In the struggle with health care costs, diligence and ingenuity count

Organizations continue to grapple with providing health care access while limiting cost hikes.

A 2018 Gallagher survey of employers found that 74 percent consider health benefits cost management a top priority, yet 44 percent don’t have an effective strategy. These respondents also cited the high costs of medical services, prescription drugs and specialty drugs as their top three health care cost-management challenges.

Smart Business spoke with Joe Roberts, area vice president at Gallagher, about health care cost-management tactics.

Why should cost shifting be avoided?

The goal of effective cost management is to repurpose health care spend without disrupting premiums, coinsurance rates and deductibles. Cost shifting should be avoided because employees and their families suffer the financial pressure of higher expenses.

Some tactics that employers take to contain health care spend can actually weaken their ability to manage important health outcomes, like physical and emotional well-being. An example is an employee who responds to cost shifting by avoiding the expense of medical care. At worst, the employee could end up in the hospital for an untreated condition. At best, the employee may have escaped that outcome or the employer would have paid less for the hospital stay — if the plan incentivized regular care. Cost-management tactics may also affect morale, workplace culture and oher intangibles.

Employers should explore less common tactics that are gaining traction.

  • Provide employees with cost transparency tools.
  • Offer health care decision support.
  • Use a specialty pharmacy benefit manager.
  • Carve out pharmacy benefits.
  • Use reference-based pricing for health care services.

They also should closely review the language in vendor contracts.

How can data-driven insights help identify needed benefits changes?

Employers walk a thin line between providing access to medical and pharmacy coverage and containing health care costs. Data analysis helps them negotiate that narrow passage, but the trick is obtaining rich data and quality analyses. When a data analysis skims the surface, employers may fall short of their health care cost-containment goals. A comprehensive, strategic analysis can assist in several ways.

  • Identification of cost drivers: A standard analysis identifies how certain types of care affect cost; a deeper look detects what causes treatment trends. For example, an employer attributed an eight-year cost decrease to a well-being initiative, until a more complete analysis assigned greater impact to workers retiring.
  • Informed purchasing: Benefits trends sometimes entice employers to jump on board, like disease management programs focused on high-cost conditions like asthma. Targeted data analytics help employers understand not only the condition’s prevalence, but also whether costs are high enough to warrant a more robust disease management program.
  • Benefits design guidance: Specialty medications are expensive, but rebates help offset the costs. When making decisions about design, employers should analyze the implications of favoring one type of medication over another. Direct costs may be lower in the near term, but the loss of rebate could mean paying more over time.
  • Empowered decisions: Data help take the fear out of making decisions. Employers often shy away from choices that disrupt employee expectations and cause pushback, but this hinders innovative thinking. Data analysis can model the impact of benefit designs and pave the way for changes with lasting value.
  • Transparency: Employers purchase health care at a discount that may obscure the true costs. A larger discount looks good, but analysis can identify the unit price on which it’s based. A greater discount may not mean paying the lowest cost.

Too often, employers turn to familiar tactics and a standard-level analysis that doesn’t keep health care costs in check. When employers routinely dig into data and explore the value of newer tactics, they can curb perpetual financial challenges. By cost-effectively getting the right treatments to the right people at the right time, they also increase employee well-being.

Insights Employee Benefits is brought to you by Gallagher

Voluntary benefits cover the needs specific to your employees

Voluntary benefits are in high demand as employers recognize that a robust benefits portfolio helps them meet the diverse coverage needs within today’s workforce. The demand is also driven by the popularity of employee choice and low cost.

“There is no one-size-fits-all when it comes to meeting the needs of a multiple-generational workforce. Competition is fierce when recruiting and retaining the best talent. This makes voluntary benefits a must-have in today’s employee benefits packages,” says Michael Orangis, sales executive at JRG Advisors. “By offering a spectrum of coverage options, employers send the message, ‘We listen, we care and our company is worth working for.’”

Smart Business spoke with Orangis about how voluntary coverage options can enhance your overall benefits program.

What do companies need to know about voluntary benefits?

Voluntary benefits have proven to be a popular, cost-effective method for an employer to offer a broad palette of benefits that provide employees choice. These types of benefits feature guaranteed issue and simple enrollment. And because premiums are paid through employee payroll deduction, there are no checks to write, making these benefits easy to administer.

