If you’re an employer paying for an employee benefit plan you undoubtedly ask yourself this question at least once a year when your broker delivers your annual renewal increase. In recent years volumes of books have been written on why health care cost so much. Most of them are good. The best one so far was written by Dr. Marty Makary, a surgeon and professor at Johns Hopkins University. It entitled “The Price We Pay”, and if you want to understand why your health plan is so expensive, I suggest you get on Amazon and order it. You’ll gain an understanding of what lurks deep in the bowels of what I call the American Medical Industrial Complex. You’ll begin to gain a sense that our health care “system” of doctors, hospitals, pharmaceutical and medical equipment companies, insurance companies, brokers, and even state and federal government symbiotically participate in an environment that acts in favor of each other and at your expense. No, our “system” is not broken. It was built that way. You could argue from your viewpoint that it is broken. But it is fixable at your level if you’re willing to do something about it. Here’s a few topics you need to understand. These apply whether you employ 2 or 2,000.
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Health Care spending topped $4 Trillion in 2021 – a number that we really can’t perceive. If U.S. health care spending was its own country, it would have the 4th largest economy in the world. Why so much? Well, as the late Uwe Reinhardt, professor of political economy at Princeton University wrote in 2003 “It’s the Prices, Stupid”. Medical care in the U.S. is simply priced higher. Much higher. The per capita health spend can be 3 to 4 times that of other developed countries, but actually provides less per capita in health services. At the employer level the first problem is you have no idea the cost of health care until you’ve paid for it. And “Billed Charges” are nothing more than a made-up number in order to illustrate what a great job the PPO Network did by giving you a “60% discount”. Of course, the question you’ll never get answered is “what is the 60% off of, and how was that number established?”. The truth is the “Billed Charge” is a fictious number that no one pays. Employers need to know what health services cost before their employee incurs the bills, and if they received a fair, comparable price for it. The problem is the PPO Network you are using (for those supposedly deep discounts) hide the actual contracted rates they negotiated with your health provider. The root of the problem is transparency. The system usually succeeds in keeping you in the dark until the service (claim) has already been delivered. But you can fix this part of the “system” by working with us. I’ll introduce you to vendors and administrative support teams that will provide that kind of transparency in pricing. You can actually know the cost of most of your planned health services before the services take place. Best of all you can (with our help) shop around and negotiate for the best available price and the highest quality which has shown to cut claims costs by third.
· Our “system” is fraught with Medical Errors. According to the book Medical Error, it is defined as a “preventable adverse effect of medical care, whether or not it is evident or harmful to the patient.” 12 million Americans are misdiagnosed each year. 250,000 people die each year from a preventable medical error – the third leading cause of death behind heart disease and cancer. Another 7,000 die each year from medication errors. Medical billing errors cost $210 billion each year. As many as 80% of all medical bills contain at least one error. Our health “system” is largely made up of people. People make mistakes. The question is who is monitoring the “system” to help avoid those mistakes? A better question for an employer may be; Where are the incentives in the “system” to ensure mistakes are identified and rectified as much as possible? If your plan is with a large carrier (fully insured or self-funded; it doesn’t matter) there is little to no incentive to protect your interest in the “system”. In part, carriers rely on revenue streams based on claims volumes. Fewer claims, less revenue. The cost of adequately monitoring for billing errors, fraud, waste, and abuse out-weighs the benefit to the carrier. It’s costly. When they do actually prevent an error or catch fraud, they want to charge you a “percentage of the savings” caused by their inadequate monitoring systems. All carriers and TPA’s have medical management teams charged with the task of looking out for your financial interest and your plan members’ well-being. In theory they should be confirming that you pay only for care that is appropriate and reasonably priced, and the quality and outcomes of that care is the best available. Again, the incentives to achieve this are simply not part of your relationship with your large carrier. Making sure you’re paying a fair price for care isn’t that important to them when you are paying the claims. It doesn’t diminish the carrier’s profit margin for not achieving this. The adverse effect to you is immediate if you’re self-funded, and later in future renewals if you’re fully insured. The medical management team is further deterred by the fact that their PPO Network contracts prohibit them from steering patients to specific providers who may have better records of quality and cost. I’ll show you how to engage independent managed care teams who are incented to ensure your employees and families get the right care at the right price. Because they work for you, not the insurance company or TPA.
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As a health plan sponsor subject to ERISA, you have fiduciary responsibility over your plan regardless of your size. That means you have a personal responsibility to protect the assets of the health plan, see to it that claims and benefits are equitably provided to the plan members, and that fees and expenses paid to others to operate, advise, and support the plan are reasonable. Historically health plans have not been the focus of the Department of Labor. In the past they’ve been more concerned with the regulation of your retirement plan. But under the current administration that seems to be changing. I recently spoke with a representative of the DOL Dept. of Employee Benefit Security Administration. He pointed out that today they have 2 focus points. There is and has been a focus on Mental Health Parity in plan design and administration. A new focus comes with the passing of Consolidated Appropriation Act that deals with among other things broker compensation disclosure. Interestingly, knowing what your broker earns is your responsibility under your fiduciary responsibility. Most employers have no idea what their broker earns from their business because the insurance company or TPA pays them for placing your business – which is a financial conflict of interest by the broker. Who does he work for? You, or the insurance company? Even if you’re aware of his commission level you probably don’t know how much his year-end bonus is attributable to the money you spend with the carrier. And it’s almost impossible to track the number of lunches, seminars, golf rounds, and award trips that the broker receives because he was incented to place your business with the carrier. According to the Kaiser Family Foundation in 2020 broker compensation in Illinois averaged $15.63 per member per month for small groups and $11.17 for large groups. Do you know if your broker is earning a comparable rate, or is it exorbitant? If you don’t, you need to because you have a fiduciary responsibility to ensure those who are paid for services by the health plan are fair and equitable for the sake of the plan members. If you still deal with a broker/advisor who accepts commission from a carrier or TPA you should fire them. They have an unavoidable financial conflict of interest. They will always be exposed to a conflict between what’s best for them or you. Primum Risk Strategies does not accept direct or indirect revenue from any carrier or service vendor. We are a fee-only firm committed to the best interest of you and your employees. That means we will never be influenced by the personal financial enticements of insurance companies and service vendors. We work for you, and we’re paid by you. Being fee-based does not mean being more expensive than commissioned brokers. It means you’ll always know up front our fees and be able to assess the value we bring to you.
It’s time for you to take control of your health plan and its expenses. Whether you employ 2 or 2,000 you can reduce your health plan expenses and lower your employees’ out-of-pocket costs. Give us a call. We’ll show you how.