Question we will answer in this episode;
Is our program structure, plan design and pricing appropriate?
Do we have all the right vendors, services, contracting and funding in place?
Are our employee communication efforts appropriate and effective – especially in regards to employee health and wellness and consumerism?
Do we have effective disease management and wellness programs for our employees?
Do our pricing and plan design features encourage cost-conscious behavior on the part of our employees?
Are we thinking about long-term solutions rather than simply quick fixes for this year?
Okay. Thanks for joining us. My name is Matthew Byrne. I'm your host today on the Blog Talk Radio. We're talking about Navigating Health Reform. Today's topic is Costs and Payment Strategies for Employer-sponsored Health Plan. It is a pretty broad and wide topic but it seems to be of great interest to most of the people out in the market place. We will talk a little bit about the impact of health reform on some of these concepts and strategies and we will also talk about a great book that I highly recommend called The Company That Solved Health Care, John Torinus. It's about a company in the northern part of the Big Ten area and they kind of made a bit of things that change the scope of how you can go about solving your healthcare, escalating premiums. Now obviously, we all know that premiums have been rising up for many, many years now. It seems to be running on accelerable cycle, some sort of treadmill we just can't seem to get off and premium renewal increases anywhere from 10% to 25% are not uncommon and regrettably, they are probably more of the rule than the exception. So what we have to ask ourselves are the tried and true, old-fashioned methods that our brokers have been trying for years. They're just not working. They're broken down. They're not really the solution anymore. So what is the solution? How can we do things differently? What sort of innovations can we make or take to kind of help stand the stem the tide of this renewal increases? So that's going to be our topic today. We're going to have a special guest, whoever calls in, I will not give away the surprise now but definitely I want you to standby for the possibility that we'll get our guest speaker today. So let's talk about the cost a little bit. Let's go ahead and define some things. Why are cost going up? What's kind of driving the cost?
Well, I'm changing the demographics, obviously we're having an older - the workforce is getting older, more people running under the senior years where they need more care and more protection and they're having more and more claims. Consolidation of managed care companies, now when the insurance company goes in to negotiate rates, basically they go through a 600-page document with a line out of every single service the physician or hospital system offers and they haggle and they negotiate on what a fair price that would be. The more there's consolidation and the more the managed care and they're picking up physician groups and hospital systems are coming together, they have more and more __04:05__ more and more buying power and it makes that harder for the insurance companies to kind of leverage the negotiation. They used to be - You know, someone like Blue Cross, Blue Shield would say, we have 2,000,000 members in your state and if you want our business, we're going to want you to give the absolute lowest for imaging and physicals and x-rays. Now, the hospital systems say, "Hey, we represent 3,000,000 hospital patients and if you want to be one of the insurance companies within here, you are going to have to bend for us and give us better reimbursements." That's been a big factor in it. Utilization is huge. What is utilization? Utilization is when people actually go and they use the service. They get care, they get coverage, they get access and they are utilizing the protection and they're having several claims. And normally that's a good thing if it's preventive, utilization is great. If it's medically necessary, utilization is great. If it's redundant or a fishing expedition or the doctor or provider is doing multiple tasks just for the sake of being __05:21__ or multiple tasks just for the sake of avoiding lawsuits, then utilization becomes a real problem.
