Now more than ever, employers of all sizes are looking for opportunities to improve their balance sheets by reducing or eliminating unnecessary expenses. Some have cut staff, closed facilities, or cancelled planned investments. Given that health benefits are often an employer’s second largest expense after wages, this year is a prime time to consider reevaluating your benefit plan strategy.
Many employers and HR leaders are understandably skeptical about making major changes to their health plan during the most significant health crisis of our lifetimes.
With so many doing all they can just to keep their doors open, additional benefit communications and enrollments may seem like an unnecessary distraction at best, if not a critical threat to employee morale.
However, if you can find the time for a deep dive on health plan strategy, it may be possible to achieve savings for both the plan sponsor and participants without rocking the boat too much.
Among employers with 50 or fewer employees, moving from a fully insured to a level-funded health plan is one of the most popular cost-reduction strategies in recent years. In this market segment, non-grandfathered health insurance plans are required by the Affordable Care Act (ACA) to offer the same age-based rates to all employers in a given area, regardless of the group’s risk profile. Level funded plans avoid this requirement by assigning the risk for paying claims to the employer, rather than an insurance company.
With a level-funded plan, the employer is protected from unexpected large claims by a stop-loss policy and can keep some or all of the unused claims fund at the end of the year if claims are lower than expected. Implementing a level-funded plan may require employees to provide health histories for themselves and their covered family members. If the health histories indicate that claims are expected to be higher than average, this may not be a more attractive option than the ACA community-rated fully insured market.
However, for employers with a healthy population, moving to a level-funded plan can produce savings by making behind the scenes changes that will not necessarily disrupt plan design or provider access. In fact, the savings potential of level-funded plans is so great that even some mid-market employers (which are not subject to the ACA’s community rating requirement) are adopting this model.
Reference-based pricing is a separate cost-containment strategy available to self-funded and some level-funded plans that achieves savings not by changing who is responsible for paying claims, but by limiting the amount that will be paid to providers.
Most traditional fully insured, level-funded and self-funded health plans rely on a network of providers who agree to discount their prices for plan participants. This means that as long as the patient stays in-network, the plan will not owe the highest price the provider would charge an uninsured patient. Yet it also means the plan has no control over what that underlying list price will be.
Further, network-based plans provide no protection from excessive prices charged by non-network providers who are not subject to the network’s reimbursement contract.
In contrast, a reference-based pricing structure generally does not use a provider network or pre-negotiated reimbursement contracts. Instead, patients are free to see any provider and the plan offers to pay the provider or facility a fixed amount, usually a multiple of what Medicare pays for the same service.
This can be more disruptive for employees than a network-based plan because providers can “balance bill” the patient for the difference between the list price and the reference-based price.
There are many other important details that an employer must understand before committing to a level-funded or reference-based pricing strategy.
Nonetheless, with the help of a highly-qualified benefit professional it is possible to improve your health plan even in these challenging times.