Why most health plans strive to make healthcare cost more

By Brian Klepper

Published July 31 2017, 12:22pm EDT in Employee Benefit News

Health plan representatives are always saying that their plans are doing everything they can to control costs and deliver greater value. But then nothing ever seems to change.

The truth is that group health plans typically earn a percentage of total claims, and it is in their interest for healthcare to cost as much as possible. Employer or union group health plans are frequently associated with a variety of services — e.g., health IT, pharmacy benefit management, case management, reinsurance — each with its own revenue stream. By choosing and incentivizing vendors, plan administrators directly influence their systems’ capabilities to manage risk. Intentionally meek approaches to healthcare risk management result in excessive care and cost, in turn fueling higher expenditures, greater net revenues and elevated stock prices.

This structure has been spectacularly successful for the health insurance industry. Using data pulled from Google Finance, the chart and table below show the 10-year stock price performance of five commercial health plans: Aetna, Anthem, Cigna, Humana and United, as well as the Dow and Standard & Poor’s Index.

Stock prices began to creep upward in November 2008, when a Democratic majority was elected to Congress, foreshadowing the successful passage of the Affordable Care Act. Lobbying by healthcare interests was intense during this period, with Congress accepting an unprecedented $1.2 billion in campaign contributions, presumably in exchange for influence over the shape of the law. In the 8 years between May 2009 and May 2017, the stock prices of these insurers soared between 387 and 748 percent. They vastly outperformed the rest of the market, growing 1.5 to 3.0 times faster than the S&P and 1.2 to 2.4 times faster than the Dow.


Grim implications

Growth, driven by an endless rise in expenditures, has profoundly grim implications. Let’s say a clinical risk management firm emerges that, within a high value niche, consistently delivers measurably better health outcomes at half the cost. Reductions in unnecessary surgeries, imaging and drugs would likely yield strong savings. But the resulting drop in health plans’ net revenue would also translate into lower stock prices and market capitalization, and lead to strained relations with network providers, whose utilization and revenues would also suffer. Under these circumstances, concerns about compromised network performance and reduced valuation would deter insurers from investing in the risk management firm’s capacity to deliver better value.

Of course, these dynamics are not unique to health plans. Virtually every healthcare organization —including physician practices, health systems, imaging centers, labs, drug manufacturers, pharmacy benefit management firms — earns a percentage of the spend within its niche. Not surprisingly, each also has developed mechanisms to promote the highest possible unit volumes and pricing.

This may seem like an obvious point, but it is critical to U.S. health policy going forward. For decades, lawmakers have done the bidding of health industry lobbyists and avoided payment methodologies that reward value. This has made American healthcare, at double the cost of other developed countries, unaffordable and inaccessible to large swaths of the American people. The need to continually pay more for healthcare has drained funding away from other critical needs, such as education, transportation and infrastructure. This has played a significant role in crushing the American dream for the middle class and compromising U.S. global competitiveness and economic security.

Alternative approaches like a single payer health plan won’t solve this problem unless how healthcare is purchased also changes. A stable, sustainable health system will remain a pipe dream until people refuse to pay for products and services at ever decreasing value. Instead, healthcare purchasers must tie payment to observably better results. An abundance of market-based evidence shows this is readily achievable.

Brian Klepper PhD is a healthcare analyst and a Principal of Worksite Health Advisors.





21 Things to Know About Balance Billing

Brooke Murphy. And with a hat tip to Bill Rusteberg

The following article is entitled “20 Things To Know About Balance Billing.” We added one more. There is only one market strategy that protects consumers against balance billing – Reference Based Pricing (RBP) plans. Traditional managed care plans provide no protection against balance billing – consumers are on their own when they get one. Not so under RBP plans. 

Which plan would you rather have?

As payers and providers wage war over reimbursement rates for medical services, patients have been increasingly strapped with unanticipated health care bills that can have detrimental financial effects.

The practice of balance billing refers to a physician’s ability to bill the patient for an outstanding balance after the insurance company submits its portion of the bill. Out-of-network physicians, not bound by contractual, in-network rate agreements, have the ability to bill patients for the entire remaining balance.

Balance billing may occur when a patient receives a bill for an episode of care previously believed to be in-network and therefore covered by the insurance company, or when an insurance company contributes less money for a medical service than a patient expected.