Advancements in medical technology, obviously there has been great strides. We have the best and the brightest and the most sophisticated imaging and technologies in our field in the American way, we should have that. But that cost a lot of money and sometimes it's being used in a way that is not the most optimal execution. In a prescription drug, obviously there has been a pretty large run up of prescription drug cost. I want to bring out our guest. The gentleman I'd like to introduce is - his name is Adam Minton. He is a 20-year veteran of the Group Health Insurance market. Adam has probably forgotten more about Group Health Insurance and Costs and Payments Strategy concepts and ideas that most of us will ever know. He has now kind of moved on to the second chapter of his life where he is focusing on financial services and helping people more on the investment side and less on the health insurance but as an insider's guide and as somebody who can provide us kind of a pull-no-punches view of where we stand and some of the ideas we might consider. I want to invite Adam to join us. So let's go ahead and meet Adam and say hello. Adam, can you hear me okay? Okay, he's still logging on to his audio side so we will go ahead and continue with the presentation. We will catch him a little bit later. Anyway, so what are some of the things an employer can do? Obviously, it's a pretty big concept to tackle so what are some of the employers - now we work with small, medium and large size groups, self insured, partially self insured, fully-funded, partially funded, and everyone from 2 to 500 employees.
There're some common denominators to the size of the group. Really, the size of the group doesn't matter. Our agency is myhealthquoter.com but also we have to feel their connection to strategic business services. We, as our organization, have a lot of backup, there's a lot of administrative backbone and a lot of technologies and innovations that help us bring these cost and payment solutions to our clients. But some of the things that we do are using health care data to drive a strategy. That's huge. And what does that mean? Well, obviously you want to look at plan, the time management, and employee co-sharing and whether a consumer-driven health plan is going to be right for you guys. Data is huge. It's called benchmarking. What you want to do is you want to look at what is an employer of your size? What is the typical employer offering as far as the co-sharing? What is the typical employer offering as far as co-pays and co-insurance? Looking at bench marking data, even for your sector or your industry, obviously, landscaping company might have a different average benefit package than a white-collar professional services or organization. A highly-weighted sales team might have different benefit expectations and different benefit benchmarking than a restaurant or a food service industry. So understanding __09:00__ in the continuum is important because you don't want to be the one offering the best benefit and typically you don't want to be the one offering the worst benefit. So looking at those different options and benchmarking and knowing what is appropriate? What is fair? What is the rest of the competition doing? That's really huge. Looking at plan design, that's 101 stuff. Your broker should be looking at the architecture and the plan design of your plan on at least annual basis.
That includes things like deductibles, coinsurance, co-pays, network, in and out-of-network ideas, the possibility of partially self insuring. There're certain products that have been marketed down at groups of two for partial self insuring. You don't need to be a large company to talk about the possibility of partially self insuring so that's something you should strongly look at. Employee co-sharing, obviously, the premiums keep going up, the benefits keep going down and here we're offloading more and more costs to the employees but we're going to talk about employee co-sharing a little bit later and not so much as a way to offload your increases onto them. But it's the way to include them in the conversation and help them better manage their cost of care and execution of the cost of care. Employee health and wellness, I think this is kind of an overused statement. Employee health and wellness is huge. The more people take care of themselves, the more they keep their blood pressure down and their cholesterol down, the more they go to the gym, the more they don't smoke and keep their weight off, those provide real intangible benefits to the bottom line and when that happens, utilization goes down. When utilization goes down, renewal will slow. So that's huge and that's something we should definitely look at bringing forwards. The lot of times these benefits for this employee wellness programs and disease management programs are very weakly or poorly executed. So having a strategy - a marketing and communication strategy that brings to the workforce in the way that they'll understand, they'll get it, they're incentivised, they're motivated properly and they realize what the big picture in the end game looks like because it's not about losing 20 pounds. It's about when you change your behaviors and patterns, you change your utilization and that changes the cost of your coverage.
And ultimately, we don't want to be in a situation where a plan costs 50% more in three years than the cost today and wellness is a huge part of that but I think a lot of people fail to properly administer or execute that strategy so that's a big thing to get right. So I'm going to ahead and bring on Adam Minton and kind of introduce him. As I said earlier, Adam Minton is a 20-year veteran of the Group Health Insurance market. Adam, well he's moved on to more of a financial services focus and helping people with investment management type strategies. He has forgotten more about Group Health Insurance and cost and payment strategies that most people could remember. So Adam is kind of - we like to be an insider's guide and kind of a pull-no-punches approach to health insurance and providing insights and things so I wanted to invite Adam Minton to join us. So I'm going to go ahead and meet Adam now. Adam, can you hear me okay?
