Cost-Saving Models for Employers With Self-Insured Health Plans

U.S. employers that self-insure their medical benefits have become increasingly frustrated with the constant surge in health care expenses and also with the lack of price transparency, according to a report from EBCG, a consulting firm in the employee benefits industry.

In a Perspective report, EBCG outlines three alternatives it has recommended to its partner companies in an effort to manage their employees’ health care in a cost-effective manner.

Cash-Based/Fixed Cost Pricing Models 

According to the report, written by Sam Odishoo, a consultant at EBCG, in recent years, cash-based hospitals and surgery centers have been emerging throughout the country. EBCG says these providers stand out from the typical health care market for cost transparency and no insurance company involvement.  Clinics that offer cash-based medical services designate fixed, up-front prices for their procedures, often posting them on their websites. This way, prospective patients and their employers know ahead of time what their financial exposure will be.

“Fixed costs for services represent a welcomed change from the characteristic uncertainty that persists in insurance-network affiliated hospitals and surgery centers. For companies that self-insure their employee health benefits, cash-based facilities can be a viable cost-saving alternative,” the report says. “If an employee requires a specific procedure, the employer can check their nearest cash-based provider’s price and compare it to what their insurance company would presumably charge at a local hospital or surgery center.” EBCG adds that it is not uncommon for the cash-based price for an identical procedure to be $5,000 to even $25,000 less, depending on the procedure.

Reference-Based Pricing 

With reference-based pricing, employers designate maximum amounts that they will reimburse for specific medical services. The services subjected to RBP are typically ones that experience wide cost variation in the marketplace. While traditional health insurance network agreements are centered around a discount off of billed charges from the provider, the RBP model restructures claims using the average wholesale or manufacturer suggested retail price (MSRP), Odishoo explains. Repricing claims in this manner allows for a less arbitrary reimbursement process than those under a contractual agreement with an insurance network, which often have an unsubstantiated relationship to the actual cost of the procedure. 

“Reference-based pricing follows the industry trend towards shifting health care costs and consumer responsibility to employees from employers. It also delivers a higher level of cost transparency from medical providers and gives the employer more control over their fixed and expected claim costs. In an RBP model, the employee/patient not only chooses their provider at the reference price, but also pays the difference between the reference price and the allowed charge via cost sharing. While this pricing model has obvious financial benefits for the self-insured employer, it becomes crucial for the employee to understand the ramifications of their provider selection. Plan enrollees are supposed to be actively driven to use providers who have agreed to accept the reference-based price as full payment. However, if the contractual arrangement with designated providers has not been effectively communicated to employees, it will likely result in the employee choosing a more expensive healthcare provider and being forced to pay the difference out of pocket,” Odishoo warns.

Odishoo also warns that self-insured employers looking to implement RBP into their benefits program need to be especially careful that they maintain Affordable Care Act (ACA) compliance to avoid any reporting issues.

Centers of Excellence 

Centers of excellence (COEs) in the health care realm are more than just top tier medical providers, as their title might suggest. For large self-insured employers, a COE represents an exclusive hospital or hospital system that they have partnered with to receive bundled pricing for medical services, Odishoo explains. Similar to the cash-based and reference-based models, COEs are typically designated for expensive procedures that are relatively common within a large employee population. By establishing up-front payment arrangements with hospitals and surgery centers, employers are able to limit their financial exposure to high-cost claims. 

Odishoo notes that retail giants like Walmart and Lowe’s began contracting with hospitals back in 2012, and based on the success of their partnerships, hundreds of other companies have followed suit. According to a 2016 Willis Towers Watson survey of 600 employers (each with over 1,000 employees), 45% had made access to COEs available to their workforce, the report says.

“Though still a moderately new player in the self-funded employer space, centers of excellence have provided a seemingly win-win-win scenario for companies and their employees as well as the medical providers. The employers win because they save substantially on their claim costs while providing health care for their employees at hospitals with excellent reputations. Employees win for the same reasons—name brand hospital care at reduced prices. And the contracted hospitals benefit from the partnership because they are able to circumvent payments from insurance companies which might take months to process completely,” the report says. 

The full report is on EBCG’s website.