Further, difficult economic times in the wake of rising health care costs mean tough health plan design choices for business owners. For many, adding voluntary benefits to compensate for benefits cutbacks elsewhere or to enrich a health plan with a high deductible makes good sense.

How do these benefits work?

With a voluntary benefits portfolio, employees are encouraged to focus on their coverage and affordability needs. Instead of employer-sponsored group accident, critical illness, disability, life, vision and dental insurance, business owners see the wisdom of providing these benefits on a voluntary, a-la-carte basis for employees to choose.

Not only will offering voluntary benefits cost employers virtually nothing, it will also help to level the playing field with competing employers. And, employees gain access to unique types of insurance coverage at group rates that are lower in cost than buying on their own.

What should an employer consider when offering voluntary benefits?

First, employers must show their support for the benefits program if they want the employees to see the value of voluntary benefits for themselves and their families.

An employer should talk to employees to help determine what offerings would be most useful. Employers need to carefully examine their current benefits package to determine which benefits are popular and those that are not. Most importantly, employers need to determine the type(s) of voluntary benefits that offer the most value for the lowest cost. This is crucial to the success of the voluntary benefits program.

As the program is implemented, education is key. Employers should educate employees on what voluntary plans are available and the benefits of enrolling. Employers also should follow up with employees on a regular basis throughout the plan year to ensure they are satisfied, there are no problems and that no changes need to be made with the plans offered.

In the end, voluntary benefits are special because they meet the specific needs of the valued workforce. Employers can easily offer these benefits and keep costs down, while enhancing the complete package of benefits and coverages. Employees are able to make informed selections of benefits that meet their unique needs, ultimately increasing their engagement and satisfaction with the benefits program.

Insights Employee Benefits is brought to you by JRG Advisors

Is your insurance investment maximized?

Benefits costs and employee expectations continue to rise. So, the expertise offered from your benefits broker is a critical consideration.

“Most employers struggle to maintain insurance coverage and a healthy financial bottom line. Historically brokers earned your business by representing the lowest price. But in today’s employee benefits landscape, you need experienced representation that delivers beyond the lowest price insurance plans. Premium and fee pricing differentiation represented by agents and brokers is largely marginal.

“Today, the balance between coverage and cost is achieved by differentiation in consultative services, supplemental benefits and complementary products and services,” says Dennis Spingola, vice president of operations at JRG Advisors.

Smart Business spoke with Spingola about getting the most from the employee benefits broker relationship.

What can a consultative broker offer?

A consultative broker can do much more than just place your coverage. A consultative broker is a partner who learns about your challenges and needs, and supports you with a variety of resources and services.

Serving in an advisory role, a consultative broker develops the customized multiyear strategic plan to achieve your objectives now and into the future. The plan may include streamlining HR operations, implementing wellness platforms, and accessing data to support plan designs and funding alternatives. Above all, a consultative broker is your partner, educational resource and champion of your initiatives and requirements.

What is an example of a results-driven strategy?

An alternative premium funding arrangement is a popular strategy that supports health risk management and wellness initiatives. A consultative broker will carefully consider the many options of funding to ensure there is a plan to meet long-term goals for the business, while minimizing disruption to the workforce.

The inclusive funding approach can lead to informed, engaged and healthier employees and family members. Not only does this curb the costs of health care, it can lead to less absenteeism due to illness, more productive employees and improved morale. The consultative broker can combine the funding arrangement that works for you with a wellness program that includes everything you need to implement, monitor and measure outcomes.

How might a consultative broker handle risk management and HR support?

Proper management of Employee Retirement Income Security Act (ERISA) and Affordable Care Act compliance requirements is of significant importance. The consultative broker will remove the burden of complicated mandates and mitigate the risk of costly fines associated with a Department of Labor audit. Education is paramount in this area, so timely bulletins explaining new and changing rules and regulations are key. Working with a consultative broker who makes available an ERISA attorney is another differentiator for peace of mind and reduced overall costs.

HR responsibilities and benefits administration can be daunting. HR professionals are asked to do more than ever before. A consultative broker provides access to employee newsletters and benefits announcements, as well as sample documents and expert advice for crafting policies, forms, benefits summary statements, handbooks and more. Providing technology for online 24/7 access to an array of resources, coupled with an employee self-serve benefits portal, is a game changer.

