Over 150 million people in the US get access to health benefits through their employer, making employers the largest source of healthcare coverage in the US. Healthcare is the second largest expense for most employers after payroll. Over $2 trillion is spent every year through employer-sponsored insurance plans with $700 billion paid directly by employers. For decades, employers have grown frustrated with rising costs but have had limited leverage to negotiate lower prices (which is wild considering their consolidated market share). The providers that employees can access through employer’s health plans depend on the contracted networks of the insurance company that runs those plans. The contracts, however, are double or triple the rates paid by Medicare. Even employers with hundreds of thousands of employees do not represent a large enough volume during negotiations. Employer coalitions exist but they have struggled to control costs. The lack of transparent pricing and network data has hobbled employers' collective bargaining efforts. However, starting July 2022, the historic Transparency in Coverage Act (TiC) will create a new set of opportunities for employers to reign in their healthcare costs while also providing high-quality, affordable options for their employees.
Employers can use price transparency data to identify and partner with a variety of providers (independent physicians, ambulatory care centers, surgical centers, free standing labs and imaging centers) that often provide better value. Offering narrow networks at lower premiums, care steerage, and center of excellence models are all part of the same strategy.
Offering plans with narrow networks is not new, but still underutilized by employers who are wary of employee pushback. Employers can offer plans that allow access to a limited set of providers in exchange for a better benefits design that includes lower premiums and lower out of pocket costs. Price transparency presents a new opportunity for employers to reframe their messaging to employees.
Employers can utilize care steerage to cut costs. In healthcare, it is common for the patient to assume that cost correlates to the quality of care. Even with price transparency, shopping for healthcare remains incredibly challenging for most consumers. If employers can educate their employees about site of service costs and how it could affect them personally, they can begin to save money without compromising on the quality of care provided. For example, the cost of a simple lab test at a stand alone lab is significantly less than the cost of those same tests at a hospital. By directing employees to high-quality care at low-cost providers, employers can reign in costs and increase benefit value.
Lastly, by utilizing a center of excellence strategy, employers can save big on common procedures. A surgical procedure at a center of excellence ASC may offer significantly better value than an academic medical center. Choosing experienced specialists with lower complication and readmission rates leads to a high quality patient experience. Establishing such a program can be daunting, but resources like Care Search allow employers to easily identify providers that should be part of their care navigation strategy.
As contracting and billing complexities have gone up over the past decade, self-insured employers may find it worth their money to explore direct contracting arrangements with providers. Large employers with a concentrated workforce can leverage their size to negotiate better arrangements in oligopolistic markets. Providers may offer better rates as they increase their patient volume and cut back on administrative and billing work. For some employers, direct contracting may resolve the lack of transparency that has existed in traditional employer-insurer-provider relationships. Clear Contracts is a great place to start your journey into direct contracting. Employers can design reimbursement methodology, identify providers, and broker agreements. Smaller employers can take advantage of our Care Search function to identify smaller providers more likely to engage employers directly.
Employers can help employees make smarter choices by financially incentivizing them. Seems obvious, right? A shared savings program would help incentivize employees to receive care from lower-cost providers. For example, the employer could identify common high-cost procedures. Then, the employer could offer the employee a financial incentive to choose a preferred provider (aka a high quality but cheaper one) before receiving care.
By offering gift cards or money back in HSA accounts, employers can nudge employees towards lower-cost providers while still allowing them to have a choice. Obviously, this is hard stuff, developing this program would take a significant time investment as well as buy-in from providers and employees themselves. But if done right the costs saved could be significant.
Financial incentives could work with providers as well. Many employer groups are now shifting away from traditional fee-for service and into value-based care models where there is typically a risk-adjusted per member per month fee and a retrospective reconciliation. This helps shift some of the burden of "steerage" away from payers to providers who likely understand the patient's story better. It also incentivizes providers to reign in costs and promotes better quality outcomes, leading to lower costs.
One of the best-kept secrets of healthcare is using Medicare prices as a reference for negotiating costs with providers. Medicare, a payer with arguably the largest volume of members in the US (about 60 million) puts in the work to build a rational pricing structure for healthcare costs; adjusting costs based on geography, cost of living, population, and more. Other, non-government payers took notice and began using Medicare rates as a reference for prices.
Today, it’s common for a payer to offer to pay a markup of Medicare rates, usually at a percent of Medicare reimbursement. Not only because Medicare’s rates are sound, but also because negotiating a contract on the basis of a percent of Medicare reimbursement will result in a lower variance of cost. Employers benefit from pushing their negotiated arrangements towards Medicare multiples rather than other arbitrary market benchmarks. This is a great strategy for employers with the caveat that Medicare benchmarking does fall short in some instances, like Obstetrics care. You can look at Medicare costs right now using our Rate Sense tool.
The last and most creative way to save on healthcare? Partner with companies that can offer in-depth insights on procedure volumes, high-cost providers, etc. by offering your own employee’s de-identified claims and remittance data. This type of partnership is worthwhile when you consider the potential insights employers could gain from their own data. What high-cost procedures are you paying for? What are providers charging? Patient makeup? Costs associated? This is the fundamental analysis that goes into making decisions that lower costs. All of that information is contained within your own data if you know how to extract it.
Every company is a healthcare company, but some don’t want to be one and some don’t know it yet. Partnering with a company that has the capabilities to analyze your data will deliver insights that directly inform your plan design. Ultimately, this will help you identify opportunities to lower healthcare costs.
None of this is easy of course. But the status quo isn’t really an option. There are a plethora of consumer-friendly regulatory actions that are pushing healthcare to become more transparent and patient-friendly. But patients alone cannot lead the charge. Employers should set up the right incentive structures and benefit plans because, after all, employers are healthcare consumers too. Need some extra advice on ways to save costs? Hit us up!