Yes sure. Hi Matt, how are you?
I'm doing great. How are you doing?
So Adam, we've been kind of setting the stage obviously with technologies and hospital consolidation and inflation. Hospitals aren't charging less for their services. Last time, the doctors weren't offering discounts or saying we're going to offer 5% or 10% less on our costs this year. New technologies and innovations are making the delivery of care much, much more expensive. So I want to ask you a question about kind of adverse selection in risk management and some of the things that you have observed in the industry overtime and why it's happening, we talk about if the access and the cost of care is going up but some of the inadvertent or unavoidable impacts of that in the risk of our own employee health plan and the people within it, can you talk a little bit about risk and adverse selection of how our group evolves overtime?
Sure. Initially when a group will come in, you'll hope that their healthy and if that's the case, they're going to be courted by all the carriers based on premium and plans that are offered because they need the premium that can help offset the risk that they have in the overall population obviously. Insurances based on the law of large numbers and the risk of injury or bad health gets spread over hundreds of thousands of people. And so you want to have healthy premium paying members that don't utilize the system and don't need to go to the doctor once a quarter and are on seven different meds because of their heredity or they've got high cholesterol, high blood pressure and they're depressed so they run up a big tab for that. But overt time, you have employers who are loyal and they say their proudest accomplishments as a business person or I've never have to lay anybody off and I've never had to charge my employees for their benefits. You see that changing a lot now and you see it when somebody, a small group, a small employer which make up a huge majority of the businesses and what drive our economy, you see them having their employees' age because I've never laid anybody off. Well, I haven't done that for 20 years so now the 20 and 30 year olds are 40 and 50 and they've had a heart attack or their wife had breast cancer or those kinds of things.
If he's got 12 or 13 employees, you can't spread the risk of that expense over the other employees without it having an effect on an increase in the premium. Unfortunately, one unhealthy employee can drive the premiums up for everybody in the group. The guarantee issue nature of Group Health Insurance says that if you're a valid small group and you meet the participation requirements and you apply to an insurance company in Ohio, they have to take you and there's a maximum rate that that carrier has filed with the state of Ohio as to how much they can charge and that's it. So we call that a group being match rated.
Yeah, well you're right. I mean when you are very attractive and healthy then all the insurance companies were pursuing your business 10 or 20 years ago, now all of the sudden as Adam describes when you're match rated you're not the belle of the ball anymore. In fact, they're throwing you rate increases in such a way that they're trying to cover their costs and have more premium coming in than claim. A chart I show quite often is where does your health insurance dollar go? It's a dollar bill, if you haven't seen it let me know. I think there might be - well, if anyone wants that you can email me at email@example.com. My phone number, if you ever need to get a hold of me, is (614) 336-3636. But the dollar bill shows that 87¢ of every dollar that you send to the health insurance company goes to pay for physician services, in-patient, out-patient, drugs and why not, 13¢ of leftover for the health insurance company. Six of that goes to, you know - they've got a huge administrative bureaucracy of claims and billing and processing of paper, that's where 6% of the 13¢ goes. 4¢ goes to advertising marketing, you know, things of that nature. And at the end of it, when she wiggled it all down, they have about 3¢ on every dollar that's left over for profit. That sounds like a really low number when you have 200,000,000 million subscribers that start to add up. So it's more like a utility. They make a teeny-tiny bit of margin on everybody and with premiums, the way they are, that can be a big number. I'm not necessarily defending, the insurance companies need to be more efficient, organize and manage things better, no doubt about it. But we have 13¢ of the problem and with health reform in Washington, it seems like we want to have 87% of the conversation talking about 13¢ of the problem, when really access and delivery of care is huge.