Employers are faced with a variety of issues when it comes to running a successful enterprise. Choose a benefits professional who is consultative and equipped to provide the range of solutions and creative strategy that solves your challenges and supports your business objectives.

Insights Employee Benefits is brought to you by JRG Advisors

Taking your benefits plan for a ‘test drive’

Considering changes to your employee benefits plan can be a perplexing process. And the risk associated with making any plan modification is heightened when the supporting data are not available.

In today’s health care environment, however, plan design adjustments need to be considered far more frequently due to the pressures of managing costs.

“Providing a comprehensive benefits package is a vital component to attracting and retaining employees. Employers need to carefully consider how changes to the benefits plan design can affect their current and future workforce,” says Aaron Ochs, managing consultant at JRG Advisors. “When considering plan changes, partner with an experienced benefits professional who can utilize plan modeling to determine your best benefits strategy.”

Smart Business spoke with Ochs about how plan modeling helps employers to identify the best use of resources and to engage in experimentation without taking on risks.

What is plan modeling?

Plan modeling makes it possible to create scenarios that consider how medical claims would be paid given various plan design modifications. The analysis also identifies problem areas within the plan. With the results of the professional analysis, employers can consider the realistic solutions that are aligned with their coverage and cost objectives.

For instance, if emergency room costs were disproportionately high, an employer could consider raising the emergency room co-pay, while educating employees about 24/7 telemedicine and urgent care facilities. This would create a lower out-of-pocket cost for these more convenient options to the expensive ER visit.

Even if an employer is just thinking about making plan design adjustments because it suspects it would drive better claims results, the use of modeling can help the employer test-drive those changes before implementing them. The results of the modeling will help an employer see the outcome of suggested changes to its current benefit structure, before actual implementation.

How specifically might the plan benefit from modeling?

Plan modeling gives employers the ability to see the likely impact of plan changes beforehand.

With access to the data provided by plan modeling, employers can identify the strategies that fit the employee population coverage needs and the company goals. Employers mitigate the risk of a benefits design misstep like implementing drastic changes to popular — and necessary — benefits offerings.

With these data points, an employer can make educated, strategic decisions that balance the financial benefit with employees’ coverage and access needs. Some models even illustrate how many employees will be affected by each change, allowing employers to truly balance value and cost.

What are the popular plan changes?

Some of the more popular plan modifications include adjustments to deductibles and co-insurance, office visit versus specialist co-pay, urgent care versus emergency room co-pay, tiered rates for prescription drugs and Health Savings Account plans.

Identifying and managing even just a fraction of costs can generate significant savings year-over-year. That is because the smallest percentages of identified high-spending areas represent the most promising potential for savings. And, the more models employers run, the more likely they will find hidden ways to curb benefits costs.

In a burgeoning area where employers are trying to manage expenses, plan modeling is essential. With this approach, employers can consider changes without having to wait until after implementation to measure success.

Insights Employee Benefits is brought to you by JRG Advisors

Bridging the gap of time, distance and affordability in health care

As technology develops, so too have the improvements and capabilities with the delivery of health care.

“Telehealth innovations in the health care industry are a significant step forward in mitigating rising health care costs,” says Ron Carmassi, client advisor at JRG Advisors.

He added that technology can lead to better outcomes and lower costs, thus saving time and money for the patient, provider and insurance company.

Smart Business spoke with Carmassi about how telehealth can be a supplement or temporary substitute for traditional medical care.

What is telehealth?

Telehealth utilizes technology to facilitate communication, whether real-time or delayed, between a doctor and patient.

One advantage is that medical evaluation, diagnosis and treatment can be accomplished without the doctor and patient being in the same location. In other words, telehealth accomplishes the virtual doctor vist. It also facilitates the exchange of medical information from one location to another so that the evaluated patient can seek treatment in a convenient clinical setting.

How does telehealth help both doctors and patients?

Telehealth offers numerous benefits for doctors and patients. Here are a few of the advantages.

Remote accessibility — The primary functions of telehealth are efficiency and convenience of the communication between the patient and doctor. With this technology, doctors can reach patients in remote, rural and underserved areas where there might not be an available doctor or hospital.

Additionally through telehealth, patients can access doctors for routine visits, emergency care or diagnostics from a specialist from the comfort of their home or the convenience of their workplace.

