Thought Leaders for MCOL Members

Perspectives on a Selected Key Topic      |     February 2011/March 2011     |   Volume Two Issue Seven

 
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Today's Topic
Will the current health reform and marketplace environment drive more employers toward, or away from self-insurance? What unique challenges or opportunities are self-funded employers facing in this environment?
     
Thought Leaders
 
Doug Hastings
 
Ted Nussbaum
 
Chair of the Board of Directors of Epstein Becker & Green, P.C.

It is difficult to predict what employers ultimately will do regarding employee coverage overall, given the current political uncertainties and the different impacts on employer costs that various possible federal and state actions might have. However, the wider acceptance of evidence based medicine and accountable care concepts in both the public and private sector are likely to cause employers to focus more than ever on outcomes, patient satisfaction and cost efficiency and explore the best ways to achieve not only better care, but also better employee health, at lower costs. This may lead more employers to go the self-funded route to allow greater flexibility and innovation in managing employee health care.

The opportunity for self-funded employers is to benefit from the latest thinking on changes in payment systems to move to more value-based payment arrangements, as well as to access new provider entities—accountable care organizations, medical homes, community care networks, and others—to innovate and experiment with new care models. A key to all this is whether a new generation of relationships between self-funded employers and providers, perhaps with payers playing an enhanced administrative role in quality and cost measurement and reporting, involving new risk-sharing payment models that can work for all parties, including an engaged employee, are possible. The promise is there, given new technological capabilities, reasonable consensus around a core set of measures and the ultimate knowledge that the cost trajectory is unsustainable. Among the pitfalls would be a lack of patience to allow for the testing and fine tuning of new models, the failure of employers, payers and providers to willingly collaborate and the failure to truly engage consumers of health care in the process.

The promise is there, as are the pitfalls. The rewards of success in terms of better health and lower costs are very high, and failure would have dire consequences. Employers will play a very important role.

 

 
Peter R. Kongstvedt, MD, FACP
 
 
Principal, P.R. Kongstvedt Company, LLC    
 

Until all of the ACA's provisions go into effect in 2014, all of the market pressures pushing employers toward self-insurance will only increase: avoiding premium taxes, avoiding state-mandated benefits, keeping any underwriting gain, negotiating rock-bottom administration fees and the ERISA shield. Some of these will remain in effect even in 2014 and beyond, but other changes may result in mid-sized groups who had gone to self-insurance, returning into the insurance pool for one simple reason – reinsurance is not health insurance. Health insurance is regulated as a unique form of insurance, including some special rules and regulations around underwriting, coverage and exclusions. Reinsurance, however, is a straightforward form of financial insurance and is regulated as such.

What many midsized employers discovered is that reinsurers can exclude or sharply reduce coverage on individuals or on individual medical conditions. For example, a reinsurer could put into place a low level of coverage for transplants. A health benefits plan however, cannot make such exclusions under ERISA, whether it's insured or re-insured. This is a practice that is called "lasering," and it means that employers find themselves having to pay the costs of certain very expensive cases without getting a reinsurance recovery. In such cases, the employer cannot easily return to insured products since they are subject to underwriting. Under the ACA however, health insurers will be required to issue a policy to any group that requests it, regardless of underwriting. For employers in that situation, the good news is that they will be able to get health insurance and coverage for the "lasered" conditions. The bad news is that health insurers will still be able to experience rate, meaning they will be able to get coverage but it's going to cost.

I think there's a real possibility that beginning in 2014, we will see the health benefits universe divide into two or possibly three segments: large groups that self-insure, small and midsize groups that purchase insurance, and the individual market. It is possible that payer organizations will segment themselves along similar lines. The only difference being payers that specialize covering both insured individuals and those who receive Medicaid benefits.

 

 
Vince Kuraitis, JD, MBA
 
 
Principal, Better Health Technologies, LLC   
 

Trends in the marketplace over the past decade have already driven many employers to self-insure. Overall, employers will continue to migrate toward self-insurance, but there are a number of wildcards at play.