And so as we talked and foreshadowed in the earlier part of our show, utilization is the key component to how you are going to manage your overall cost of health insurance. So as Adam was talking about, as your group - if you imagine, I kind of equate adverse selections if you have a sauce that you're cooking on your stove, as you simmer it and reduce it and the liquids boil off, it gets darker, blacker and thicker. Well, your risk is doing the same thing. When you have 100 employees that were - a broad cross section of mostly healthy and a little unhealthy, you've got a 10% increase for three years in a row, 20% of them have best risk left because they can find it cheaper on their spouse's plan or on the individual market. Then your rates go up a little bit more at 15% for another three years and now we're up another 45%, now another 20% or 30% lift. So all of a sudden, you're left with 50%. You've added new employees, you've done different things and maybe the total census hasn't change but the risk in it has changed dramatically. And the sicker and the older people hunker down because they don't have the choice that the healthier people had. So they stay put and your group slowly starts to __19:50__ and the more those thick and older people hunker down and hang in there, the more that good risk wants to find a happier home. They go to a different job with lower health benefit or they stay with your job and they get their health benefit somewhere else. Either way, the impact is the same. Your risk is consolidating in a bad way. It's getting worse and more steep.
If you want to add to that, the thing that we actually honestly see is employers who have that cancer or heart attack in their group, they may now have some young healthy employees. They are going to go elsewhere. The employers in many cases are enabling that and/or suggesting it to the employees, "There's 200 bucks them on, you guys are responsible for your own health insurance. Go have it." That describes the problem for the Group Health Insurance to further meet the costs because now, they don't have those healthy, non-using employees on any of their group plans.
Right, right. That's excellent advice. But I'm going to speak to that a little bit. That's the concept called defined contribution but what Adam has just illustrated is you need to be very careful and try lightly because it's one thing about managing a risk and compartmentalizing different parts of your senses. You need to that in a way that will save you time and money but you don't want to do it in a way that kind of creates more of a bigger problem. That said, if you already match rated maybe that strategy can work because match rated means they can't (Crosstalk). You're at the top of their priority scale. I mean not that you will not get renewals but they can't increase the slope or the steepness of the rate increases on you. I want to thank Adam for his time and for joining us Adam. You're welcome to hang out and listen and we only have about seven minutes left and again, I appreciate you calling. Adam, will probably be a frequent caller, so again thanks Adam.
Alright, thanks Matt. Have a great day.
Bye bye. Okay, so for the rest of you, defined contribution, so what is that? Defined contribution is a very interesting concept that allows you to - you know help reimbursement accounts and various different lists all configuration. You can create a situation where you don't offer employee benefits but what you offer through a third-party administrator is a way to define the contribution that you will pay for benefits, I pay $200. Now, somebody might choose not to buy a health insurance and they'll go by some other qualified medical expense like dental or vision or some people might spend that money in different ways and that's not really you r concern. Obviously, you would want to motivate and advise them to get health insurance and your broker and the TPA can make sure that that happens but you're not really involved in decision because you have an arm's length difference from the transaction which might result in behaviors that you don't necessarily like. What you get in return for that is cost certainty. So defined contribution, that's something that we can bring and do from time to time. Some other cost and payment strategies are - I mentioned a book and I want to refer, reference it again, it's something you should be reading. The Company That Solved Health Care, by John Torinus. It's kind of a great book but basically, the case study for Serigraph is - let me tell you a little bit about them. So who is Serigraph? They were an employer who had deductibles of $1000 and $1500 and co-insurance in network and they had a premium increase just three times in seven years by a very small amount. They have health reimbursements account and flexible spending account. Their max out of pockets was between $3,000 and $6,000. They were partially self insured. They have a __24:05__ with $200,000.