Specialist availability — Telehealth also provides increased access to specialists. Even when patients live in urban areas with numerous doctors and hospitals, specialists for some health conditions may not practice in the area. This technology enables patients in both rural and urban areas to easily connect with specialists who may be hundreds of miles away.

Cost savings — Patients save money for routine and specialist care because they do not have to pay travel expenses for distant doctors or take excessive time off from work. Additionally, many health plans offer telehealth visits at lower copayments than a primary care physician or specialist visit.

Doctors participating with telehealth also can serve more patients in a day, which can reduce overhead and related costs. With remote monitoring through telehealth services, the larger costs associated with hospitalization, in-home nursing and chronic conditions management can be significantly lessened. For example, remote monitoring provides proper supervision of a patient following discharge from the hospital, which reduces hospital readmissions.

Convenience of care — For some patients, the comfort and convenience of consulting with a doctor from their homes is a tremendous advantage. The convenience also can improve care. For example, whereas patients often forget to bring medications with them to a traditional office visit, when patients are at home they have ready access to the information necessary for the doctor to diagnose and prescribe.

Also, because the patient is at home, it is often easier to take notes or even include a family member who can help retain important information from the doctor.

Fueled by technological advances and answering the demand for consumer-convenient care, telehealth is widely offered through all insurance companies and delivers many advantages. Although not the same as sitting in an actual doctor’s office, a telehealth visit with a doctor can prove beneficial by warding off further illness or disease, stabilizing a condition until a patient is able to reach a hospital or monitoring a patient at home.

Telehealth is not a complete replacement for face-to-face health care, but it can be a helpful supplement and even a temporary substitute for traditional medical care.

Insights Employee Benefits is brought to you by JRG Advisors

How workplace culture props up wellbeing initiatives, and vice versa

More employers recognize that employees’ physical and emotional wellbeing affects job performance. That’s one reason why 41 percent offer a wellness program and an additional 29 percent expect to adopt this benefit by 2019, according to a 2017 Gallagher survey.

What employers may not realize is how significantly their culture and work environment can influence wellbeing outcomes — for better or worse.

Workplace-induced stress has been linked to depression, diabetes, absenteeism, disability and employee turnover. Medical research also shows a relationship between chronic stress and opioid misuse. These findings help explain why it’s important for employers to have both effective wellbeing initiatives and a workplace culture that doesn’t inadvertently undermine these initiatives or employers’ larger objectives.

Smart Business spoke with Joe Roberts, area vice president, Benefits & HR Consulting, Gallagher, about how to empower a healthy workforce.

Realistically, what can employers do to help employees better manage stress?

It’s not possible to eliminate stress entirely, but employers can equip employees to manage stress and the challenges that cause it in wiser, more agile ways. Helping them develop resilience is one key opportunity.

How does improved resilience translate to healthier employees?

Resilience in a work-life integration context means the ability to withstand, grow and adapt, while weathering personal, professional and societal stressors.

Research from the American Heart Association shows that resilience among employees is associated with reduced stress, greater job satisfaction, work happiness, organizational commitment and employee engagement. The benefits of resilience, however, extend beyond the individual. Individual resilience helps build organizational resilience, making it easier to withstand the inevitable ups and downs of striving to achieve organizational goals.

What role do managers play in this equation?

Managers can make or break workplace culture. Equipping them to help build a better employee experience is one of the biggest challenges employers encounter. Many managers have technical expertise but aren’t experienced in guiding and supporting others’ performance. Yet, creating proficient people managers is critical.

Managers impact whether employees perceive their work environment as positive, and how those employees experience that environment can affect their physical health. For instance, research has found stressful working conditions may contribute to injuries. At least one study suggests a negative work environment can also contribute to poor health outcomes because of increased stress.

How can employers give managers the skills to better support the people under them?

Several methods can help managers grow in their roles and actively contribute to a positive, supportive work environment.

On a large, collaborative scale, focus groups, engagement surveys and similar opportunities for direct and indirect dialogue allow employees to have a voice in decisions that affect them. Management that solicits feedback — and takes it into account when making decisions — shows respect for the wants and needs of the workforce. Employers also gain an outlet for ideas.

Tactics that center on the individual employee include defining clear performance goals, giving timely and constructive feedback, communicating in a way that fosters trust and confidence, and supporting employees in developing and pursuing a career path.

A 2017 Gallagher benchmarking survey of mid-sized and large employers shows that top-performing employers use these tactics more often than their same-size peers.

