Benefits of Self Funded Health Plans | How to Lower Your Organizations Health Care Costs and Increase Quality
Mark Fox is a consultant that manages the supply chain for self-funded health plans. Employers love working with Mark because he sits on the same side of the table through aligned incentives to lower cost and increase quality. He literally puts 100% of is his fees at risk through guaranteeing his results. No one in the industry does that!
He finds millions of dollars of trapped capital for companies all over the country. The money is usually tied up in one-sided contracts that provide no value to the employer or employee. The employer doesn’t know that many of these contracts even exist. Replacing these contracts with aligned incentives is the name of the game. Only 10% or less of employees drive 80% of claims costs. So, you are only focusing in on those that need the care to effectively move the needle.
“Healthcare isn’t broken. It’s working exactly as intended. It just doesn’t work well for the payers and consumers of healthcare. Employers are in the healthcare industry whether the realize it or not. Their health spend is typically the 2nd or 3rd highest expense on their P/L yet they do nothing to manage the risk. Benefits brokers mean well by shifting the risk, but they do not know how to manage the underlying issues. When employers start treating their healthcare spend like a business unit that’s when they get an ROI from what should be viewed as an CapEx not an OpEx. Warren Buffet said, ‘GM is a health and benefits company with an auto company attached’. He said this because GM spends more on healthcare than they do on steel. Starbucks spends more on healthcare than they do on coffee beans! It’s time to be true consumers of healthcare by managing the supply chain.” – Mark Fox
Mark has been featured in the industry’s top publications and a key speaker for their events including: Benefits Pro, Employee Benefits Adviser and America’s Benefit Specialists. He also won the Rising Star award from EBA Magazine in 2018.
To learn more about the Benefits of Self Funded Health Plans and How to Lower Your Organizations Health Care Costs and Increase Quality, Check out one of Mark’s articles here, “Healthcare Isn’t Broken!”
Employers need to lower the frequency and severity of healthcare claims. But in order to do so, employers must first understand that the healthcare system is not broken. It was deliberately designed this way. It is operating exactly as intended. Don’t believe me? Just look at the stock prices of the top 4 healthcare insurance companies. Since Obamacare was passed in 2010, they’ve had a 400%-800% stock price increase! It’s no secret we spend an unsustainable 18% of GDP on healthcare, but where does all that money go? Once an employer understands the answer to that $3.5 Trillion question, they can finally reverse the trend of healthcare costs. Notice I didn’t say insurance premiums are the problem. Why? Because health insurance cost is directly related to the cost of healthcare. However, Healthcare is not related to the cost of insurance. Plainly put, for employers to control the cost of health insurance, they must control the healthcare supply chain. They do this in every other aspect of their company, but ignore healthcare? Starbucks isn’t in the coffee business. They are in the healthcare business because they spend more on healthcare than on coffee. Also, General Motors spends more on healthcare than steel. An example list like this could continue forever.
Let me put this reality into a visual aid for you. I go into a casino and lose a million dollars in the slots. I’m now pissed and my wife would literally put me in the dog house. However, I return a month later and decide to give it another go. This time I’m going to play a table game in hopes that will change my bad luck. I end up losing another million dollars. This continues every month for 10 years. I tweak my strategy every month and have glimmers of hope but ultimately still end up a looser. Then someone explains to me that it doesn’t matter which game I play because the entire casino is designed for me to lose. It started with the flashy lights and water cannons that I saw from the interstate. The only way for me to truly beat the house is to not play their games. This is exactly what employers are doing with their health plan. It is typically the top 2nd or 3rd line item on the P&L. They may tweak their strategy year after year, but they still end up a looser.
The first step to controlling the healthcare supply chain is to reverse the effect of the MLR law that was passed in 2010. The Minimum Loss Ratio law caps health insurers’ profit to 20%. If you run a publicly traded company, but are federally regulated to a 20% cap, how do you increase profits to keep shareholders happy? You artificially raise prices on the underlying product and service.
So ask yourself, who benefits when the price of healthcare goes up? Well, we’ve already established that health insurance companies benefit. However, we can also add to that list hospitals, doctors, third party administrators, pharmacy benefit managers, pharmacy manufactures, wellness vendors, employee benefits brokers and many more. So, if all these entities make money when costs go up, what incentive do they really have to cut costs for employers? The answer is none. You see, healthcare isn’t broken, it’s working exactly as designed, just like the casino. Stop playing the healthcare game. You will not beat them. They invented 3 card monte. However, employers hold the purse strings which means they have leverage. They just need guidance on how to use that leverage.
