BACK TO THE BASICS: THE ABCS OF STRATEGIC HEALTH BENEFITS

It's back-to-school season. The time of year when parents juggle their kids' school supply lists and negotiate bedtimes while kids groan to leave behind the freedom of summer for the grind of the classroom again. Every kiddo knows one thing for certain: the first few weeks of school are review. Teachers revisit last year's concepts to reconstitute students' summer-sunshine-melted minds.

Likewise, you'll need to do the same to have an impact in the upcoming year.

So, sharpen your No. 2 pencil; we're reviewing the ABCs of strategic health benefits to combat America's biggest healthcare problem:

Medical expenses are the leading cause of bankruptcy because healthcare is wildly unaffordable for most Americans.¹

Getting to the root of the problem requires a mindset shift. The mental model, "First Principles," peels back the layers of dysfunction to bring awareness to cyclical patterns that manifest as Einstein's definition of insanity: "Doing the same thing over and over again and expecting different results."

For health benefits advisers and employers, an alternative version of Einstein's definition is: "Insanity is buying into the lie that affordable healthcare is unattainable, so you budget for a 15% renewal increase and hope things magically get better somehow."

This mentality is as pervasive as it is detrimental.

First Principals teaches us that high-value solutions reveal themselves when you challenge the status quo, push back against institutional norms, and question why things are done the way they are. When you acknowledge you're on a hamster wheel, working feverishly but getting nowhere, you focus on the problem's underlying causes and explore a more effective path forward.

Let's get back to the basics and review the ABCs of strategic health benefits:

A - Align the incentives. Misaligned incentives erode all hope for affordable healthcare if left unaddressed.

B - Buy claims for less. Essential to your success is reigning in the rampant unnecessary spending.

C. Communicate to promote consumerism. Consistent, multi-modal employee communication transforms members into savvy shoppers on the hunt for high-quality, low-cost care.

Welcome to the strategic health benefits classroom, where we reject the fallacy that advisers and employers are powerless. Today, we explore the powerful solutions your colleagues implement to achieve affordable healthcare.

A is for Align the Incentives

The first fundamental cause of unaffordable healthcare is rampant conflicts of interest and misaligned incentives. It's simply human nature, economics, and capitalism at work: an entity will work toward the greatest reward. It's not a criticism — accept it, expect it, and work around it.

The system behaves precisely as designed, but the design is flawed.

First, we need to identify the fundamental problem of misaligned incentives and remodel the system to incentivize the outcomes we want. Four main categories need your attention: adviser incentives, carrier incentives, provider incentives, and member incentives.

Align adviser incentives 

Problem: Employers don't know how the adviser is paid.

In an ideal world, the adviser is committed to a long-term client relationship with a vested interest in cutting the employer's costs while boosting the member experience and quality of care. There are a few reasons this may not happen. Brokers and advisers often work on commission plus bonuses for volume and client retention. So the higher the premiums, the more the adviser makes. The more policies they sell for the same carrier (volume) and the longer they retain a client for a carrier (retention), the more they make. The equation fails to motivate the adviser to cut client costs or increase quality.

Solution: Adviser compensation should be fully transparent to the employer.

Employers should know exactly how their adviser is paid, and the payment structure must incentivize the adviser to improve healthcare quality and reduce costs. Fee- and performance-based compensation, like a percentage of savings model, are big parts of a well-designed health plan.

Align adviser incentives 

Problem: Big box insurance carriers are publicly traded companies beholden to stockholders who expect annual profits.

Client premiums are carrier paychecks. Government regulation mandates that no more than 20 cents of every dollar an insurer earns go toward administrative costs (staff salaries, office space, overhead), marketing, and profits.² So when carriers need to generate more profit, they increase premiums, increase claims, or cut customer service. 

Solution: Self-fund health benefits in partnership with a third-party administrator (TPA) and a pharmacy benefits manager (PBM).