Certainly, many factors affect the ability of employers — and their workforce managers — to build a sustainably engaging culture and productive work environment that drives the business results they’d like. But a reliable, guiding principle for developing a resilient workforce empowered by that culture is: Do whatever is possible to take care of the employees that take care of the business. It’s a no-lose proposition, because the culture that helps employees thrive helps the business thrive, too.

Insights Employee Benefits is brought to you by Gallagher

Are you an applicable large employer?

The Affordable Care Act (ACA) doesn’t require all employers to offer coverage to their employees. Only those employers defined by federal law as applicable large employers (ALEs) must make health insurance available.

“Accurately calculating and knowing your company’s ALE status is crucial to ACA compliance and helping your company avoid a costly penalty,” says Judy Griffith, compliance officer at JRG Advisors.

Smart Business spoke with Griffith about how to determine your ALE status to see if you must offer health insurance.

What exactly is ALE status?

An employer that had an average of at least 50 full-time employees on staff per month during the prior calendar year is an ALE.

ALE status must be determined each year. This determination is vitally important to a business or organization’s ACA compliance. ALEs are subject to the employer shared responsibility and information reporting provisions for offers of minimum essential coverage to employees.

How do employers determine if they are an ALE or not?

You must consider many items to determine whether an organization employs 50 full-time employees and is therefore an ALE. The first question to think about is how are full-time employees defined under the ACA? Full-time employees include an employee who works 30 hours or more per week or employees working 130 or more hours in a calendar month.

Full-time equivalent employees are also included in the count of full-time employees. Full-time equivalent employees are not full-time employees. Instead, the number of full-time equivalent employees is determined by combining the number of hours of service for all part-time and variable hours employees working 120 hours or less during the month and dividing that total by 120.

This number only counts toward the total number employees per month for determining if the employer is an ALE. It won’t change an individual employee’s status from part time to full time, which affects whether an offer of coverage must be made.

How are seasonal workers reflected?

Employers who exceed 50 full-time employees (including full-time equivalent employees) are not considered ALEs where the business employs seasonal workers if certain conditions apply. First, the company’s total workforce must only exceed 50 full-time employees for 120 or fewer days during the year. Second, the employees who exceed 50 full-time employees during those 120 or fewer days must be seasonal workers. Seasonal workers are generally defined as employees who work on a temporary or seasonal basis, such as retail employees who work during the holiday season or summer staff at a swimming pool.

What happens if a company is part of a larger ownership group?

Companies with common ownership may be part of a controlled group, which requires employers to aggregate the total number of employees across the group to determine if the included companies are ALEs. In other words, the employees of every company within a controlled group determine if any company within the controlled group is an ALE.

Also, for a calendar year in which an employer is an ALE, the regulations applicable to ALEs apply to each company within the controlled group regardless of whether the individual company has 50 or more full-time employees or full-time equivalent employees.

What else do employers need to know?

The final item to consider is the definition of a common law employee. Common law employees are generally defined as workers whose work schedule is controlled by the employer (rather than by the worker himself or another employer).

Employers should closely review the job duties and expectations for workers from temporary staffing agencies and those classified as independent contractors because their employment status can be easily confused. These workers may be considered employees who count toward a company’s full-time employee or full-time equivalent employee number. Failure to correctly account for these employees can result in a false conclusion as to whether an employer is an ALE.

Insights Employee Benefits is brought to you by JRG Advisors

How to include cost predictability without the risk in your health plan

While the Affordable Care Act (ACA) has resulted in significant health insurance plan premium increases, employers continue to seek the magic bullet to manage health care costs within the constraints of the ACA while still providing a comprehensive benefits package to their employees.

Historically, self-funded health plans have only been utilized by larger employer groups. However, the ACA’s small group community rating rules continue to result in unsustainable premium increases for small employers, making self-funding a viable alternative to ACA in the form of level-funded health plans.

Smart Business spoke with Craig Pritts, sales executive at JRG Advisors, about this self-insured hybrid health plan and whether it makes sense for your organization.

What is a level-funded health plan?

A level-funded health plan is an underwritten administrative services only or ASO product with integrated stop loss coverage offered by insurance companies and third party administrators (TPAs). As the name suggests, a level-funded plan has fixed or level monthly costs associated with the funding of the employees’ health coverage.

