Mastering Health Insurance Economics: 20 Ideas for Employers

Written by Joanna Morrow

Joanna Morrow, Principal and Founder of Employer Benefits & Advice, is an employer consultant and advocate who has worked in the employee benefits industry for over two decades. She works diligently to help employers overcome obstacles in their business by sharing her expertise in Human Resources, Benefits & Compensation, Process Mapping, Risk Management and ERISA/DOL/IRS compliance. She is a licensed life and health insurance professional in the State of Arizona and is an active member of the National Association of Health Underwriters (NAHU).

Mastering Health Insurance Economics: 20 Ideas for Employers

If government was in the business of singing sad country songs it might be crooning “The Last Thing I Needed the First Thing This Morning Was to Have You Walk Out on Me”. Although tales of lying, cheating and leaving are best left to Willie Nelson, policy makers need to remember that when they force private sector to fund and execute an otherwise social policy there’s always the risk that private sector will pack its bags and leave.

This week we review the final reason why health insurers have done just that.

At the same time we look at what politicians are proposing that could reduce costs and 20 ideas for employers looking to save on health insurance this renewal.

The Loss Cannot Be Catastrophic

The final principle in review requires that an insurer be able to charge a premium high enough to cover not only claims expenses, but also to cover the insurer’s expenses. In other words, the risk cannot be catastrophic, or so large that no insurer could hope to pay for the loss.

As we have learned over the past 6 weeks, the ACA failed this principle, along with the other criteria listed below that make for efficient insurance.

Criteria for Determining an Insurable Risk

1. The Law of Large Numbers Must Apply
2. The Loss Must Be Predictable
3. The Loss Must Be Due To Chance
4. The Loss Exposures Must Be Randomly Selected
5. The Loss Must Be Definite and Measurable
6. The Loss Cannot Be Catastrophic

Politics & Health Insurance Economics

Last week we reviewed cost saving strategies within the context of health insurance economics – supply side cost-sharing, demand side cost-sharing, non-price rationing and consumer information. I have studied the health care proposals of both Presidential candidates and short of a complete repeal of the ACA, none of the proposed agendas are overly aggressive in terms of addressing health care costs for any of us.

However, there are a few areas that are worth mentioning in terms of their potential to reduce costs for insurers, employers and consumers:

Supply Side Cost-Sharing:

Trump Proposal:
Remove barriers to entry into free markets for drug providers that offer safe, reliable and cheaper products. Congress will need the courage to step away from the special interests and do what is right for America. Though the pharmaceutical industry is in the private sector, drug companies provide a public service. Allowing consumers access to imported, safe and dependable drugs from overseas will bring more options to consumers.

Control Costs for Insurers, Employers and Consumers? YES

Clinton Proposal:
Her plan would legalize prescription drug imports from Canada. She is noted as saying “If the medicine you need costs less in Canada, you should be able to buy it from Canada — or any other country that meets our safety standards”.

Control Costs for Insurers, Employers and Consumers? YES

Trump Proposal:
Modify existing law that inhibits the sale of health insurance across state lines. By allowing full competition in certain markets insurance costs will go down and consumer satisfaction will go up.

Control Costs for Insurers, Employers and Consumers? YES

Clinton Proposal:
Implement and expand systems that pay for an entire episode of care called “bundling”; incentivize doctors and hospitals to coordinate care in an Accountable Care Organization (ACO), so that providers are responsible for offering the best possible care at the highest value to patients.

Control Costs for Insurers, Employers and Consumers? YES

Additional Commentary
ACOs are nothing new, I have clients utilizing ACOs right now. Additionally, the concept of “bundled hospital payments” based on Diagnosis Related Groups (DRGs) has been around for a while and actually originated in the U.S. It has been adopted in other countries including Germany and Japan. Experimentation with other forms of bundled payment such as for primary care and multispecialty clinics is ongoing but not yet as widespread in the US.

Consumer Information & Education:

Trump Proposal:
Require price transparency from all healthcare providers, especially doctors and healthcare organizations like clinics and hospitals. Individuals should be able to shop to find the best prices for procedures, exams or any other medical-related procedure.

Control Costs for Insurers, Employers and Consumers? YES

Market Correction

The ACA created a catastrophic loss for insurers. They have responded as business does by discontinuing non-revenue producing product lines and exiting markets that no longer serve them.

As for the Feds – they’re going to be forced to examine why the ACA failed. It has already started. Democrats are talking about “revisiting a public option” the operative word being OPTION, a sheepish admission that the ACA hasn’t worked and they need to come up with an alternative in addition to the commercial market.

Although articulated slightly differently, Republicans recognize that access to care is largely an issue for the poor, elderly and chronically ill populations, who are best served in programs outside of the commercial market. As an example, House Speaker Paul Ryan and other conservatives have proposed high risk pools that would take the sickest people out of the commercial market and put them into separate, tax-subsidized groups in an effort to reduce and stabilize premiums.

Mastering Health Insurance Economics: 20 Ideas for Employers

As we wait for policy makers to deliver on promises that will address the cost of health insurance, here is a sample of the various economic strategies employers can implement to significantly reduce costs. As we head into renewal season I will be elaborating on these 4 categories periodically in the weeks to follow.

Demand-Side Cost-Sharing:

  1. Contribution Strategy
  2. Copays
  3. Deductibles
  4. Coinsurance
  5. Self-Insurance by employee (Health Savings Accounts)
  6. Self-Insurance by employer (Stop Loss Insurance)

Supply-Side Cost Sharing:

  1. Accountable Care Organizations (ACOs)
  2. Domestic medical tourism – used in self-funded arrangements.
  3. Reference-based pricing – used in self-funded arrangements.
  4. Pharmacy Benefit Managers (PBM) – use in self-funded arrangements

Non-Price Rationing (Utilization Control)

  1. Limited networks
  2. Tele-medicine/Tele-doc initiatives
  3. Wellness incentives/Initiatives

Consumer Information & Education

The most significant, least costly, yet sadly under-utilized area for impacting health insurance costs is through employee education such as:

  1. Online cost-calculators for employees
  2. Medical tourism
  3. Generic Drug Education
  4. Benefit information, open enrollment meetings
  5. Medical bill advocacy services
  6. Medicare Information sessions
  7. Prescription drug calculator tools – visit where you can set your location to find the least expensive retailer for your prescription drugs

If you would like additional information regarding any of the tactics listed above, feel free to email me with your questions or comments.