These partners and the adviser are motivated to save the employer and its members on premiums and out-of-pocket costs through a fee-based or performance-based compensation plan. Together, they establish direct primary care, direct contracting with local health systems and providers, and alternative reimbursement models to cut costs and boost quality for the members.

Align provider incentives

Problem: Providers make more when they do more.

The typical healthcare reimbursement model for providers is fee-for-service. A doctor performs a service, like an office visit, procedure, or surgery, then they're paid a pre-negotiated amount.

If a patient needs nothing and the doctor does nothing, they earn nothing. Do you see where things can go wrong here?

This system prioritizes quantity over quality, putting well-meaning doctors in a predicament as they search for a balance between providing only necessary healthcare and earning a living to pay off mounds of student loan debt. Most physicians went to medical school to learn how to get and keep people healthy, only to find themselves on the fast track to burnout and job dissatisfaction.³

Solution: Implement value-based, outcomes-focused reimbursement.

One study says 73% of 1000 physicians surveyed prefer the "churn and burn" FFS over a value-based model — could this be because they, too, are stuck on the status quo hamster wheel, unable to see the benefits of doing business another way?⁴  Other research shows that increased time with patients is a significant factor in physician job satisfaction and improved patient outcomes — doctors feel they're making a difference.⁵⁶⁷

Value-based care rewards physicians for the outcomes they produce for patients, like improved health and wellness, up to 25% fewer hospitalizations, and reduced prescription drug use.⁸

There's no question that doctors need and deserve to earn a good living, yet with 55% of physicians reporting burnout and 1 in 4 planning to leave practice in the next two years, now is the time to transform the healthcare experience for doctors and patients.⁹ Value-based care is part of the answer.

Align members incentives

Problem: Plan members don't see the WIFM (What's in it for me?)

It's simply human nature: people need motivation to do the right thing a lot of the time. There are so many bids for an employee's time and attention that motivations must be high to encourage the right behavior. Affordable healthcare requires members to know how to maximally benefit from the plan without breaking their budget.

Solution: Educate, empower, and incentivize members to maximize their health benefits.

Show them how to squeeze the most out of the resources they have at their disposal (advocacy or concierge services, second opinion services) and how they can reduce spending along the way. High deductibles in isolation repel members needing care, but adding financial incentives, like $0 copays, to encourage utilization makes a huge difference for their health, their wallets, and the employer's bottom line.

By deliberately aligning incentives, we shape member behavior, steer patients to high-value providers, and effectively control unnecessary spending. The key lies in ensuring that the incentives encourage paying less for healthcare without compromising the quality of that care.

B is for Buy Claims for Less

The second fundamental cause of unaffordable healthcare is unnecessary spending.

The greatest plan flexibility and control lies in self-insured employer-sponsored healthcare; however, if an organization remains fully insured, a high deductible plan fortified by a medical expense reimbursement plan (MERP) or a health reimbursement account (HRA) is the path forward. The key to success in this plan is the educate and empower the employees to seek eligible care from high-quality, lower-cost providers to qualify for reimbursement. It's a win-win when done well: employees are motivated to get the best care for less, while employers pay less on claims to the insurance carrier.

 Employers who reject the status quo for more affordable, higher quality healthcare for their employees elect to self-insure their health plan. They optimize quality and savings through greater flexibility and control of the plan design. As already discussed, the success of self-insured plan hinges on aligning the incentives among the adviser, carrier, providers, and members.

Historical and predictive data analytics reveal action areas for savings.

A few opportunities to achieve affordable, data-driven healthcare are:

Direct contracting

Negotiating alternative reimbursement agreements with providers is essential to paying less for healthcare claims. It takes many forms, including capitation, reference-based pricing, and bundling.

Capitation: An agreed upon per-member-per-month (PMPM) capitated rate comes with various benefits, including simplified billing, increased cost predictability, efficient care coordination, data sharing, and shifting the risk to the provider. Capping healthcare revenues for a specific member population motivates providers to ensure the best outcomes to secure a net profit. If the care is ineffective or results in unexpected complications, the provider's time is consumed with addressing the issue, which chews away at their profits. These capitated direct contracts thrive in high-use specialties like mental health, cardiology, endocrinology, and gastroenterology.