Employers have been asking and will continue to ask a central question of health plans: "How are you (the health plan) adding value by controlling employee health care costs and improving quality?"

Many employers have not been satisfied with health plan answers to this question. In turn, many employers decided to self-insure and/or reluctantly took back control over some or all of medical/care management of their workforce.

Due to health reform, the health plan business model of the past decade -- avoiding risk and consolidating the industry -- needs to be reformulated. It's not yet clear how health plan business models will evolve over the coming years, but the employer's question of "How do you add value" remains the same.

Here are some areas to watch:

  • Can health plans reformulate business models to something that is seen as value-added by employers? and then can they deliver?

  • Can health plans reestablish collaborative relations with care providers (doctors and hospitals)? ...or will health plans invoke anti-trust wars?

  • Will ACOs develop capacities to cut out the middleman (the health plan) and contract directly with employers?

  • Can ACOs develop effective medical/care management services?

 

 
Henry R. Loubet
 
john_09
 
Chief Strategy Officer, Keenan
 

We believe the health care reform movement and marketplace environment will drive more employers to self-insure. Self-insurance provides employers with a greater ability to control claim costs through creative plan design, the identification and utilization of high quality, cost-effective provider networks, and wellness and population health management programs that achieve genuine results.

Although self-funded employers are not immune to health care reform, a proactive and thoughtful approach can mitigate reform's more negative implications.

Of course, self-funding will only be effective for those employers that believe in the importance of a strong, employer-based benefits program, and that maintaining a benefit program is a differentiating factor to attract and retain a quality workforce. For employers not so inclined, the coming exchanges may be a better fit for what is likely to become even more of a defined contribution, "health care as a commodity" based environment. The prevalence of self-funding may very well be determined by industry segment.

Certain provisions in PPACA could exert an upward pressure on fully-insured premiums, making self-funding a more attractive option for some. Beginning in 2014 insurance carriers will be subject to billions of dollars of federal "fees" based on their net premiums written in the U.S. This is in addition to any premium taxes carriers may be subject to in each state. The ultimate impact of this and other provisions in PPACA on premiums remains to be seen, but could certainly raise the cost of fully-insured plans for employers.

The ongoing cost of conducting comparative effectiveness research will come from the per person fee on health insurance plans (including Medicare) to fund the Patient-Centered Outcomes Research Trust Fund. How this will apply to self-funded plans, and the mechanism for accounting and remitting fees, could also add another administrative burden for self-funded plan sponsors.

 

 
Cyndy Nayer
 
 
President/CEO, Center for Health Value Innovation   
 

We have just completed our 2nd survey of the marketplace for Value-Based Designs. I want to be clear, I am NOT only responding through a value-based lens. But I can reference the survey, available on our website (www.vbhealth.org) and you'll find more info than I can write here.

The market is moving faster into self-insurance, as we had predicted. The movement in the under 1000 covered lives--all the way down to 100 lives and a few even smaller, is quite astonishing. Employers understand the need for helping to manage "repairs" in their workforce, much as they manage hardware or software repairs. They understand that maintenance and upkeep is part of the viability of the business. In this respect, they are promoting health and wellness at a more rapid clip than ever, and, for some, this builds the competency to manage access and affordability for some other conditions and diseases that they once shied away from, such as diabetes, high cholesterol, hypertension, musculoskeletal issues--these are contributors to lost workdays and compromised productivity. Some of these employers are gaining ground by wrapping behavioral health services into their portfolio quickly, as they have learned well from the pioneers in health and performance management. In this era of reconstruction as a remnant of the recent economic downturn, and in the era of economic turmoil at the public entities (unions, cities, counties and states), private businesses are learning quickly that providing incentives to manage down the risk of their populations is much cheaper than replacement or high-incidence repair.