For some more bad news, this trend isn’t going to stop anytime soon. Let me give you a 30,000 foot view. Medicare/caid generates $470 Billion in revenue for hospitals across the U.S. However, it costs hospitals $540 Billion in expenses to provide treatment to those patients. That’s a 15% or $70 Billion loss. On the other side of the healthcare world, commercial health insurance generates $505 Billion in revenue for hospitals in the U.S with a COGS of $322 Billion. That’s a $183 Billion or 57% over payment to hospitals. Its widely recognized that hospitals subsidize their Medicare/caid losses with patients who have commercial health insurance. Here is where things get worse. The U.S. Government expects a 3% increase in Medicare enrollees each year through year 2030. That brings the current enrollment number of 55 million to 81 million. Since the enrollment numbers are going to increase, that means hospital losses will increase which means they will need to subsidize those losses by increasing prices to patients with commercial health insurance.
Hospitals making profit is a good thing. We need hospitals to stick around. However, it should be done on a free market basis where price and quality are transparent. Healthcare is the only thing in America that is not in a free market. We spend 30 minutes on Amazon trying to save ourselves $20. Yet, when we need a knee replacement, why don’t we shop for a high quality, lower cost surgeon? When we say that out loud, we nod our head in agreement but then don’t change our behavior. How can we be a consumer of anything in this world if we don’t know the quality or price of what we are buying? In healthcare, high price doesn’t mean high quality. It usually means the opposite. Take a look at COE’s or Centers of Excellence. They specialize in specific procedures and do high volumes of them. This makes them very efficient at those procedures which increases quality and decreases cost. A good consultant can guide employers with quality and pricing metrics.
When it comes to the Benefits of Self Funded Health Plans, we haven’t even mentioned the effect the employees feel. I’m sure everyone in the HR department is begging for someone to say something. Let’s briefly talk about it. 58% of American’s have less than $1,000 set aside for emergencies. Yet the average single and family deductible is $2,100. So, for employees to use their health “benefits”, they must drain their savings and go into debt. This makes employees scared to use their health insurance. This usually delays needed care and, as a result, creates a bigger claim down the road. 43 Million American’s have unpaid medical debt and 60% of those had medical insurance. How is this an employee benefit? Most employers are paternalistic but how do you convey that to employees with a health plan that leaves them with no savings and more debt?
Since the future looks bleak, how do employers control the supply chain of healthcare and reverse the effect of the MLR rule? The employer must align itself with consultants and vendors who are financially incentivized when the cost of healthcare goes down. Does this actually exist? Yes! However, there are very few consultants that align their interests with employers’. Most health plan consultants don’t know how to lower the cost and frequency of claims. Sure, they know how to shop your stop loss insurance, insert telemedicine, population health management, screenings and wellness programs that supposedly reduce claims. Yet, employers are still met with a “less bad” benchmark increase which is draining the American dream. Or even worse, the insurance company gives them a refund and masks it as a good thing. Many don’t realize when a major medical insurance company issues a partial refund, that was because the employer over paid and then over paid some more. The insurance company couldn’t figure out how to spend the money without it counting as profit and thus were required by federal law to give you a partial refund. That’s like saying a 5-year-old returned candy to the candy store because they couldn’t figure out how to eat it all.
Employer’s need help. Most can’t change on their own. There are about 100 independent consultants in the country that truly understand how to navigate the cost of healthcare. They can execute a plan that increases employee engagement, morale, health and financial well-being while reducing healthcare spend. The good news is that the number of these consultants is growing. They only align themselves with vendors who are financially incentivized to lower healthcare costs for employers and employees. They are not a replacement to your current broker. These consultants typically work as a bolt on to your current operation and will not accept any compensation from vendors they bring to the table. The only compensation is a consulting fee to the employer. They may put some or all their fee at risk through a guarantee to the employer. Employers who are paternalistic will see the value of aligned interests and take action.
Hope you enjoyed Mark’s article and it helps you to re-frame what you know about “healthcare” today. May it not only help you better understand the Benefits of Self Funded Health Plans, but bring a savings to your bottom-line and enhance your organizations quality of benefits, and wellbeing!
Helping You Ascend,
For more information or to start a conversation with Mark, check out these important links:
Mark Fox | Executive Healthcare Consultant
1900 Crestwood Blvd, Suite 110, Birmingham, AL 35210
PH Direct: 205-951-4422 / Cell: 251-300-9913