How employers can avoid big health insurance middlemen
Healthcare: To Avoid High Costs, Stop Doing Business As Usual
To avoid the high cost of healthcare, companies and employers must stop doing business as usual. It is no secret that the current arrangement just isn’t sustainable. A large-scale survey of senior corporate managers and employer benefit decision-makers compiled by consulting firm McKinsey & Co. found that corporate healthcare costs had increased more than 17% percent over the last three years. According to a report released in June from consultancy PWC's Health Research Institute, employee health-benefit costs are expected to increase 5.5 to 7 percent in 2019, which continues the previous 5-year trend.
In comparison, GDP growth over that period was only 3 percent. Year over year healthcare costs continues to rise, leaving employers little choice but to continue to shift more and more of the burden over to employees or experiment with innovative alternative solutions. Neither option is ideal, but innovation is far better than going on with business as usual.
Business As Usual
Big insurance companies dominate the status quo for employer healthcare arrangement. Typically, a company or employer must negotiate with a health insurance provider, rather than directly with healthcare providers such as doctors and hospitals, to secure healthcare benefits for their employees. The insurance company is the middleman between an employer and providers.
In theory, insurance companies are supposed to use their size and power to negotiate favorable rates with healthcare providers. As all middlemen do, however, insurance companies take a percentage of the negotiated savings as a fee for their services. Negotiations with providers and the negotiated rates are hidden, leaving employers in the dark about what they are paying for and whether or not they are getting a reasonable price for healthcare services. This lack of price transparency is one of the biggest arguments against the status quo arrangement.
Most employers do not feel like they are getting a fair deal from insurance company middlemen. Healthcare costs and premiums for employers keep rising as do health insurer profits. In other words, thanks to obscure pricing, any healthcare savings negotiated by insurers are not being passed on to employers. Instead, the extra money is being used to pad corporate profits and to line the pockets of insurance executives at the cost of employers and employees alike.
In many ways, business, as usual, is just that: business. It should come as no surprise that corporate insurance giants, which are ultimately beholden to investors, would work to maximize profits. It is their reason for existence. The goal of an insurance company is to pay out as little as possible to healthcare providers for their products and services, while simultaneously extracting as much as possible from employers in the form of premiums.
This incentive structure doesn’t make sense if the goal is affordable, quality healthcare at the lowest possible price.
"The first step is to organize."
--- DR. CRISTIN DICKERSON, MD
Understanding this perverse incentive structure is key to understanding how employers can do some things differently and buck the status quo. If insurance companies are just middlemen and part of the problem driving high healthcare costs, then perhaps it is time that businesses bypass them and negotiate directly with healthcare providers themselves.
That’s right, now is the time to cut out the middlemen.
However, insurance companies are established fixtures of the healthcare landscape for a reason. Health insurance companies aggregate clients into vast risk pools which can then be leveraged to negotiate favorable rates with healthcare providers such as physician groups and hospitals. Their sheer size and ubiquity make them difficult to avoid. It is challenging for a single company, unless it is huge, to negotiate effectively with healthcare providers as their individual risk pool is small.
Bypassing Insurance Companies
Large companies, such as Toyota, Caterpillar, Amazon, Berkshire Hathaway, and JPMorgan Chase, to name a few, have all taken steps towards negotiating directly with healthcare providers to bypass insurance companies. Toyota and Caterpillar, for example, only rely on health insurance companies for basic healthcare services. When it comes to expensive outpatient surgeries, these large corporate entities negotiate directly with providers and often pay cash for the procedure.
Meanwhile, Amazon, Berkshire Hathaway, and JP Morgan have taken a more drastic step. These three monster corporations have pooled their resources, namely their large employee bases, together to bypass insurance companies altogether. In this way, each of these companies can realize massive healthcare savings that would have otherwise gone to insurance company fees and profits.
Of course, large corporations have the size and in-house resources, such as administrative teams and human resources departments, to make bypassing insurance companies possible. How can small to medium-sized employers do the same?
The first step is to organize.
Strength in Numbers
Together, Amazon, Berkshire Hathaway, and JP Morgan boast over 1.1 million employees. This creates a vast risk pool that not only distributes insurance risks but also allows this corporate alliance to negotiate directly with health providers.
The benefits are apparent; without insurance intermediaries driven by the profit motive to skim off the top, each corporation can both realize tremendous healthcare savings and provide better quality healthcare benefits for their employees. It’s a win-win for both the company and its workers. Better yet, excellent healthcare benefits play a crucial role in attracting and retaining key talent which in turn makes the company more competitive. Better, cheaper healthcare is good for everyone.
How can small firms with small employee risk pools get the same benefits?
The solution is to organize with other small to medium-sized firms to create bigger risk pools and increase negotiating power. Consider group buying power through purchasing alliances and cost containment companies like Zero Card, Sano Surgery, and Green Imaging. Also, independent third-party administrators like Kempton, Entrust, Apostrophe, and Maestro who negotiate on behalf of employers. And there are innovative benefits consultants like Carl Scheussler, Mark Stefanick, and Robson Baker who design customized plans and negotiate with providers on behalf of their clients which is critical.
Direct-pay and Self-funding
Another way for employers to bypass the big health insurers is to do their own shopping. That could mean funding their own health insurance plans for their employees as well as paying cash, or direct-paying, for expensive medical procedures. When coupled with stop-loss insurance for catastrophic medical emergencies, this gives companies total transparency and control over costs. Self-funding is a popular and effective strategy that is employed by nearly 60 percent of all companies in the United States.
Direct Primary Care (DPC)
Sometimes called “concierge care for the masses,” direct primary care is another great way to bypass insurance companies for basic medical services. Direct primary care grew out of frustration by physicians with the health insurance companies which imposed a layer of complex bureaucratic overhead between a doctor and their patient.
With Direct Primary Care, patients pay a monthly fee to doctors for unlimited basic medical care and attention. One of the biggest promises of direct primary care for employers is its potential influence on controlling costs on the other end of the medical expense spectrum.
Yes, direct primary care only covers primary care, but 80-90% of care can be effectively handled at the primary care level; it provides better and unlimited primary care unburdened by the stipulations and time pressures put in place by insurance companies. Workers require far less specialty care and fewer hospitalizations with direct primary care shepherding care.
Self-funding a plan that includes access to direct primary care in combination with a catastrophic policy that covers cancer and other non-primary medical emergencies is an excellent strategy for small employers, it is an investment in the health and well being of the workplace.
Direct Primary Care Practices
Another alternative solution for controlling employer healthcare costs is the concept of medical or pharmaceutical tourism. Rather than pay for costly or expensive pharmaceuticals and medical procedures in the US, companies send employees to international destinations where the same drug or procedure can be purchased for far less. Employers use this method and quickly reduce their spending on high-cost medical prescriptions and infusions by 50 percent or more.
Meanwhile, employees get a free or subsidized trip to an international destination. Additionally, companies are incentivizing employees to travel to centers of surgical excellence like Texas Free Market Surgery and The Surgery Center of Oklahoma for elective surgical procedures.
4 Ways Employers Can Bypass Big Health Insurance Companies
Strength in Numbers
Direct Pay in Cash
Direct Primary Care
In summary, there are now proven alternative to traditional health care plans and TPAs that can save employers 30 to 50% or more on their health care spend and get affordable care back into the lives of their employees and their families.
That's better business!
DR. CRISTIN DICKERSON, MD