The Future of Employer Sponsored Healthcare Plans Is Cost Management

The one-to-five-year outlook for employer-sponsored health plans is that of continued inflation, increased medical expenditures and increased costs to members and their financial liability.

Christine Cooper

New federal legislation will add insight, protection and fairness, but the No Surprises Act and Health Care PRICE Transparency Act will also add to costs. Compliance with the new legislation may prompt employers nationwide to reevaluate coverage and change benefit strategy.

The problem

Many, if not most, employer-sponsored HMOs/PPOs offer a more generous level of coverage than is needed for the majority of participants. Employer and employee contributions increase more rapidly whenever employers attempt to continue a high level of coverage by maintaining current point of purchase cost sharing (deductibles, copayments, coinsurance). Maintaining a high level of coverage makes employees ineligible for the country's most favorable tax preferred benefit, the health savings account. And that ever- increasing employee contribution makes it difficult for most Americans to save for out-of-pocket costs when they arise.

The solution

Opportunities exist for plan sponsors and members to adopt a new strategy, one that is not focused on reducing coverage and services in an attempt to contain costs but one that is a more proactive strategy of cost-management.

Changes will involve reevaluating data relating to traditional health coverage to reconsider and reshape levels of employer financial support. Adding tax-preferred savings, perhaps with an employer match, can prompt employees to accumulate assets so they are prepared to shoulder out-of-pocket costs. Accumulating savings are a necessary component of a successful financial wellness strategy.

The employer sponsored health plans that decide to respond strategically will experience a noticeably different short- and long-term future.

The strategies

Rising inflation and its effect on healthcare costs and spending has put price transparency in the spotlight. As of January 1, 2021, the Centers for Medicare and Medicaid Services (CMS) mandated that U.S. hospitals provide clear, accessible pricing information online about the items and services they provide. Greater transparency confirms that significant price variations exist across hospitals and providers for standard medical procedures. To mitigate this, many self-funded health plans have adopted a reference-based pricing (RBP) strategy.

Designed to moderate excessive hospital costs, RBP establishes a benchmark fee schedule and payment ceiling instead of negotiating fees with a provider network. Plan sponsors and participants benefit from the consistent application across all providers and health networks. There is, however, a potential risk to RBP that health plans need to be aware of.

The adoption of the No Surprises Act, designed to protect patients from unexpected medical expenses, has been delayed by litigation seeking to clarify elements of the legislation, particularly elements of the independent dispute resolution (IDR) process. The IDR process currently remains unresolved and is subject to a temporary good faith compliance standard while issues are sorted out.

Pure RBP plans should remain unaffected by this rule. That’s because there are no out-of-network claims nor is there any determination of a median in-network rate.

Adopting a pure RBP plan puts the patient in the driver’s seat as a health care consumer and is the most effective way to respond to the legislation.

Just as important, deploying RBP may avoid unreasonable or excessive provider charges, potentially lowering both the cost of coverage (employer and employee contributions, over time) and employee point of purchase cost sharing (deductibles, copayment, coinsurance).

Financial fragility

Given the wide variation of provider charges for the same services, without any difference in quality, a pure RBP design offers an opportunity to avoid excessive and unreasonable provider fees and charges to reduce eligible expenses that will, in turn:

• Immediately lowers participant out-of-pocket costs
• Lowers the cost of coverage, today and in the future - lowering employer and employee contributions

Rise In healthcare consumerism

To be an effective healthcare consumer, participants need advance, accurate information regarding provider and hospital fees as well as out of pocket costs. The advance explanation of benefits provision in the No Surprises Act is expected to increase consumerism: the Advance Explanation of Benefits. Consumerism brings an opportunity to engage and improve participant understanding of the explanation of benefits and financial provisions of health coverage. This education and insight have the potential to transform an employee’s health plan, increasing the employee’s economic purchasing power and improving the employee’s decision-making.

This empowerment is especially important in today’s economy. Many workers are “financially fragile," unprepared for the “unexpected”. Many have not set aside savings specifically earmarked for out-of-pocket medical expenses, including regular cost sharing — deductibles, copayments, coinsurance.

HSAs as a cost manganagement tool

For plan sponsors, the least burdensome option to help build health care savings is through a health savings account (HSA) strategy. HSAs are like personal savings accounts, that qualify for tax preferences. Where people have HSA savings, costs are often lower, without a reduction in care because people will spend their health care dollars more wisely if they’re using their own money. HSAs have evolved to become part of a “health and wealth” rewards strategy.

HSAs offer tax-preferred utility capable of quadruple duty.

HSA funds pay for eligible health care expenses and for out-of-pocket costs a health plan doesn’t cover, as well as retiree medical premiums and out-of-pocket expenses. They can also provide tax-favored retirement income and survivor benefits. HSA assets receive America’s most valuable benefits tax preferences – contributions are pre-tax for federal income tax purposes, same for most state income taxes, as well as FICA (Social Security) and FICA-MED (Medicare).

Accumulated earnings grow tax deferred and payouts for eligible medical expenses are tax free. As compared to flexible spending accounts (FSAs), more medical expenses qualify with an HSA and there is no “use or lose” or forfeiture provisions. Unspent money rolls over end-of-year, available for quadruple duty!

Medical billing partner

Today, employer-sponsored health plan members benefit from billing partnerships that provide data insights through software and data-driven solutions. Real-time price information of the true cost of care enables plan sponsors and members to make the most advantageous cost-benefit decisions regarding care options.

The right medical billing partner will be an agent of change, embracing innovation and advocating for “what is fair and just.” The right partner will also provide value-added services through turnkey solutions, innovative plan designs, administrative and compliance support, as well as legal representation of participants. This support can provide invaluable guidance to navigate new federal and state healthcare regulations, identify areas to lower risk, reduce costs, and maximize value and returns on cost savings.

Christine Cooper is CEO of aequum LLC.