Self-Funded Health Plans
With at least 200 employees, benefits advisors say it makes financial sense to self-fund an employee health plan rather than paying insurance companies for traditional coverage.7 It’s not like home fire insurance where you never expect to use it. To understand the potential benefits, it helps to recognize employee health insurance as a recurring financial transaction composed of four costs:
- Health Services – Provider services and meds beyond a deductible but below a catastrophic level
- Catastrophe Protection – Stop loss premiums for extraordinary sickness and injury, for example, claims above $50,000
- Administration – Managing contracts, provider authorizations, services billing accuracy, payments, and customized programs
- Profits – Fees, rebates, and subsidies paid to insurance plan companies, pharmacy benefit managers, and health systems to enable contracting simplicity and smooth cash flow
The unfortunate insurance business model of more-claims-paid-generates-higher-profits drives perverse incentives. A key benefit of self-funded plans is paring back those middleman profits of at least 15%. That’s table stakes.
But many self-funded employers lose focus on costs after substituting a self-pay program through their existing plan’s carrier. Insurance carriers aren’t warm to customization. For better results, a self-funded plan demands flexibility, discipline, and commitment. In return for shouldering responsibility for details, employers can address suspicious quality and waste that insurance companies miss while focusing on employees’ quality of life.
A Proven Structure
To reduce costs and effectively serve employees, work with a benefits advisor to hire a flexible third party administrator (TPA). TPAs handle healthcare plan and claim administration details that rationalize and optimize plan benefits for employees with lower costs to the company. They often work with “Group Captive,” insurance companies owned by the member employers they serve. Member companies combine volumes across markets to negotiate better contracts with health systems and networks and receive pro-rated profits.8
TPAs also integrate “stop loss” reinsurers with limits that take over catastrophic healthcare episode claims in return for risk premiums. The TPA must align coverage and renewal terms with the plan to avoid liability cracks.
Like traditional insurance companies, the TPA handles provider claims for employee services, adjudicates them based on plan rules, negotiates out-of-network charges using reference-based pricing, and pays providers. But unlike traditional plans, payments are made from a fiduciary account funded by the employer. This generates substantial savings by avoiding traditional insurance company profit compounding on top of claim costs.
The Care Network
TPAs are independent, meaning they can gather solutions from across the healthcare supply chain to optimize plan results. They bring critical flexibility to plan design and services contracting. Unlike traditional insurers, the TPA can customize these resources to focus on employer outcomes. To optimize care network costs, they can:
- Partner with multiple insurance carriers to offer access to best-in-class provider networks
- Use analytics and deductibles to steer employees to high-value, lower-cost specialist care
- Administer contracts with local provider groups and direct primary care (DPC) facilities
- Customize acute care network contracts to assure quality outcomes while managing utilization7
Leveraging the primary care part of the provider network holds the most opportunities to improve long-term outcomes. Individuals incur lower costs where there is an established patient-to-primary care provider relationship. Where such a relationship exists, fewer individuals defer needed care due to anticipated out-of-pocket expenses. Importantly, delayed or forgone visits for routine screenings for heart disease, diabetes, cancer, or preventive care will inevitably increase the cost of treating serious diseases that might have been diagnosed and treated earlier.9 Direct Primary Care or low-deductible primary care relationships avoid longer-term debacles with intervention.
The TPA can apply experienced clinical staff to navigate members through complex care episodes.10 For a larger employer, successful companies have hired a Chief Medical Officer and nurses staffed outside of HR. They can make professional policy decisions and manage outcome quality with HIPAA compliance.7 In complex episodes like cancer as well as chronic diseases, a CMO-directed Care Navigation program can focus evidence-based care for earlier and more effective interventions. This can also dramatically reduce costs from the scenario where the patient is left to the mercy of multiple specialties with questionable incentives and suspect benefits.
In addition to optimizing the cost and effectiveness of care networks, TPAs apply a broad range of pharmaceutical, health improvement, and financial waste management programs.
