What health plans and brokers don't want you to know....
Sometimes it's humbling to admit what you don't know. It's even worse to realize that you don't know what you don't know (YDKWYDK - pronounced, yidick-widick). Well, last fall I was hit square in the face with an embarrassing case of YDKWYDK. Silly me, I presumed that within certain boundaries, actuarial science is, well, a science. Based on the experience/characteristics of a population, and the design of a plan, there was a narrow range within which premiums would be assessed. Not exactly.
Informed Purchasers Can Get Better Coverage And A Lower Cost
I advise employers about how to manage health care costs. That's what I do for a living. Well, I discovered there is a process for uncovering available savings of which I've been unaware. Let's call it the informed purchaser discount. It turns out if you:
- Learn more about how rates get set (not necessarily based on actual claims risk), and
- Discover where fees might be hidden (many places), and
- Inform yourself on calculations health plans use to forecast cost and protect themselves from exposure (quite conservatively), and
- Partner with someone who has the data platform and predictable process to uncover available savings, and
- Design a new plan that aligns patient and provider interests,
You can pay a lot less for coverage.
Why Don't You Already Know About This?
Well, it turns out there are incentives built into the system such that:
- Most brokers — who are paid by the plans — are reluctant to push back on plans for better prices, and
- Brokers who do push back may get penalized by the plans with worse quotes or slower service, and
- The timing of quotes are manipulated to rush decisions and leave less time for deliberations, and
- Because it's a hassle to price many different designs, the plans and brokers often choose a favorite and don't bother to tailor it to specific client needs, and
- All plans tend to operate this way, so you won't detect over-charging by simply comparing among them.
- Thus, benefits managers are left reporting to the executive team, honestly: "This is the best I could find."
Sigh. In other words, circumstances are stacked against the individual employer, especially small ones that are fully-insured. The traditional industry process is meant to keep us in the dark.
Worse yet, as traditional benefit professionals, we don't know what we don't know. There are many reasons not to rock the boat. Perhaps there is a long-term, trusted relationship with the broker; they've become our friends. Brokers won't tell you that they think you can get a better deal — otherwise you would question why they aren't getting it. Perhaps there is fear that getting a different broker or an outside advisor will be looked upon as a sign that we have made poor choices in the past. Perhaps it is simply easier to do what we always do. Perhaps we assume we will get the best deal through the competitive bidding process. Perhaps we assume that because we are smart and capable in other areas, the same approach applies in health coverage. Whatever the reason, the vast majority of businesses don't have the insight to demand and get the informed purchaser discount.
So, you ask, how much can that discount be? (Are you sitting down?) $1,000 to $3,000 per employee, every year. For a 500 person company, that equates to overpaying between a half a million and 1.5M dollars on health care over the past five years. It's shocking, it's appalling, it's something I would not have believed ... but folks, it's real. And you can do something about it.
I have spent my professional benefit career advising employers about plan design, corporate policy, health care quality, and health interventions. All the while, I should have been encouraging them to partner with an experienced purchaser who knows the process and can share understandings of risks and incentives.
Stop Paying A Penalty Simply For NOT Being Informed
The only way to get an informed purchaser discount is to make the process transparent and work with someone who only has a financial incentive to save you money. This doesn't mean you fire your broker (unless you want to), only that you insist on having a broker who will partner with an independent plan reviewer/designer. You want someone who is not threatened by complete transparency — something you will learn is not welcomed by plans or most brokers. (If your broker resists, I can recommend a few who do advocate transparency and are open-minded).
What should the independent party do?
- Review your current plan and experience at no charge.
Assess the savings opportunity at no charge.
Explain your design options and confirm you are comfortable with specific types of changes. The savings should not be solely derived from making the plan less desirable, such as:
- restricting access to providers
- shifting large increases in cost to employees
- design changes that discourage employees from choosing coverage
- If savings are not likely, state that fact, shake hands and part ways.
- Charge a reasonable fee, most of which is contingent upon meeting a minimum savings (e.g. $1000 per employee).
In other words, there should be no cost or risk to assess your opportunity, and the group who guarantees savings should get paid after the savings are achieved.
Does such an organization exist? Yes. It's not a brokerage, but a small, independent consulting group called Incenta, that is saving its clients a lot of money. Do I work for them? No, but I am introducing them to my clients because it feels bad not to. Will I be partnering with them in the future to bring this solution to more employers? Absolutely.
This article is a stark departure from my usual analytical or policy-oriented discussion. Readers who know me know that I investigate topics thoroughly and thoughtfully. Despite this, all of us encounter situations where yidick-widick, and we discover new solutions to old problems. It's not a sin to find out we didn't know — but I've decided it's inexcusable to ignore it now that I do know.
Never have I been more convinced that a different sort of expert is needed. Plus, in this case it happens to be very low risk — no cost to assess potential savings, and the vast majority of fees contingent upon achieving $1000 to $3000 of savings per employee.
So, I encourage every benefits manager to become one of the (few) informed purchasers. Don't wait until your renewal is approaching. And don't be afraid to admit YDKWYDK — better to learn this now than continue paying the penalty for remaining uninformed. Call or email me or the others listed at the bottom of this article. Become informed. Your bottom line, and your company executives will thank you.
For those interested in following up, talking it though, or getting started toward a better process of getting health care coverage, feel free to contact:
Send Email to Wendy
Send Email to Dennis
Dave Dias (one of the transparency-advocating brokers I know)
Send Email to Dave