For Your Reference: How an alternative funding model can be the answer to your health plan needs

Finding the right health plan for your organization can be a challenge. So many options. So many carriers. So many numbers. 

Spreadsheet exhaustion might even kick in. 

One of the biggest choices an employer has to make is between fully-insured and self-insured health plans. 

A fully insured plan is what we are all used to … a network with copays, in either an HMO, PPO or HSA format. The company pays a premium to the insurance carrier, who assumes all of the risk. Risk? Yes, risk. That is what insurance is all about, right? Mitigating -- and minimizing -- risk.

With fully insured plans, premiums are based on a community rating system. If your company is based in 77065, for example, your rates will be based on everyone in that zip code. You could have no claims throughout the year on a fully insured plan and still get a rate increase and not get any money back. 

With a self-insured health plan, employers operate their own insurance plan. The company goes through underwriting or submits a claims experience report to the carrier or TPA, which hopefully, results in a lower premium than a fully insured plan. This gives the company and the employee more control over their health-care monies. Rates for self-funding plans are based on your company’s staff and their anticipated health-care needs, rather than community rating. 

Another bonus for self funding is that in the event you have a good year for claims, you have a chance for a refund on your unused claims dollars. Yay for refund potential! On the other hand, if you spend all of your claims bucket, you will not receive a refund. 

There are a few self-funding models out there, but one that is gaining traction across groups of all sizes is Reference-Based Pricing, so that is what we will focus on here.

RBP

Reference-based pricing is one way employers can reduce their claims spend. 

Your traditional PPO plan, for example, has a copay and deductible for in- and out-of-network care. After the fact, traditional plans negotiate a lower fee for their services off of the billing. This is where we often see that surprise -- or balanced -- bill at the end of the day. 

RBP turns this practice on its head. 

Rather than cutting prices after the fact, RBP takes an upfront negotiation approach in order to gain better control of the cost of care. This approach works for doctor visits to hospital stays, surgeries and more.

Cost of care can vary from provider to provider and facility to facility. It also can vary based on geography. What is the value of the treatment in your area? A procedure, for instance, might be less in a rural part of the country vs. a large metropolitan area. A medication also might be priced differently if you get it from a large national pharmacy chain, the local pharmacist, the grocery store or your favorite wholesale club.

RBP takes a negotiating approach based on what is paid by Medicare, rather than negotiating a contracted network rate like a fully insured plan. RBP will pay a percentage of Medicare, likely somewhere between 120 and 170 percent of the Medicare allowable, as opposed to the hospital billing at much higher percent of Medicare reimbursement with a traditional PPO plan.

Let’s put that into numbers. 

If a procedure is billed at $2000 and the insurance company negotiates a 40 percent discount, the final rate would be $1200. If the health plan does not cover the entire cost of the procedure or if the patient has not met their deductible, they may be responsible for paying this cost out-of-pocket. 

With RBP, on the other hand, the contract will pay a percentage of the Medicare allowable. So if this procedure is paid $400 by Medicare and the contract pays 130 percent of Medicare, the provider is paid $520. While the risk of balance billing may be there, your Third Party Administrator should be able to negotiate that away on your behalf.

A Few Quick Notes

  • Because of RBP’s cost transparency, employers and members have more control over rising healthcare costs. 

  • It is important to make sure members understand that not all healthcare systems accept capped insurances, like RBP. Education is paramount, as is a great TPA with a strong member advocacy program that will help the member navigate the plan and handle balanced billing.

  • An employee can see any provider, but like with other plans, they may have to pay a portion of the bill out-of-pocket. 

  • Because of the plan structure, RBP encourages employees to take charge of their healthcare and make sure they consider cost and quality when choosing where they receive care. There are great tools out there to shop procedures in advance, such as healthcarebluebook.com, and goodrx.com to check prescription pricing, rather than waiting till they receive a bill.

  • There is no need for employers to worry about self-funding. The monthly premium is inclusive of the claims fund, plan administration fees and a stop-loss insurance in the event the claims fund is depleted. If the claims fund is depleted, there will be no refund, and the group can expect to see an increase on their premium at renewal.

Case Study

We recently installed an RBP plan in a small construction company, with just five benefit eligible employees. After going through underwriting, we were given rates on a level-funding option, as well as RBP. Both were much more affordable than the existing fully insured plan that included an HMO base plan with an option to upgrade to a PPO. 

The HMO base plan was a 3000 deductible. For a 39-year old with one dependent, the monthly rate was $523.04. The PPO for this family would have been $876.86. For our 62-year-old man to cover his spouse, the monthly rate for the HMO was $1479.38. For the PPO, it would have been $2299.62. Keep in mind that these were age-rated premiums because of big differences in staff members’ ages.

Going with our RBP rate, the company exposure for this PPO style, open-access plan was about the same … within $100/month of the fully insured HMO base plan. The big savings we saw was with the dependent levels of coverage. 

The RBP rates are composite, so everyone has the same rate. Considering that, the employee-only rate is $434.89/month. The employee and spouse rate is $1,108.96. Employee and child is $848.03. And, two-parent family rate is $1,435.12.

Not only were we able to cast a wider net in terms of coverage options with the open-access plan, (important because several of these employees travel as part of their job), we were able to save the employees a significant amount on insuring their families … all for about the same amount of money for the company. 

That’s a win all around.

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