Reference-based pricing: Reference-based pricing (RBP) shares the cost-control benefits of capitation and also streamlines billing, but instead of capping services on a PMPM basis, prices are based on a benchmark, like Medicare reimbursement rates. Services are charged based upon an agreed-upon percentage or multiple of the Medicare rate. The downside of RBP is that some providers will bill members for the difference between the negotiated RBP price and their retail charge. Plan designers must address balance billing in advance to prevent an unexpected burden on the member.

Bundled pricing: Negotiating bundled pricing further prevents billing surprises for joint replacements, maternity care, bypass surgeries, and cancer therapies. Included in the bundle are the physician fees, the facility fees, the anesthesiology fees, and the cost of any hardware or equipment.

Whether you're negotiating with a physician group, surgical center, or a hospital, the goal is to negotiate based on the plan data. Never take a prearranged deal between the provider and the insurer. Pursue fair compensation that streamlines costs and efficiency for both the employer and the provider.

Alternative drug sourcing

Drug costs are the largest expense for nearly 20% of families who file for bankruptcy due to medical debt.¹

What good does it do an employee to know what's ailing them if they can't afford the treatment?

Here are three ways you can impact prescription drug costs:

Generic drugs: Plain and simple, generic drugs are less expensive than brand name drugs, equally as effective, and usually have a well-known market reputation. Generic drug manufacturers are spared the costs of research, development, and marketing. These savings pass to the employer and member. Often, to incentivize the use of generic drugs, these medications are provided with a $0 copay.

International pharmacy: In the U.S., prescription drugs are 2.5 times the costs in other developed countries.¹⁰ So get the drugs from countries. These medications are the same as what the patient would get in the U.S., and they're often shipped directly to the patient's home — convenience and savings improve utilization every time.

J-codes: Infusion drugs are expensive. J-codes are billing codes that indicate the medication, the dosage, and the mode of delivery. They're an easy opportunity for immediate savings if you answer a few questions before approving these prescriptions:

• Are infusion drugs the next best step for this member? Have other lower-cost treatments proven ineffective?
• Is the correct J-code being billed?
• Might a biosimilar drug work well for this member?
• Where is the safest administration location to give this drug to the patient for the lowest cost? Infusion drugs administered at a hospital are significantly more expensive than those delivered in the patient's home.
  

The beauty of a self-funded plan is the flexibility to secure the best care for the best price via alternative reimbursement strategies. The next step is integrating an effective communication and education plan to help employees optimize their health benefits.

C is for Communicate to Promote Consumerism

The third fundamental cause of unaffordable healthcare is poor member communication and education.

Healthcare is a complicated system.

High-value healthcare mandates that employers, advisers, and patient advocates uncomplicate the system for the members through education and effective communication.

It's the only way it works because employees and their families are the driving force for high-quality, lower-cost healthcare. But they need to know their power and how to wield it for their benefit. That's where communication and education enter center stage.

Members are natural shoppers, especially with the currently high inflation rates. They're actively searching for the best deal on nearly everything they buy. Your job is to provide them with the understanding, tools, resources, motivation, and incentives to put their bargain-hunting skills to work when sourcing healthcare services.

As you build your benefits-optimizing communication strategy, it must be:

- On-going and repetitive: Some members' ears won't perk up until they need healthcare, so the message must resonate all year around.

- Multi-modal: written, video, text message, email, meetings

- Multi-lingual: Information must be available in as many languages as is necessary to reach every member

Targeting your member audience in this way will transform how they approach their benefits and optimize the savings over time.

Let's review what to prioritize when you build your curriculum.

Understanding

It's safe to assume that members struggle to understand why healthcare is expensive. Help them learn how to source high-quality care at the best prices.

