physician places a worker off work and says he or she can’t come back, with no restrictions and no explanation, that should be a red flag to the employer that something is going on. Or if the physician makes an appointment for the worker to return every four to six weeks instead of for more regular review, that’s not good, either. There has to be consistency in terms of treatment and good communication between the physician and employer to make sure that the system is working the way it is supposed to.
It’s also a red flag if a provider is reluctant to refer the injured worker to a specialist, there are very few written notes, the physician provides narcotics for minor injuries or therapy seems never-ending.
There has to be common sense and integrity in the process, otherwise, the business is going to lose on their part of the deal. In the long run, by partnering with a managed care network, you are providing both yourself and your employees and everyone involved benefits.
Jeffery Hey is director for Anthem Workers’ Compensation. Reach him at (314) 925-6038 or firstname.lastname@example.org.
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When third-party administrators (TPAs) solicit quotes for stop loss insurance for their client companies that self-insure, they may not be getting the maximum discounts available from stop loss carriers if the carriers don’t receive transparent data from the provider network.
That’s why it’s so important to make sure the network is sharing data at every level, says Brian Fallon, director, payor relations and new business development and data analytics at HealthLink.
“TPAs are now asking the carriers about the network ratings and the frequency of their evaluation,” says Fallon.
Smart Business spoke with Fallon about network discounts and how they may impact stop loss pricing.
How is a managed care network evaluated by a stop loss carrier?
A key component to the evaluation of a managed care network is its claimed discounts relative to stop loss pricing. Several factors are involved in determining the effectiveness of a discount. Some include the location of the member, the location of the employer (they are not necessarily identical) and the composition of the provider contracts.
The clinical referral patterns of the providers are also taken into consideration and are important, as a member located in a rural market may incur initial care at a rural facility. However, specialty or tertiary care will typically migrate to a metropolitan market, where the available scope of services is enhanced and the managed contracts are structured on a per diem or DRG basis. Those contracts also contain fixed pricing for inpatient and outpatient services, reducing the exposure to billed charges.
All factors contribute to a stop loss carrier evaluation of the network. Additionally, carriers review the structure of the network, the volume of claims flowing through the network on an aggregate basis and the credibility factor assigned to the network. A network with credible claims data will have less reliance on manual pricing.
Why is transparency of data so important?
The greatest challenge that a reinsurance carrier has is the lack of transparency provided by the networks being evaluated. Networks may provide average savings or net effect discounts that are not regionally based but are reflective of larger geographic regions, thus distorting the accuracy of the discounts. Carriers need to be able to consider the contractual allowed amounts at a specific facility, as well as paid amounts. In addition, networks need to disclose actual facility rates inclusive of actual stop loss provisions at the facility.
Network discounts at high dollar amounts are not reflected accurately via the averages that are commonly cited. When brokers or consultants market self-funded employer groups with stop loss, typically they only provide the overall average discount for the group. Networks and ASO carriers market their overall average discounts and, again, the focus is on the total claims.
How do network discounts impact stop loss pricing?
The discount information is important for complete understanding of the aggregate attachment point calculations, but not really relevant or helpful for specific or large claim evaluation.
PPO discounts for high-dollar claims after the specific deductible will differ from the averages that are typically provided. The actual discounts are typically lower on shock claims, but the reduction in stop loss liability is higher. Networks should be able to engage in the discussion with the carrier as to the net effect discount as it relates to various stop loss price points.
Other factors impacting stop loss pricing are the availability of vendors or arrangements that impact trigger diagnosis such as dialysis or an effective pharmacy benefit management program. Pricing offsets can be as impactful as a 5 to 10 percent of the specific deductible premium.
We are also seeing the emergence of small groups entering the self-funded market. Mandated benefits, premium taxes and the unknown liabilities contained in Patient Protection and Affordable Care Act (PPACA) legislation are now providing small employers enough motivation to explore self-funding.
The conclusion for the TPA is to know how a stop loss carrier rates the network being promoted to the client –— and how often the networks provide the data. Networks used to be sold by the merits of the participation of providers.
TPAs and their clients alike are looking for new ways to address cost. We see the emergence of conversations of narrow networks — that is, steering through benefit plan design — to the most cost-effective providers. Reported discounts are also being evaluated on an adjusted cost basis through case mix indexing. Members are also becoming prudent consumers as they share more of the burden of cost.
Now, networks will be challenged to provide these methods of transparency to the reinsurance carrier to ensure accurate valuation of the network in order to obtain price points to compete in the self-funded market. It’s also incumbent on the TPA to have the dialogue with the reinsurance carrier regarding network valuations and for the network to demonstrate their effectiveness to both the TPA and reinsurance carrier.
Brian Fallon is director, payor relations and new business development and data analytics at HealthLink. Reach him at (314) 925-6222 or Brian.Fallon@wellpoint.com.