Pharma Costs
Employers can apply disciplined management to a significant cost burden, pharmaceutical costs. Incentives are misaligned in the pharmacy benefit manager (PBM) business model. PBM financial flow is full of opaque fees, rebates, kickbacks, and bonuses in various supply chain interfaces. TPAs can optimize costs and outcomes with these techniques:7
- Hire a trustworthy, “transparent/pass-through” PBM to mop up the hidden costs and sources of profit flow
- Reimburse employees 100% to buy generic drugs from non-PBM channels like GoodRx and DiRX. Basic consumer shopping decisions can reduce costs by a factor of 10 or more from other retail sources
- Employees become partners in success through deductible incentives by avoiding the PBM formulary list when possible
- Through prior authorizations and consultants working through TPA clinical staff, link the care plan to drug efficacy evidence. Proceed through standard of care step-treatment processes where cheaper drugs may meet treatment needs before escalating to expensive ones
Health Improvement
TPAs can be quite creative with health improvement programs. Lower employee deductibles for assessments, engagement, and achieving objectives can maintain the health of the employee and their covered family over the long term.
- Take a whole-person approach that addresses physical, mental, and financial well-being, not just physical health. This includes integrating mental health services, whole food eating campaigns, and financial wellness resources in addition to physical fitness initiatives11
- One TPA with a novel health improvement program for self-funded employers achieves a 96% participation rate, impacting the root cause of disease and high costs. Employees stay healthier and reduce the escalating costs inherent in chronic disease 12
- For simplicity and to build momentum, one benefits consultant focuses on “helping healthy people stay healthy.”13 Just keeping employees from getting worse contributes a huge improvement to both employee productivity and to flattening the medical expense cost curve
Contain Waste
With transparent claim data access provided by the TPA, self-funded plans can analyze claims to identify areas for cost savings and enact targeted cost containment strategies. TPAs can provide detailed healthcare expense reporting to help the plan understand costs and to tweak health improvement programs and incentives to reduce future expenses.
One outcome of analyzing detailed claims data emerges from reviewing the costs of episodic care across the patient population and against benchmarks. This enables the plan to adjust specialist network tiers with deductibles to steer patients away from high-priced providers with long-episode treatment plans but low success rates. Using their clinical experience, the TPA or employer CMO can review claim records for individual patients to inspect their path through specialists, tests performed, diagnoses, and treatment plans. Where actions seem unjustified across patients, they can flag these providers for further inspection. Specialists with a track record of not improving patients at high cost should be excised as waste from the network.
As medical documentation and billing are complex and prone to error, reviews of many high-priced claims should be undertaken by the TPA and medical staff. For large insurance companies, inpatient claims are untouched by human hands until they top about $100K. That’s a big number to accept on faith by an employer. The probability of material errors is high enough, and the cost of review by a contractor is low enough that a review should be undertaken for all high-priced claims and a random selection of all claims over $5K. In addition to flagging errors and potential abuse, the process data feeds analytics to understand the quality of employee episodic care. This improves care navigation programs and early intervention opportunities.
Steps to Success
To summarize, a self-funded employer health plan can reduce costs and generate healthier employees by taking these steps with their plan advisor:
- Hire an experienced TPA
- Hire a CMO, taking the health plan out of HR. Or, tap into the TPA’s clinical staff
- Formulate a health program targeting company objectives and the unique employee base
- Consider a group captive plan for more purchasing scale
- Align the plan with stop-loss coverage
- Optimize provider network coverage for the employee base
- Hire a transparent/pass-through pharmacy benefit manager
- Manage carveouts
- Commit to a serious health improvement program
- Don’t shy from attacking waste
How We Help
Global A1 RCM has extensive experience serving TPAs as the back office, powering their efficiency and accuracy. Our staff physicians and nurses efficiently fill clinical plan roles. Deep knowledge of medical coding and authorizing claims through the revenue cycle, from running both payer and provider processes, allows us to support TPAs in their service to employer plans. We scale TPAs to competently serve much larger employer plans and network volumes.