The level cost typically comprises three components: a claims allowance, a TPA fee and a stop-loss coverage premium. The claims allowance is utilized to fund employee medical costs. The TPA fee pays for the administration of the plan, which includes adjudicating claims. The stop-loss premium is utilized toward the coverage to protect the employer against any catastrophic claims.

How does a level-funded plan work?

As claims are incurred on a monthly basis, the insurance company or TPA pays them out of the claims allowance. If there is an extraordinary claim on an individual or aggregate basis, the stop-loss insurance kicks in. At no time does the employer pay more than the level premium amount.

At the end of the plan year, the employer group performance is evaluated. If the group performs well with little or no claims, a portion or all of the unused claim allowance is returned to the group. Additionally, the group could benefit from a lower rate for the following plan year since the monthly allowance and stop-loss premium should be less. If the group performs as originally expected, there is minimal or no premium increase — a stark contrast to the ACA world.

What if the employer has a bad year?

The stop-loss coverage component of a level-funded plan protects the employer in the event of high claims or a catastrophic claim within their employee population. Again, the entire concept of a level-funded plan is that the employer never has to pay more than the level monthly premium.

Since these plans are medically underwritten, it could be realistic to expect a premium increase at renewal. A small employer group in this scenario has an advantage over its larger group counterparts. They can simply revert back to a community rated (non-underwritten) ACA plan, which would likely be to their benefit financially.

How can level-funded plans benefit employers?

Level-funded plans offer the best of both worlds, combining features of fully and self-insured plans. They offer the cost predictability of fully insured while eliminating the risk exposure of self-insured plans. An employer only pays for incurred health care costs and can share savings at renewal if the plan year ran well.

Level-funded plans do not have the same regulatory requirements as fully insured plans, which eliminates the administrative burden on employers and reduces overhead expenses.

What’s the takeaway for employers?

Level-funded plans are more complex than fully insured plans, but also can provide employers a long-term strategy and solution to combat the ACA community rating rules and subsequent surprise premium increases. Employers should consult with an experienced insurance professional who is well versed in the structure, features, implementation and costs of level-funded health plans to determine if this alternative funding strategy is right for their company.

Insights Employee Benefits is brought to you by JRG Advisors

A unique self-insured option for employers

It’s no secret that health care pricing varies widely and has a direct impact to the bottom line for employers of all types and sizes.

As health care costs continue to increase, employers have sought innovative and creative strategies to lower expenses. One strategy, which has gained momentum, is referenced-based pricing (RBP). The RBP approach typically doesn’t involve a traditional insurance company or provider network negotiating covered services for the health plan. Instead, RBP sets limits on the amount a plan will pay for certain medical services.

Smart Business spoke to Michael Galardini, director of sales at JRG Advisors, to break down how RBP works and whether it might be right for you.

How does RBP work with health plans?

RBP sets limits on the amount a health plan pays for procedures or services performed in hospitals and free-standing surgical centers without the use of a PPO network. For physician charges, a national PPO platform is utilized. The limits are based on a percentage above the amount that Medicare pays, which is based on the cost that each facility files with the U.S. Department of Health and Human Services.

The limits are selected by employers in consultation with their benefits advisor, to provide a reasonable and fair profit to the provider. A good RBP model considers both Medicare reimbursement and the actual cost to deliver the service; and adds a fair profit margin for the provider.

If the employee is balance billed for the difference, the RBP provider assigns legal counsel to the employee, at no cost, including defending the RBP payment in court.

Employers often partner with a third party administrator (TPA) to establish the best limits for a given medical procedure. The TPA helps conduct market research and negotiate the most appropriate deals with providers. Finding a reliable TPA, which works well with your company and the RBP provider, is crucial for negotiating the best price for your employees.

What are the advantages of using RBP?

Because there is no assigned network for hospitals and surgical centers, covered individuals may seek treatment at any facility they desire. RBP generally provides anywhere from 60 percent to 70 percent savings from billed medical charges. Typical PPOs only provide 40 percent to 50 percent from billed charges.

Hospital billed charges are taken from a charge master that each hospital maintains. The charge master is a list of the retail price of services that the facility charges for patients without insurance, or network discounts. The charge master changes from time to time, however, generally the charges are about 800 percent to 1,000 percent above the amount that Medicare pays the facility. Even after PPO discounts are applied, employer health plans are paying 400 percent to 500 percent above the amount that Medicare pays.

