The biggest issue for health care today is that there's limited transparency into the cost or quality of care. If we know that an insurance premium — whether it's for auto, home or health — is built primarily off the cost of claims, then it seems obvious that the objective is to reduce the amount of fender-benders, basement water damage and costly medical treatments.
The Healthcare Cost Institute outlined that health-care spending is up. Way up. That's because prices are up for treatments, doctor visits and prescription drugs, while usage has remained flat or going down in many instances. If you look across the world in terms of industrialized countries, the United States has the highest prices for health care by far, and not nearly the best quality. So we have a problem, and it's crushing consumers.
That problem is driven by a complete lack of transparency, particularly on the price side. So it's imperative to talk about prices.
Over the past nine years, employee out-of-pocket spending for a family of four increased 69 percent in the form of higher co-pays and higher deductibles, along with 105 percent employee premium contribution growth. Over the same period, employer premium contributions increased 62 percent.
In 2008 more than 8 percent of a family's income was spent on health care. In 2015 (last available data) it rose to 12 percent. This means people are making less money today as a direct result of the cost of health care.
Here are four ways to slash the cost of health care in America — that health insurance companies don't want you to know about.
By refocusing employers on the destination, it's much easier to overcome the perceived issues of the journey. The bigger message to challenge employers and their employees is that health-care costs are a simple function of frequency of claims multiplied by the unit cost of those claims. The item that many people continue to struggle with as it relates to their health insurance are the premiums (fully insured or stop loss for self-insured) derived from the claims and per unit cost. Control these two items and you finally control the health-care expense. Yet misaligned incentives dictate that not one entity that's charged with 'controlling' the health insurance premium are talking about these two items — not the health insurance carriers, not the traditional broker/consultant and not the pharmacy benefit manager.
The Employee Benefit Research Institute highlights that more than 150 million consumers obtain health insurance coverage through their employers, almost 60 million of them on a fully insured plan, where a company pays a monthly premium for its health insurance. The balance is covered under a self-insured plan, where the company pays the employee's health claims directly.
If the fully insured carrier lowers the company's claim costs due to the Medical Loss Ratio requirement that is part of the Affordable Care Act, the carrier would have to lower their premiums next year and/or offer premium rebates, which would upset shareholders and upper management, whose main job is to drive premium growth. Since most health insurance brokers get paid a commission based on a percentage of the premium paid, most brokers have a financial incentive to allow the premium to increase and therefore the underlying claims. The higher the health-care spend, the more money made by the parties surrounding the health plan.
Focusing on frequency and per-unit cost is a function of managing the health-care supply chain. This paradigm shift is available for any group that chooses to pursue a self-funded or level-funded (self-insurance with stop-loss built in, then divided into 12 equal monthly installments to feel like a budgetable premium) arrangement, as employers pay only for the health claims their people consume. By managing the supply chain — which is the actual cost of the items utilized, like office visits, surgeries, imaging, hospitals and prescription drugs — consumers can pay attention to the cost and quality of each unit of health care by shopping around, using readily accessible online tools, then collectively are able to lower costs together and improve the predictability of outcomes.
Telemedicine allows doctors to evaluate, diagnose and often prescribe patients at a distance by phone, email, text or video. The approach has been through a striking evolution in the last decade, and it is becoming an increasingly important part of the American health-care infrastructure. Net cost savings for these remote consultations is around $200 per visit.
If employees are armed with education and the information they need, coupled with incentives, like waived deductibles or co-pays to drive action, the rewards are lower employee contributions or, in some cases, no employee contributions, along with profitability increases for employers. Reduce the health-care costs and you reduce the health insurance costs for all.
In 2016 an automotive dealer with 600 employees was exhausted from having received another 25 percent health insurance premium increase. With little explanation or understanding as to the rate hike, the employer was unwilling to raise its employee's deductibles a third year in a row. Instead, the company decided to shift gears and level-fund their health plan. In 24 months the company saved $4 million. In the car business, with profit margins of $1,000 per new car sold, that's like selling an additional 4,000 cars. As a result of the total plan savings on renewal, the employer reduced the employee's contribution by 20 percent, an average savings of more than $500 a year.
Understanding the causes of the underlying problem within the economics of health care finally unleashes the power to provoke real competition. Consumers and companies now armed with the right tools have the ability to build a better health plan at a much lower price point.
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