But the mention of the unions and governments (as employers) brings up the other side of the issue. In these entities, the overwhelming burden of pensions, before health benefits, coupled with the past few years of lower tax revenues, is causing very public pain, such as we are seeing in Wisconsin, NJ, CA, and here in Florida. Immediate economic relief is causing some of these organizations to take drastic measures of layoffs, cost-shifting, and more. Add to that the burden of health insurance reform, in which policy makers also have to create or manage the runway for deployment of insurance exchanges, data exchanges, and still more, and the burden becomes heavier still. Some of these folks are fully-insured, so their ability to maneuver through the health care maze is compromised by lack of real data; some are self-insured, so they have the data, but not the funds; and some are union/Taft-Hartley plans that must manage the total welfare of their populations, most painfully at the intersection of pension v health benefits.

Getting budgets under control is primary to the survivability of our economic structures in these public entities, just as it is in the private sector. Managing a budget, and making choices that produce a predictable budgetary trend, is imperative to economic recovery. While most of America does not think about cities, counties and states as employers, of course, they are. So how they face their challenges and move forward will be quite a rocky road, at least through 2nd-3rd quarter. At that moment, the political races will gear up, and we'll see what parts of PPACA will remain, at least in the short-term, and which will rapidly be pulled apart. Should be quite an interesting next 6 months!

 

 
Michael J. Thompson
 
Ted Nussbaum
 
Principal, PricewaterhouseCoopers LLP

 

Self Insurance will continue to be the predominant financing approach for large employers and increasingly become more attractive for mid-size and even smaller employers. While the trend has already been strong in that direction, new insurance taxes and market reforms may cause even more employers to examine self-insurance as a way to mitigate costs.

At the same time, self-insured employers may be more inclined to reinsure their large claims due to benefit mandates eliminating lifetime maximums and raising annual maximums. Health reform has also made compliance an increased area of focus and burden for self-insured employers.

 

 
William J DeMarco MA, CMC
 
john_09
 
President and CEO, Pendulum HealthCare Development Corporation
 

What we are experiencing in bringing together private payers and providers are concerns about the patient’s expectations and role in health care delivery. This has been a long time coming. While many employers are remaining self funded and others are considering a move away from the traditional insurance programs of discounts and networks into their own networks and funding arrangements through coalition purchasing, we come back to the fact that the patient is rarely using the system correctly.

At one end of the spectrum you find patients simply refusing to see their doctor and refusing to take care of themselves. They are chronically late or absent due to general illnesses they or someone in their household has and are considered the wounded well at the office, and are seen as carriers of disease. Despite the boss's best efforts to encourage them to work hard, coworkers wish they would just stay home so they do not contaminate the office and get others sick. At the other end of the spectrum are the abusers. They are constantly in emergency rooms claiming to be seriously ill, and often times set a bad example for others when wrestling with claims that are unpaid or, at least, paid only 80%, because they refuse to follow in network and out of network rules.

This affects providers’ attitudes when they think of risk. When physicians believe they may be at risk for a sicker population or a population that only sees the doctor when it’s a last resort, then we see providers unwilling to accept any kind of risk from the employer’s plan.

When considering risk management in 2011, employers and providers are seeking a better way to bridge differences through benefit design, covering preventive services to assure early detection, and collaborating with the unruly patient to get them to see how their behavior is starting to cost more money than it should.

We believe that as Accountable Care and high performance doctor groups emerge, private payers will remove their insurance networks in favor of direct contracts with provider groups who are willing to help coordinate patient care and resolve episodes of care in a predictable manner. Employers will begin to focus more attention on buying benchmarks instead of just benefits. And this may lead to following the ACO model of bundled payments, sharing savings with those physicians who make a difference.

We are also seeing the activity surrounding disease management being replaced by health coaching. This addresses these two extremes of behavior in a way that takes the solution out of the workplace and truly brings the responsibility for good health back to the employee and their family. When insulating populations of patients and providers through a shared vision of the employers and ACO, we can see where risk and reward changes and lifestyle behavior becomes a shared vision for patient, physician and employer.

 

 

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