How to make sure that your health plan is free of hidden fees Featured

7:00pm EDT November 25, 2010

When you partner with a company for either fully funded health insurance or a self-funded or administrative services only (ASO) model, you expect to know exactly what you are paying for and that there are no hidden fees. However, that’s not always what you get.

“Not every company is perfectly transparent about it,” says Don Whitford, vice president of sales at Priority Health. “And if you don’t know how this happens in the marketplace, you may not be able to ask the right questions to ensure transparency.”

Transparency is especially critical for employers with self-funded plans. Generally, there are two main elements of cost in self-funded plans: fixed costs, which include administrative fees, and stop-loss premiums and variable costs, which include claims costs. And some carriers may not be up front about what makes up those costs.

Smart Business spoke with Whitford about how employers can ensure transparency in their health plans.

What kinds of hidden fees might employers encounter in their benefits plans?

Some carriers have an element called an access fee, which is a charge to utilize their network. Some third-party administrators put it right on their documents. Others bury it in a claims expense. In that case, you don’t really know what the access fee is — the company considers it a claims expense.

Every carrier gives you claims listings. If you were to look at the claims listings, you would not be able to tell how much the access fee is because the claims expense could be increased by as much as 6 percent to account for the access fee.

Why should employers look for transparency in their health plans?

As costs continue to rise, transparency has become one of the buzzwords in health insurance. Carriers and employers should make it a point to be perfectly transparent. You need to know what all of your costs are and how they impact you, because there may be things you can do to help control them.

The access fee for using the network really could be considered an administrative fee because when most carriers charge access fees, they use them to manage their provider network, credential them, educate them, all the things you do with providers on an ongoing basis. If this fee is buried as a claims cost, you’re not really seeing your true fixed costs. Employers should know how much their carrier is really charging them to administer their plan on a daily basis.

If a carrier is going to charge a certain amount for fees and services, it’s important for the purchaser to understand how the carrier arrives at that number. How much of it is claims expense? If the carrier charges an access fee, how much is it? How much of the cost is administrator expense?

Your total cost probably won’t be any different, but it is important for employers to understand what truly makes up their health care spending. Otherwise, it’s like getting a cell phone bill with a lump sum that doesn’t show you how many minutes you used.

That is why transparency is important; it demonstrates the value of how a carrier will manage your per capita health care costs and shows what it is charging you to administer your plan.

How much of an effect can these fees have?

It depends on the size of your plan and on the percentage the carrier uses. These fees can have a significant effect if you are a very large employer. For instance, if you add 6 or 7 percent to all your claims, and your claims total $1 million, that’s $60,000 to $70,000 — quite a substantial amount.

The exact percentage is going to vary based upon practices, but it will probably be somewhere in the 6 to 10 percent range.

Does this issue affect both fully funded and self-insured employers?

It is more important for self-funded employers because they are assuming their own risk. It does also come into play for fully insured employers, but it is part of the rate development process for them.

Still, fully insured groups should be asking these questions, as well. Every employer should be able to see the breakdown of their itemized health plan costs.

How can employers determine if their carriers are transparent in their billing practices?

They need to carefully scrutinize their proposals and settlements. Also, employers need to look at their total cost and ask the carrier to give them the breakdown of that number.

Ask the carrier how much of its costs are related to claims, if it has an access fee and, if it does, how much is it, how is it reported, how can the employer know what it is, what is its administrative fee and what is that fee made up of?

That is extremely important for groups that self fund, because they assume their own risk and they are paying their actual claims experience.

Ask when you enroll, when you are considering a proposal, or during your annual renewal process. Depending on the program, you may get a year-end settlement. But I think it’s a fair question to ask your health care partner at any time.

Don Whitford is vice president of sales at Priority Health. Reach him at (248) 324-4711 or