Continue reading “21 Things to Know About Balance Billing”

Tell Us Your Outrageous Health Care Stories

Dave Chase, who has been our most eloquent teller of health care craziness stories in recent years, sent out a request the other day for alarming stories from the broker/consultant sector. He wrote:
Benefit brokers get paid more for doing a bad job (i.e., allowing healthcare costs to go up pays them more since they make a % of costs in many compensation schemes). They can get rewards for driving up spending such as trips or other undisclosed compensation. Tell us some of the most outrageous compensation schemes that help fuel hyperinflation in healthcare.
Bill Rusteberg, a deeply experienced, progressive and entertaining health benefits consultant based in Brownsville, Texas, sent in the following vignettes, and solicits more from other similarly experienced consultants. Read on.
Over 50% of employer groups of 200 employee lives and more currently self fund their health & welfare plans. Many are using independent third party administrators (TPA). Most plan sponsors view their TPA as “general contractor” which they rely upon to provide not only claim administration (record keeping) but many of the ancillary services necessarily needed such as stop loss insurance, PPO access through any number of available networks, audit services, etc. TPA’s have traditionally earned fees / commissions off each service they package along with their record keeping functions. For example, one national TPA earns a 25% commission off a vendor who provides a Reference Based Pricing platform (patient advocacy, claim re-pricing, legal defense and legal indemnification) which can amount to hundreds of thousands of dollars per year for a group of 500 employees. Tell us stories about this and particularly how some plan sponsors are pushing back against fee/commission mining among TPA’s. 

Continue reading “Tell Us Your Outrageous Health Care Stories”

This Little-Known Legal Risk Could Force Big Changes to our Dysfunctional Health-Care System

Dave Chase and Sean Schantzen

Originally published 5/05/2017 on Marketwatch

Lawyers are preparing lawsuits over waste and fraud in health care — invoking Erisa, a law better know for retirement benefits

How much of health care is wasteful?

ERISA, the Employee Retirement Income Security Act, has been around since the Ford administration. Most people know the law in relation to retirement benefits, but it’s emerging as an unexpected, yet high-potential, opportunity to drive change in the dysfunctional U.S. health-care system.

The law sets fiduciary standards for using funds for self-insured health plans, which is how more than 100 million Americans receive health benefits. Health plans for companies with more than 250 employees are self-funded because they are generally less costly to administer. As a result, just over $1 trillion in annual health-care spending is under Erisa plans or out-of-pocket by Erisa plan participants, and the amount spent on Erisa health plans is roughly double the amount spent on Erisa retirement plans.

This makes Erisa plans an attractive target for operational efficiencies. It’s one of the only buckets of operational expenses that most companies haven’t actively optimized. For those that don’t get on top of this, it could also be a source of potential liability for companies and plan trustees.

Continue reading “This Little-Known Legal Risk Could Force Big Changes to our Dysfunctional Health-Care System”

How Employers Can Get The Most Out of Worksite Clinics

Brian Klepper

First published 4/28/2017 in Employee Benefit News

The decision to implement a worksite clinic typically reflects an employer’s desire to exert more control over health plan care and cost. Most expect their clinic investment will yield improved health outcomes and a high multiple of health plan savings. In some cases that happens, but more often the savings are elusive. A September 2015 Mercer survey found that only 41 percent of clinic sponsors think their clinics save money. The real number may be far lower, the result of a lack of rigor and standardization in clinic vendor savings calculations. In other words, while good ones offer genuine value, clinics don’t always go as planned the first time around.

Make no mistake, some clinic vendors deliver consistent, powerful improvements in health outcomes and cost, with 20+ percent absolute reductions in total health care spend three years after clinic implementation.

Continue reading “How Employers Can Get The Most Out of Worksite Clinics”

How A Caribbean Hospital, Born in India, Could Influence US Health Care

Brian Klepper

Published 4/12/17 in The Florida Times Union

bklepper-111516Health City Cayman Islands (HCCI) is a three year old 104-bed Caribbean hospital outpost of the Bangalore, India-based Narayana Health System. Just an hour’s flight from Miami, Americans find its island location comfortably familiar, English-speaking and modern.

Specializing in complicated or severe conditions, HCCI has developed care and business models that are so focused on quality and efficiency that it could radically change the standards by which US hospitals are judged. Most importantly for patients and employers, it provides very high quality – it has been awarded the coveted Joint Commission International (JCI) quality credential – at one-half to one-sixth of US pricing.

HCCI’s performance is the culmination of a deep commitment to access, efficiency and excellence. NH’s Founder, Dr. Devi Shetty – who earlier in his career was Mother Teresa’s personal physician – began with a mission-driven awareness that health care is an essential need and must be affordable to be accessible. He spearheaded an enterprise-wide focus on process optimization to deliver the best care possible at the lowest possible price.

Continue reading “How A Caribbean Hospital, Born in India, Could Influence US Health Care”