Show them how:

• By catching the disease early, primary care prevents untreated illness's costly, debilitating consequences.
• Preventative care keeps patients healthier for longer.
• Quality and costs are inversely related. The "you get what you pay for" adage doesn't apply in healthcare.
• Service costs (e.g., surgery, imaging) can vary dramatically from facility to facility with equal or better quality.

Consistently driving deep into these topics in various formats empowers members to impact the quality and cost of their care.

Tools & Resource

Tools and resources that help members compare costs and quality data easily and conveniently transform members into informed shoppers.

• Patient advocacy or concierge services eliminate the confusion and overwhelm of care coordination. These services supply actionable data that directs healthcare decisions.
• Second-opinion services reduce members' fears and concerns about proceeding with invasive, risky, big-ticket, or possibly unnecessary procedures or treatment. Also, this confirms for the plan that a treatment plan is indeed necessary.
• Telemedicine. Time off the clock, travel time, waiting room time, visit time — healthcare can take a lot of time. Boost utilization by including telemedicine. A 2022 study revealed that 46% of patients prefer telehealth visits for routine management of chronic conditions.¹¹

Providing these tools and resources isn't enough: You must show members how to use them and then motivate them to do so.

Motivation & Incentives

What's in it for the member? For employers to win the healthcare game, members must win first.

Drive home how engaging with the plan data, resources, and tools benefit them:

• Cost-savings. Reduced financial stress has a huge impact on physical and mental health.
• The end of annual premium increases (a decrease may even be on the horizon!)
• Greater control. Members can impact their healthcare spending, health, and well-being.
• Reduced absenteeism. Members and their families enjoy fewer sick days.
• Increased productivity and higher quality of life. Employees who feel good produce better work and serve as better teammates.
• Improved employee morale, retention, and loyalty. Everyone wants to enjoy going to work. Excellent health benefits are hard to find. The employers with the best package enjoy happier, more loyal employees.
• Attract top talent. Up to 80% of job seekers prioritize a company's health benefits, and employees and employers appreciate being surrounded by high-quality, skilled, and creative teammates.¹²

These motivations push the ball down the hill, but financial incentives help it pick up speed.

Waiving patients' out-of-pocket expenses generates savings for the plan and the member. It incentivizes quality-boosting, cost-saving behaviors and improves employees' physical, mental, and financial well-being.

Class Dismissed

Great job, class!

As we conclude our review of The ABCs of Strategic Health Benefits, commit this to your memory:

Your greatest success in the coming year mandates you to challenge the status quo, reject institutional norms, and implement creative solutions to unaffordable healthcare.

Your power to supply impactful health benefits dictates that you seize control of your plan design, align the incentives, buy claims for less, and communicate with the employees to promote consumerism.

Like any great teacher, Einstein has offered us great wisdom. It's up to us to apply it.

Citations:

¹ https://www.retireguide.com/retirement-planning/risks/medical-bankruptcy-statistics/

² https://www.healthcare.gov/glossary/medical-loss-ratio-mlr/#:~:text=A%20basic%20financial%20measurement%20used,medical%20loss%20ratio%20of%2080%25

³ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6262585/

⁴https://www.fiercehealthcare.com/practices/report-docs-skeptical-value-based-care-transformation

⁵https://link.springer.com/article/10.1007/s11606-008-0596-y

⁶https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1496869/

⁷https://mobius.md/2021/10/09/how-much-time-do-physicians-spend-with-patients/

⁸https://humana.gcs-web.com/static-files/2d174b46-2f41-4ab9-acc4-2f400b703c10

⁹https://www.wbur.org/news/2023/03/02/massachusetts-doctors-physicians-cut-hours-staff-shortages

¹⁰https://www.rand.org/pubs/research_briefs/RBA1296-1.html

¹¹https://www.prnewswire.com/news-releases/survey-consumers-prefer-telehealth-over-in-office-visits-for-routine-care--and-want-virtualists-to-have-access-to-their-medical-records-301664042.html

¹²https://fortune.com/recommends/banking/57-percent-of-americans-cant-afford-a-1000-emergency-expense/