Large Employers Reimagine Health Benefits

In early 2018, Amazon, Berkshire Hathaway, and JPMorgan Chase announced a plan to build an independent health care company for their employees. This headline-grabbing partnership is far from the only example of companies searching for new ways forward, however. Among the corporate giants that have created a major buzz this past year are Walmart, General Motors, and Apple, as they revamp their approach to providing health care to their employees.

Some say these moves are a sign of the business community’s growing dissatisfaction with the current state of the US health care system. According to a new Kasier Family Foundation report, the cost of employer-provided health care benefits is now close to $20,000 per year. As a result, large US employers are reexamining existing models and increasingly taking a do-it-yourself approach, according to a survey released in August by the National Business Group on Health.

“Health care cost increases continue to outpace workers’ earnings and increases in inflation, making this trend unaffordable and unsustainable over the long term,” Brian Marcotte, the organization’s president and CEO, said in a statement. “No longer able to rely on traditional cost-sharing techniques to manage costs, a growing number of employers are taking an activist role in shaking up how care is delivered and paid for.”

The survey, which includes responses from 170 large employers offering coverage to more than 19 million employees and their dependents, also revealed that a majority of employers think virtual care and technology will play a key role in how health care is delivered moving forward, and 43% believe artificial intelligence will play a significant role.

Notably, over half of the employers surveyed (51%) indicated that their top health care initiative in 2019 is implementing more virtual care solutions, which can include everything from physician consultations, physical therapy, and cognitive behavioral therapy to digital coaching, condition management, and remote monitoring.

“The growth in virtual solutions largely reflects employer frustration with the pace of change in how health care is delivered,” Mr Marcotte added. So where will the fresh ideas and approaches come from? Seven in 10 employers believe that innovators from outside the realm of the health care are needed to provide constructive disruption to this industry. 

Some Opting for Greater Customization

For some companies, controlling costs while maintaining coverage for employees means turning to self-insurance, also known as self-funding, rather than purchasing a fully-insured plan from an insurance carrier. To limit risk, companies that choose this path often buy a stop-loss policy to protect against higher than anticipated expenses.

“Our clients have been moving more and more toward hybrid or fully self-insured programs,” explained Matthew A Struck, CPCU, ARM, MBA, a partner at Treadstone Risk Management who works with sister agency Liberty Benefit Advisors to design and administer large group health programs.

“There are innovations that large health insurers haven’t made available to their fully insured clients,” he told First Report Managed Care, “and going self-insured affords the employers the control to pick and choose those options.” Most programs include a variety of tools, such as direct primary care, telemedicine, custom-built micro-networks, or restructured prescription rebate contract language. 

When administered appropriately, custom-built programs can potentially reduce the overall costs of the health insurance program without necessarily trimming benefits or sacrificing quality of care. Ultimately, the cost curve becomes shallower (or even trends down), employees have an easier treatment and claims process, and there are more dollars available to reinvest in the business, Mr Struck added.

Employers Expand Their Playbook

“Many employers are having their ‘aha’ moment and waking up to how the health care system operates,” Seth Denson, president and co-founder of GDP Advisors—a strategic consulting firm within the employee benefits and risk management industry—told First Report Managed Care. In other words, some CEOs and CFOs are using their business savvy to approach care for their employees in fresh ways, often by harnessing the flexibility of self-funded plans. 

Medicare reference-based pricing is among the array of potential solutions becoming more mainstream. In some parts of the United States, there are competing hospital systems vying for business—often operating within the same large insurer networks, he explained. Some employers are dropping the network on some or all procedures and adopting the process of negotiating claims directly with the hospital system based on a Medicare reimbursement rate rather than the network negotiated rate.

Size matters in the world of health care financing. Large self-insured employers can negotiate, spread risk, and generate profits because they can leverage their large number of members. A growing number of companies are taking advantage of their size to contract directly with hospitals and providers to take care of their workers. One example is General Motors, which teamed up with Henry Ford Health System in Detroit to provide care for their approximately 24,000 workers and their families.

Others employers are limiting their network to certain high value providers, termed performance-based networks. The approach of finding facilities offering the best outcomes at the lowest prices—within or outside of US borders—takes a page from the practice of medical tourism. “This strategy is not widely used and can be risky,” Mr Denson acknowledged, but is becoming increasingly common as costs and outcomes continue to vary based on geographic location. A hepatitis C treatment in the United States can carry a price tag of well over $100,000, for example, while the same treatment might be as little as $20,000 in places like the Grand Caymans or Turks and Caicos. Even after travel expenses are accounted for, the cost difference can be substantial.

Steering participants toward high-value centers of excellence at a geographical distance but still within the United States is a similar but less aggressive tactic. The practice, once primarily limited to certain areas of specialty such as oncology, has continued to expand to other areas of medicine. In these scenarios, treatment for certain high-cost conditions is obtained at facilities where outcomes are better and costs are lower. While MD Anderson might be considered a top cancer treatment performer, for example, Cleveland Clinic may be a go-to option for heart surgery. 

According to Mr Denson, it is health care captives that may be the biggest insurance industry game changer. In a health insurance captive, employer groups join together and share the advantages of being self-insured without the stand-alone risk. Your risk is mitigated by joining together with other like-minded employer groups to leverage size and predictability, with an emphasis on wellness and disease management. While fairly prevalent in the commercial risk side of insurance, captives are relatively new to the health plan side. They have, however, seen significant growth within the past couple of years. (The Amazon, Berkshire Hathaway, and JPMorgan Chase collaborative is one notable example.)

“Throughout the country, we are seeing more and more employers choose to band together and form co-ops or captives,” he added, “so that they can get the same benefit of spreading risk and buying in bulk while removing the profit margin and control imposed by insurance companies.”