Self-insuring health benefits is a riskier undertaking than just writing a check to a United or Aetna. But despite the risk, employers do it because it gives them more control over plan design and the growth of health costs.
For self-insured plans to succeed in controlling costs – and they can – they must analyze and predict (among other things) health claims and enrollee characteristics – and they’ve got to take appropriate, well-timed preventive and corrective measures.
This article illustrates some of the big cost-containment dangers facing self-insured health plans, and some steps plan administrators can take to minimize them.
High Claim Levels
Large claims – sometimes several at once – can hit you, making costs seem out of control. Determining if these increases are indicative of a plan that is failing is the key.
What to do: Look at doctor, hospital and prescription drug claims data, extrapolate those to diagnoses and try to manage conditions before they reach their acute endpoint, using wellness or disease management. It may be helpful to work with a predictive modeling vendor to identify trends and target high-risk employees. It also helps to know if you’re wasting money on a high-cost provider and whether your employees are getting procedures that are medically unnecessary. See whether less drastic, invasive and expensive methods of treating the condition might work better. Overtreatment is a big health – and finance – problem in this country.
Overpayments
Overpayments happen because of provider upcoding or double billing, or payments for terminated members (to name a few). They can easily comprise 1 percent to 2 percent of expenses. The health industry is one of the hardest to recoup dollars mistakenly paid. In some cases, a provider provided actual needed services – the plan that paid in error just doesn’t cover them … do you think the provider’s willingly going to give the money back? That’s why it’s so essential to pay it right the first time.
What to do: The answer may be some kind of prepayment check or audit, maybe on providers who have been a problem in the past. Another may be to establish rights of recovery in provider agreements, including claiming offset rights when appropriate and asserting plan rights under ERISA. It may be smart to check with your third-party administrator or even private-insurer and federal anti-fraud agencies to find out which codes and diagnoses are most susceptible to overbilling and fraud.
New Treatments – High-tech imaging
Charges from high-tech imaging (CT, MRI and PET) have been growing faster even than the general health cost index, and that’s saying a lot. It’s tough to argue with the value non-invasive scans have brought in detecting heart disease and cancers.
What to do: To curb overuse, you may be able to steer patients away from outpatient hospital settings and instead send them to standalone imaging centers, which tend to cost less. Work with imaging providers to discuss plan design and fee schedule incentives to avoid physician self-referral and other high-cost scenarios. Educate employees so they’ll avoid unnecessary scans, choose the most sensible technique and understand plan limits on these services. See this paper by America’s Health Insurance Plans on the subject.
New Treatments – Specialty Drugs
Specialty drugs are a breakthrough way of treating many cancers and rare disease, but they are sometimes wildly expensive and have to be administered by a physician. Their set of challenges includes requiring special handling and storing, overnight delivery, provider and/or patient education, compliance oversight and close monitoring of side effects.
What to do: The employer may monitor to ensure the provider adequately delivered the right dose of appropriate medications to patients who really need them. According to this survey published in Health Affairs, the most common method is preauthorization, followed by claims review (82.8 percent), formulary management (76.7 percent)and utilization review (70 percent).
Ineffective Stop-Loss Protection
Large claims can fail to be reimbursed by stop-loss coverage. This happens because gaps can exist between benefit plans and reinsurance: for example, a stop-loss insurer may pay only a usual and customary fee, while the plan paid a higher amount negotiated through a PPO arrangement.
The same happens when a plan negotiates a “discount” on a hospital charge that was outrageous to start with (a $30,000 stent), but the stop-loss insurer will pay only fair market value (around $3,000) for it, self-funding expert Adam Russo, Esq., with The Phia Group, says.
What to do: Do a side-by-side comparison of the stop-loss agreement and the plan coverage provisions; never assume they’re identical! Dig deep and find out where definitions are different and harmonize those differences, especially where you anticipate high-dollar claims.
Adverse Selection
Adverse selection causes the plan to cost more. Statistics show that only about 5 percent of the population accounts for nearly 40 percent of the claims, and nearly 60 percent account for less than $1,000 each in annual claims. If you have different coverage options, and you allow the healthiest members to migrate to a plan with the lowest contributions to your risk pool, that can harm your plan’s financial performance, Robert P. Marcantonio, a consultant with Cammack LaRhette, writes.
What to do: Actuarial analysis is the answer. Regardless of the number of plans offered, the plan is responsible for the aggregate of all claims of the population., As such, enrollment should be as balanced as possible among all plans – with each plan carrying its fair share of both sick and healthy people. This ensures you maximize employee-aggregate contributions to your plan, he states.
For more detailed information about self-insuring and administering employer-sponsored group health benefits, see Thompson Publishing.