Benefits July 29, 2015

Five Components for Managing Health Care Costs

Better technology and increased availability of data offer employers a better chance of reducing health plan costs.
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Joseph Berardo, CEO of MagnaCare, a Manhattan-based health plan administrator and provider for self-insured health plans in New York and New Jersey, recommends five key components to positively impact the total cost of care.

Self-insured health plans offer flexibility in plan design and the reduction of premium taxes that exist with fully insured benefits. “Right out of the gate, employers can save 4% to 6% without premium taxes,” Berardo tells PLANSPONSOR.

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In addition, outside of requirements of the Patient Protection and Affordable Care Act (ACA), there could be state mandates for certain types of coverage: self-insured plans are not subject to those and the variations that exist between states, Berardo says. “This means employers can provide consistent benefits across state lines.”

With a self-insured plan, there is transparency of data; employers will see claims and get information about what drives the costs of the plan.

NEXT: Using data, plan design and incentives.

This data can help with population health management—the second component for positively impacting the total cost of care. More data is available due to increased technology, and employers can analyze claims, pharmacy and lab data to determine which health conditions are having the biggest impact on the total cost of care, Berardo notes. They can pull resources for specific employees to improve their health.

For example, MagnaCare offers a service called Evaluaide, which presents to employers what health conditions affect a percentage of members. Berardo says MagnaCare works in partnership with providers in the MagnaCare network to engage those members in discussions about what steps they can take to improve their health. If the member does not engage, MagnaCare can reach out to members’ doctors to get them to participate in appropriate care.              

The third component of managing health plan costs is using a unique plan design, according to Berardo. He says health care has always been local, and there is an emergence of integrated delivery systems—hospitals are more connected clinically with doctors, for example. Employers have the ability to design a plan to incent members to see integrated doctors and hospitals. This allows self-insured health plan sponsors to fit the plan to the employee population’s age and geographic location, Berardo says, rather than have a cookie-cutter plan.

This ties in with the use of high-performance networks—the fourth component of cost management. “'Narrow' has a negative connotation to it, but most of the exchange-based plans in the market are offering a more narrow network of providers,” Berardo contends. “The provider community is trying to create systems of care—truly integrated networks of providers—using electronic medical records to reduce waste such as repeated tests, share information on a more timely basis, and have care delivered in appropriate settings.” He says these integrated networks can be paid for according to their value versus fee-for-service; a portion of premiums go toward incentivizing value-based care.   

NEXT: Helping employees make informed decisions.

Finally, transparency shopping tools for plan members can make a positive impact on costs, according to Berardo. “Inside a provider network like MagnaCare, there can be a variation of fees for a particular medical procedure with a 200% to 300% difference in price,” he explains. “We have the ability to package about 200 procedures for which members can go online during the pre-certification process and find information about the expected cost in their geography.” Plan sponsors can set up their plan design so that, if members make a choice that results in a lower cost, they will receive a check for part of the savings.

Berardo says that, especially with the Cadillac tax looming over employers, members need to have information ahead of time to make informed decisions about quality and cost. “Just going to a health care provider 300 yards in a different direction can result in thousands of dollars in savings for the plan,” he notes.

“Technology has evolved, and it’s an exciting time,” Berardo says. “Self-insurance is winning in the marketplace—probably 65% of employees are covered in self-insured plans. Employers want to be free to design [a health plan] that fits their demographics.”

He believes employers will never lose with a self-insured health plan—as long as they have the appropriate stop-loss coverage—but employers need knowledgeable brokers or consultants to help them decide whether they want to go self-insured, and it’s a struggle to find knowledgeable brokers because they have not historically played in the self-insured market.

Data and Research July 29, 2015

Ineligible Dependents Drive Up Health Benefits Costs

Up to 8% of the dependents enrolled in an employer’s medical plan are actually ineligible to receive benefits, study finds.
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Employers can save a significant amount of money on their health benefits costs simply by checking if their employees’ dependents are eligible for coverage, shows a research paper from Colonial Life & Accident Insurance Company, in partnership with the Government Finance Officers Association (GFOA).

Up to 8% of the dependents enrolled in an employer’s medical plan are actually ineligible to receive benefits according to their plan’s own criteria, the study, “Controlling health-care costs with dependent eligibility audits,” found.           

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The paper cites research from the Kaiser Family Foundation and Mercer, which says employers pay an average of $3,500 annually to provide coverage for a single dependent. “At this rate, employers can rack up big price tags in a hurry by funding dependents who aren’t qualified for coverage,” Colonial Life notes.

In addition ineligible dependents subject employers to increased legal exposure. There is heightened compliance risk associated with paying claims for ineligible dependents, which is prohibited by federal law. Also, ineligible dependents assume they have coverage they don’t actually have, which can create unpleasant surprises when they eventually learn the truth.

The recent Colonial Life-GFOA study examined 17 local governments that conducted audits in 2013. The average number of ineligible dependents across all 17 governments was greater than 7%. The five largest jurisdictions reviewed (which ranged from 3,500 to 7,500 employees) would be able to save between $590,000 and $1.3 million annually by removing the ineligible dependents.

The paper notes the benefit of a dependent eligibility audit stretches many years beyond the first-year savings, since the employer will not have to pay future premiums for those ineligible.

NEXT: How ineligibles get covered.

According to the paper, 60% of ineligible dependents enrolled in an employer’s health plan are children. The most common reason a child is found to be ineligible is that the employee is not the legal guardian of the child (e.g., a stepchild or a grandchild who lives with the employee). Older children who have passed the eligible age (now 26 under the Patient Protection and Affordable Care Act) are also part of this 60%, often having inadvertently remained on a parent’s health plan past eligibility.

Spouses, who are typically the heaviest users of health benefits, make up the remaining 40% of ineligible dependents. The most common reason for spousal ineligibility is divorce, where the ex-spouse was never removed from the health plan.

Practitioner experience with dependent eligibility audits has revealed a number of characteristics that the organizations most likely to benefit often share, the paper says. These include:

  • A loose process for bringing in new employees and poor communication of benefit eligibility rules (e.g., the employer does not collect documents from new hires when adding them to the plan and/or does not clearly explain the rules to new employees);
  • Jurisdictions that are governed by complicated labor contracts, and more adversarial relations between management and organized labor. Such environments may impede the clear communication and understanding of eligibility rules to employees;
  • The employer has not performed a proof-based audit in the past, or has not taken steps to make sure that ineligible dependents did not enroll in the years since the audit; and
  • The employer does not collect documents from employees after life-changing events (e.g., marriage or the birth of a baby).

The research paper outlines the process for conducting a dependent eligibility audit. It can be downloaded here.

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