- October 16, 2018
- Posted by: JPFarley
- Category: Healthcare Costs, Risk Management Services, Self-Funding
Lack of understanding of this simple fact is the main driver of high health plan costs. The most common mistake made by plan sponsors and employees when making decisions about their health plan is failing to realize that each plan pays its own claims regardless of its insured or self-funded status. Insurers use claims history combined with predictive modeling software to get an accurate prediction of future costs and charge accordingly. A plan with high-cost claimants will have high costs and a plan with low-cost claimants has lower costs. Insurance companies do not fund claims. Employers and employees fund claims. Period.
Plan sponsors will often request to waive eligibility provisions to bring people on to their plans outside of the time the plan would enable enrollment. Most of the time the person in question has an existing medical problem and it’s often a high-cost problem. The underlying assumption is that the plan will pay the medical bills. What is not considered is the impact on the cost of the plan and ALL of those who pay for the plan in the form of forgone wages, direct contributions to cost, or out of pocket claims cost. If that person suddenly adds 10-25% to the total cost of the plan and the plan then passes that increase along to employees in the form of contributions or benefit reductions, how are the others going to feel about the decision to add that person to the enrollment. What would have happened if all affected participants were properly informed and allowed to vote?
The same problem arises each time each individual uses the health plan–for large claims or small. The idea that “the plan pays for it” removes normal consumer behavior so that price and quality are ignored. It’s pretty easy and low cost to use telemedicine but few people use it because the doctor or urgent care co-pay is “only $25”. The total underlying cost of the visit is more like $200 and that’s what ultimately gets subtracted from the plan (co-op) and passed along at renewal but that not considered. It’s easy to shop for lab tests and scopes and scans. The cost impact of not shopping is considerable but few actually do. Even crazier when possible adverse results are considered, cost, quality, and outcomes ratings are readily available for surgical procedures but hardly anyone looks at them. Neither the plan co-op costs or the avoidance of problems are considered.
If employers who sponsor plans would regularly communicate the concept that the health plan is a buying co-op and then follow that up with an ongoing program to reinforce this buying co-op concept over a period of time using “open book management” techniques, plan use would change and plan costs would decrease by a significant amount. The impact would eclipse anything else a plan can do.