They had really - one of the things I think they did is create a consumer-driven health plan with one of them. So what does that mean? Like a health payments account. A lot of people are like, "Oh, health savings account. I don't like those. My employees don't think they're real insurance." Well, they are real insurance. In fact, health savings accounts are phenomenal insurance and let me tell you why. First of all, they have free preventive and mostly, health reform complaints, plans, we'll have free preventive. Health savings account. The goal isn't to say, "Oh, you had a co-pay plan with 80-20 coinsurance and a $2500 deductible". Now you have a health savings account with the $2500 deductible. It was the employer who's probably going to enjoy a 20% to 30% reduction of your total cost of that plan, just on that plan design switch. And your employers are going to say, "Well, I had a co-pay in some of these privileges, now I don't have those". What you can do and what we recommend is refunding part of that savings. Let's say in your case, you had a $30,000 savings on that, or if you're a larger employer maybe $30,000 savings on that move. Let's get part of that back to the employee in the form of a contribution to their health savings account. So health savings account is tax free as long as you spend that money on qualified medical expenses, you and the employee can deduct it from your tax return. Those contributions whether made by the employee or the employer must be spent on qualified medical expenses. So that's things like any deductible exposure, any vision or dental expenses, any co-pays that may or may not be available in the plan, any of those out-of-pocket expenses. But also things like acupuncture, massage therapy, wheelchair ramps, nursing home fees, long-term care insurance premiums, there's a host of things you can use at HAS money for. But what you do is you're giving part of your refund, part of your cost savings back into the employee.
Not just as an appeasement and say, "Hey, I just took a lot of your benefits off the table." But what you're doing is you're saying, "Listen, before you have a $2500 deductible with 80:20 co-insurance to save another $2500, max out of pocket, if I grant, now you have a $2500 HAS with 100% coverage after that and I put $1250 of that deductible in your health savings account". So I've given you half of your exposure back in the form of the health savings account. If you have any out-of-pocket expenses just spend it through your health savings account. So now all of a sudden, your employer goes from a $2500-80:20 to $5,000 plan with some $30 co-pay to a $2500 plan or you've given them $1250 in the form of their health savings account. So their total out-of-pocket now is $1250 and that money that they have on account is so powerful because not only is it the abatement, is it the appeasement, is it you kind of trying to talk them off the ledge on why you took away the co-pay. But something more profound happened. And what happens is, it's their money and they start spending it very, very differently than they use to. What they start doing is, is they start saying - the doctor will say "Let's do an MRI and CT scan and see what's going on". Well on the old plan, if they were above their deductible, they'll just say "Okay, sounds good". On this plan, you start asking things like, "Why are we doing both of those doctor?" The answer might be well one of them is kind of inconclusive so I want to do both of them or "Hey listen, I __27:33__ claim last year and the lawyers are trying to sue me whenever they can so I want to really cover my basis. I'm doing both of them." So when you have a consumer-driven health plan, that's why they're called consumer-driven health plan, you're at the end of the game and when it's the end of the game, something very powerful happens so the employees start asking very good questions in the treatment and execution and implementation of their care. And when that utilization changes, your price and your renewals and your costs go way down because the claims go down and unnecessary utilization goes down.
That is an enormous change. The other thing that Serigraph and John Torinus did is they manage the primary care aspect. So what does that mean? It means the primary care process in our health system is kind of the referral. It's where you herd and shepherd the patient to the specialists in the imaging centers. It's where all the money is. And most primary care physicians are very honorable, high integrity people and they're just referring to people that they know and trust in the sector. But the point is if you can get - they have third-party outsource primary care where some people have them in shop, a little mini clinic in the lobby, but at a minimum, if you can get your employees to start looking at, when they have an imaging or a colonoscopy or some sort of high cost, you need replacement. Shop around. You don't want the cheapest and you don't want the most expensive. Like anything in our world, you want the optimal delivery of quality and price and when you put money into the __29:08__, your employees will change their behaviors and they'll start being consumers again and that will change everything. Join us next time, next Tuesday, 11 a.m. Thank you for joining us at Navigating Health Reform.
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