Self-insured employers are playing an increasing role in taking on the status quo to lower costs

As healthcare costs continue to climb and the national spend was close to 18% of GDP last year, employers are looking to self-insure their employees as a way to save money.

Self-insured, or self-funded plans, currently cover an estimated 94 million of the nation's 156 million employees. Nearly 60% of all employees are covered in a plan that is fully or partially self-funded.

In a self-funded plan, employers take on the financial risk of providing healthcare benefits for their employees, as opposed to paying a predetermined premium to an insurer.

This approach saves between 20 and 30% of the cost of a traditional  preferred provider organization, or PPO, plan, according to Kirk Fallbacher, CEO of Advanced Medical Pricing Solutions, or AMPS. This is about $2,800 per employee, per year, in savings.

"It doesn't signal the end of the insurance industry,"  Fallbacher said. However, he said, "On the cost side of the equation, the PPO approach is beginning to come to an end. The costs are outstripping inflation and wages."

The PPO approach continues to ask for illusionary discount off of infinity, he said. As consumerism continues to play a larger role in healthcare, this model is the exact opposite of how we, as a nation, buy stuff, he said.

Employers are adapting by such efforts as dabbling in reference pricing, Fallbacher said. This is a system in which an insurer or other payer selects a price it is willing to pay for a healthcare service or procedure.

Insurers are growing by expanding their business models into other areas, such as the pharmacy space and acquiring physician practices and hospitals, he said.

CVS Health merging with Aetna is one example. UnitedHealth Group has been acquiring physician practices around the country, including Optum's purchase of DaVita Medical Group, which closed in June.

And everyone is waiting to see what Haven will do to further disrupt the current model of paying for healthcare. Haven, the healthcare company founded by Amazon, Berkshire Hathaway and JP Morgan Chase and headed by CEO Atul Gawande, was established to bring together the resources and capabilities of the three companies to create better outcomes, satisfaction and lower costs, according to the company's vision statement.

Its focus is on the combined companies' one million-plus employees and their families but, "In time, we intend to share our innovations and solutions to help others," the company said.

WHY THIS MATTERS

Self-funded employers are playing an increasing role in taking on the status quo as they and their employees face higher healthcare costs.

Claim expenses are claim expenses, but costs can be reduced in other areas, Fallbacher said. Of the typical insurance dollar spent, 21 cents is on just reserves -- the money set aside by insurers to pay policyholders who have filed or who are expected to file claims -- and 12 cents goes to administration, he said. This is in comparison to the self insured market, in which administration accounts for 5 cents of every dollar. Ninety percent of the dollar goes to paying claims.

SAVING MONEY

Fallbacher recommends four steps to saving money.

Employers should start by moving to a self insured plan to give them more control over benefits and employee incentives. Self-funded plans in AMPS portfolio range from 35 employees to 80,000 employees.

Secondly, review healthcare bills  as any other bill in the business. Close to 90 percent of bills contain errors, Fallbacher said, citing Centers for Medicare and Medicaid Services analysis.

Step 3 is to reduce charges by more than 70% by combining medical bill review with a reference-based pricing approach.

"Our company looks at what Medicare would pay," Fallbacher said. "We add in 50 to 90% more, because we think it's a fair price to the provider."

Step 4 is to add employee incentives to encourage consumer behavior such as not procrastinating on care by waiving monthly premiums during the holidays.

THE LARGER TREND

Earlier this month, a class action, antitrust lawsuit brought by self-funded employers, a union and California's Office of the Attorney General was settled against Sutter Health for an undisclosed amount.

Sutter Health, one of the largest, if not the largest, health system in Northern California, was sued over allegations that it abused its market power to overcharge patients. California Attorney General Xavier Becerra said Sutter was "throwing its weight around" in having prices that were higher than if it had been in a competitive market.

Healthcare costs in Northern California were reportedly 20% to 30% higher than in Southern California.

ON THE RECORD

"Almost 100 million employees covered through self-insured plans not only represents a staggeringly large market for healthcare cost containment, it is an extraordinary opportunity for America to meaningfully reduce our national healthcare bill," Fallbacher said.

Twitter: @SusanJMorse
Email the writer: susan.morse@himssmedia.com