A Clear Breakdown of Health Plan Costs
It’s a common trend facing employers everywhere: as health care costs go up, health plan costs increase, too. But in the case of many fully insured plans administered by traditional carriers, these premium increases are quite significant year after year. Employers who are confronted with such substantial price hikes often have to pass some of the costs on to employees in the form of increased premium contributions and higher copays and deductibles. These increases are becoming incredibly difficult for all parties to absorb.
Traditionally, self-funded plans haven’t seen such drastic annual increases. Their structure allows transparency in breaking down plan costs by component – from claim costs to administrative fees – so employers know exactly where their dollars are going.
In addition to that, the third party administrators (TPAs) who manage self-funded plans have long been serious advocates of price transparency as it relates to health care costs.
The Value of Price Comparison
In most real-life scenarios, consumers are able to compare prices when shopping for services. This hasn’t been the case in health care, though, as prices by procedure have historically been kept under wraps. The results have been a lack of marketplace competition to keep prices reasonable, “discounts” that still don’t lower charges to a fair amount and the ongoing issue of providers having free rein in charging such exorbitant fees for supplies and services.
TPAs are working hard to address these price gaps as they understand the importance of helping members plan ahead for medical expenses and minimize their out-of-pocket costs. They are encouraging price transparency by:
- Working diligently to educate clients – who, in turn, educate employees – about the extreme cost variations that exist in the health care setting today and ways to make smart buying decisions.
- Negotiating with providers and facilities to determine a set fee schedule for care services to give consumers cost info in advance and a clear picture of what insurance will cover and what it won’t.
- Collaborating with facilities that support the concept of price transparency and list prices for procedures – with all aspects accounted for – upfront. The Surgery Center of Oklahoma is a trail-blazing example with its online list of surgical procedures and costs.
- Introducing employers/members to innovative tools that provide thorough price comparisons when choosing services.
As an example of price comparison tools, many TPAs partner with service providers who offer sophisticated analysis tools to evaluate prices and quality ratings by facility. That’s because what one hospital may be charging for a procedure or diagnostic imaging test (MRI, CAT scan, etc.) can be 10 times (or more) higher at another hospital just a few miles up the road. When taking a closer look, there can be big differences in the level of quality/outcomes, too.
Implementing Reference-Based Pricing
Another transparency tactic more TPAs are now integrating is reference-based pricing (RBP). In the RBP structure, TPAs work with facilities to come up with fair prices by procedure which are mutually agreed upon by both parties. These prices are calculated after considering factors like the Medicare reimbursement rate, actual costs and geographic area.
Based on these prices, employers set a cap as to how much will be covered so that both the plan and employees know what they are responsible for paying and won’t be caught off guard by an unexpectedly large bill.
Read this example to see how employers are saving up to 30% since implementing RBP.
Advocating Price Transparency
TPAs continue to advocate price transparency on behalf of their clients and they are making great progress. Employers who self-fund have the advantage of knowing how much they are paying for all elements within their health plan. They also have the ability to incorporate innovative transparency tools and solutions to help employees see costs upfront and narrow their options in finding high-quality care at the most reasonable prices.