Are there any drawbacks to RBP?

Given the complexity of RBP, employers and employees need to carefully consider a number of things and be properly educated on how RBP will work for their employees. It is vital to work with a trusted partner that is reliable and experienced in the RBP process.

Furthermore, not using an experienced partner (and its legal advocacy) could potentially leave you and your employees vulnerable to providers attempting to balance bills. While the potential for payment disputes between employers, participants and health care providers always exists over RBP, there has been little RBP litigation to date. Litigation is always a potential threat to both the employer and employees, but disagreements over these issues are typically resolved by negotiation.

RBP can be an innovative strategy for lowering health care costs. As the market continues to evolve, employers are seeking cost reductions. The RBP option is unique in its ability to potentially reduce costs and create informed consumers. Is your business ready to investigate this innovative approach?

Insights Employee Benefits is brought to you by JRG Advisors

Beware of these five common blunders when contracting with a PBM

Pharmacy benefit managers (PBMs) manage the pharmacy benefits for 266 million people in the U.S., but PBM contract language has become increasingly complex.

“The terms laid out in most contracts — not to mention the pricing — can be mind-boggling,” says Gannon Murphy, Ph.D., area vice president of Pharmacy Benefit Consulting, Gallagher.

More than half of employers that responded to a recent Gallagher Benefit Services survey said their PBM contract is too complicated and often benefits the PBM at their expense. And only 30 percent understand the details of their contract.

Smart Business spoke with Murphy and Joe Roberts, area vice president of Benefits & HR Consulting, Gallagher, about five mistakes to avoid in a PBM relationship.

What’s the underlying issue?

There is a fundamental difference between price and cost when contracting with PBMs. Price is what is printed on a page — usually in the form of percentage-based discounts off of average wholesale price (AWP), dispensing fees and any administrative fees, and then offset by applicate rebates. Cost is what the PBM actually pays in hard dollars.

What are the five challenges and how can employers sidestep them?

  1. Fuzzy math — Guaranteed AWP discounts are established in each PBM contract for brand drugs, generics and specialty medications, but there is no regulation that governs AWP. Some PBMs use a recognized, objective and independent source to establish AWP; others follow a proprietary algorithm with AWP amounts that make drug discounts look better than they really are.
    So, ensure the contract states both the PBM price quotes and its reconciliation of guarantees will be based on an objective, independent source.
  2. Differing definitions — The definitions of brand, generic and specialty medications differ among PBMs. Some PBMs redefine a portion of the generic drugs, known as single-source generics, as brand drugs. Therefore, the PBM appears to have improved the discounts to both the generics and brand drugs.
    To avoid this, PBM proposals and contracts should use an objective source for the definition of brands, generics and specialty medications.
  3. Transparent-lite — With the demand for greater transparency, many PBMs offer pass-through pricing. PBMs pass through the same discount they negotiate with their pharmacies to their customer and apply an administrative fee. However, many transparent contracts are as murky as traditional ones, and some are worse.
    To get a clearer picture, have the numbers independently modeled and compared by a qualified professional. This will help establish whether the terms are really transparent or transparent-lite.
  4. Inflation games — Prescription drug costs are outpacing overall inflation, and some drug prices have tripled or quadrupled. PBMs attempt to fight this by negotiating with drug manufacturers through rebates and other means. Not all payers, however, get the full benefit. Most PBMs have inflation cap guarantees but don’t always pass along all the money. PBMs also try to tamp down costs and inflation through utilization management programs. They screen the appropriateness of medications before they’re dispensed. But what if the approval rate is 90 percent? That’s not a good use of the plan’s money. It’s also not uncommon to find PBMs preferring certain medications over viable, lower cost alternatives.
    Make sure the PBM incentives are aligned with those of the plan. The contract should secure a benefit to the plan from inflation caps and guarantees that drive sound clinical decisions.
  5. Not-so-guaranteed — PBM contracts often state a shortfall in a particular guarantee can be made up by overperformance in a different guarantee, a practice known as offsetting. Certain guarantees may look good on the surface, but if the contract language that undergirds them is adverse, the value of those guarantees can be feeble or meaningless.

So, before signing anything, ensure that any offsetting by the PBM is clear and equitable and protects the plan’s interests.

Insights Employee Benefits is brought to you by Gallagher