When three unrelated powerhouses like Berkshire Hathaway, J.P. Morgan and Amazon agree to work together towards a common goal—in this case controlling healthcare costs—it’s probably something to which we should pay attention. And many have asked what we anticipate to be the area of focus for this partnership.
Before I begin, let me first make this point: insurance costs are high because the cost of healthcare is high. The reasons for which are not the scope of this article. However, to say health insurance is the reason healthcare is expensive, is the equivalent of saying auto loans are the reason automobiles are expensive. Health insurance is merely a means to finance healthcare costs.
Controlling the cost of healthcare is fundamentally no different than controlling the cost of anything else. There are three components: unit cost, quantity and quality. The problem in healthcare up until recently is we really haven’t been able to know, let alone control cost and quality. As far as quantity, the only way to control that has been to avoid care, which can potentially cause or create bigger issues and costs down the road. Accessing and navigating the complex healthcare provider world can be daunting even for people who work in the industry, much less the average person who really knows nothing about the industry and all the lingo. The good news for all of us is that there are many things you can do to manage and control costs. Some are simple and easy to implement, and we will address those first. Others are more complex and may require changing the way you finance healthcare.
Back to the Berkshire, J. P. Morgan, Amazon (BMA partnership) and what they are likely to focus on. We believe they will address many healthcare issues but based on what we know, it’s likely they will focus on cost and quality for sure (medical and pharmacy). Healthcare is one of the few markets where you don’t know the price and quality of what you are buying until after you have bought the service or procedure. Many believe that increased transparency regarding cost and quality would help. The issue is, most consumers would not really understand how to use that data correctly even if they had access to it. An interesting fact is that the BMA partnership’s new COO was a founder of a company that provides care-coordination services that can drastically improve the results of transparency tools. (more on that later).
First Steps – Employee Level
It starts with things your employees can control. Some of these have been preached for years but they fell upon deaf ears when the only pain to employees were low co-pay’s. Now that most health plans have higher deductibles, the financial pain is motivating them to act more prudently with their (and your) healthcare spend.
- No emergency room for non-emergencies. The difference in cost between emergency room, urgent care, doctor office and now telemedicine is staggering. Estimates range from over $2,000 for emergency room, $200 to $400 for urgent care, $80 to $200 for doctor visit and around $40 for telemedicine.
- Encourage your employees to develop a relationship with their primary care doctor. One method that some employers are doing is offering their employees a premium break if they get their annual wellness exam ($10 to as much as $50 per month). A little increased spend here can potentially stave off huge future claims.
- Take advantage of free resources that are available online. Some examples are GoodRx.com and Needymeds.org. Both can save you and your employees a tremendous amount. Example: A $3,000 plus drug was available for just a $5 co-pay on GoodRx.com. (Sidenote: try GoodRx for your pet meds as well). Another strategy related to pharmacy is to get a 90-day supply for maintenance drugs (often only fractionally more expensive than a 30-day supply) and if the drug can be split, get your physician to double the dose and split in half, (again, usually only fractionally more).
- When it comes to diagnostic procedures (MRI, Lab, x-ray, etc.), remember the rule (well, not really a rule but 99% of the time accurate): The bigger the building, the more expensive the service. (I.e. don’t get your MRI done at the hospital if you have the option. Free standing imaging centers are everywhere now and much less expensive (MRI example: $2,000 vs. $600).
More Advanced and Employer Level
Before getting into specifics, let me touch on a tricky subject. Many of the strategies detailed below require an employer to be alternatively funded (i.e. not fully insured). We work with, and have for many years, the large, fully insured carriers and respect the work they do. However, there is a fact that shouldn’t be ignored, and that fact is most of them have no incentive or ability to significantly lower your healthcare costs. Without getting into the details, because of the Affordable Care Act, they have to spend 80% to 85% of premium on medical care, meaning they can only keep 15% to 20% to pay for their expenses, including profit. (A smart, young person might surmise that if they only get 15% to 20% of the pie, they want it to be a very large pie.)
- Care-coordination (told you we would come back to this). Care-coordination is delivered with a few different models but for this discussion I will describe the model that’s been in practice over 15 years and has produced outstanding results from both a cost containment and employee satisfaction perspective. Basically, care coordination is delivered through a team of professionals (doctors, nurses, pharmacist, customer service, etc.) that your employees call whenever they need to access care. They are experts in how to navigate the healthcare jungle and are equipped with the transparency tools we discussed earlier. They work with your employees and their providers (physicians and facilities) to coordinate care in the most cost effective, highest quality manner to produce the best outcomes. A third party independent study by Milliman showed they have held medical trend (i.e. inflation) to under 2.6% over that period and under 1.6% in the past few years, vs. the 6% to 8% industry trend. They also produce high employee satisfaction (high to mid-90’s).
- Managing and Controlling pharmacy costs. Pharmacy costs are escalating at a pace that is unsustainable. What used to represent 10% to 15% of an employer’s total healthcare claims spend is now well over 20% and in many cases well over 30%. Some of this additional spend is good because some of these drugs may prevent other serious conditions. However, much of this spend can be controlled and managed more efficiently. There are many points along the drug supply chain from manufacturer to patient that are opportunities to save money. It is very complex world and having a consultant who knows these “profit points” throughout the chain can be invaluable and could cut your pharmacy costs by 10% to 30% or more.
- Managing and Controlling what you pay for medical care. We have lived in a carrier network discount model for years. You know the routine; you go to the provider, they charge some huge cost (charge master) and then your carrier applies their discount and magically your Explanation of Benefits (EOB) shows your claim is a fraction of what it was. Good, right? Well, hold on a minute. A fraction of what? Discount off what? There is a more predictable way to pay for medical care and it’s called Referenced Based Pricing or RBP. The way RBP works is claim payments to providers are based on some multiple of Medicare. Usually this multiple is anywhere from 115% to 200%. This method of paying claims cost is much more predictable and, in most cases, results in much lower costs than the current network discount model. How significant varies by many factors, but typically it results in about a $75,000 to $150,000 savings per 100 employees depending on your current arrangement.
This article was meant to be a very high-level, brief description of ways to manage and control your healthcare costs. There are certain aspects (positive and negative) that you should fully understand before implementing any of these strategies. As with anything, whether any and/or all of these are prudent for you and your employees can only be determined by thorough analysis of your current program and goals. If you would like to explore these strategies further, please contact Paul Stone, RHU, General Manager VADA Benefits and Insurance at email@example.com or 804-545-3022.