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Medical underwriting is a process smaller employer groups go through when they are evaluating whether or not their company is a good candidate self funding some of their benefit costs. This process involves collecting medical questionnaires (Long Forms) from each covered employee to determine their state of health. The underwriter for the insurance company will then aggregate each employees projected claims cost to create a group total for the upcoming 12-month period. With this information, the underwriter can present the employer with more benefit options than are available in the fully insured market. In effect, the employer is empowered to make better decisions about their employee benefits program, decisions based on an actuarial analysis rather than emotion or guesses.
Lowering Plan Cost
Medical underwriting is a more time consuming process than simply spread sheeting out rates from the fully insured market, but for qualified employer groups, the long term savings can be significant. First it affords them the opportunity to leave the fully insured risk pool. A federally regulated, self-funded program allows the employer group to be rated on their own claims experience rather than that of their neighbors (community rates). They no longer have to subsidize other companies with poor claims experience. The second way medical underwriting can save an employer group money is by allowing plan builders to precisely determine what the utilization needs of an employer group are. Customized plan designs reduce the cost of wasteful spending and focus the available plan assets on more productive low cost-high value services.
What better way to save money than stop buying services you don’t need?
The largest cost in any group health plan are the facility charges, such as inpatient hospital procedures. In order to control these costs, a fair price is paid to hospitals using Reference-Based Pricing (RBP). This model creates discounts beyond the typical PPO, and creates stability in price variances by using Medicare as a benchmark. The typical reimbursement rate is 40% to 50% above the Medicare Allowable Price (MAP).
Medicare accounts for about half of hospitals’ patient revenue, and only one-third of hospitals profit from Medicare payments. Fair or not, the cost is then shifted to private payers, like those on employer-sponsored plans. Additionally, hospitals have large price variances on procedures to help with cash flow issues, making it difficult to predict trending without a benchmark.
The goal is to pay a fair and reasonable price for care, but it is well documented the national average Charge to Cost ratio for hospitals is well over 300%. In the annual report from National Nurses United (National Nurses United / IHSP Press Release, 01/06/2014), the following key findings were observed:
- 14 U.S. hospitals charge more than $1,000 for every $100 of their total costs (a charge to cost ratio of 1,000 percent) topped by Meadowlands Hospital Medical Center in Secaucus, NJ which has a charge to cost ratio of 1,192 percent.
- The 100 most expensive U.S. hospitals have a charge to cost ratio of 765 percent and higher – more than double the national average of 331 percent.
- Despite enactment of the Affordable Care Act, hospital charges recorded their single biggest jump, a 22 percentile point increase from fiscal year 2010-2011 to fiscal year 2011-2012 in the past 16 years for which the IHSP has analyzed the data.
- For-profit hospitals continue to dominate the list of those with the highest charges. For-profit corporations average charges of 503 percent of their costs, or $503 for every $100 of total costs. The current PPO model is broken and it’s time for a different approach.
Reference-Based Pricing has proven itself to be the preferred method for controlling facility costs and maintaining the financial integrity of group health plans.
Our self-funded Pharmacy Benefit Management (PBM) programs help employer groups save 3 -5% annually off their fully insured plan costs while providing them similar benefits. We achieve this by removing the conflicts on interest inherent in fully insured plans, in addition to focusing their utilization on lower cost – higher value medications. The tools we use include but are not limited to:
- Closed Formularies
- Step Therapy models
- Split Fills (for high cost drugs members frequently quit taking after a couple of doses)
- DAW penalties (to encourage steerage)
- Multi-Tiers Specialty Drug & use of Bio-Similars
These customized plan designs are practical, transparent and empower employers to make better financial decisions with their healthcare dollars.
Over 60% of individuals of individuals with health benefits are covered by a self funded health plan. Why? What value does self funding offer them over a fully insured plan?
The number one reason is TRANSPARENCY. When an employer decides to sponsor his own employee health and warefare plan, he (she) gains access to many options that are not available in the fully insured market. Not only do they have access to all their claims data to see what’s driving utilization (and costs), but they will also have access to all vendor contracts, which will illustrate:
- Who holds the contracts?
- Who can make changes and when?
- Is the program truly transparent? Can the results be audited?
- Is the vendor a wholly owned provider of services, or do they contract it out?
- Who keeps the
Knowledge is power in the employee benefits arena, even for Small Group employers that many would say is “too small” to self fund. If an employer is willing to invest some time in learning the nuainces of the market, they will be much more empowered to spend their benefit dollars in an efficent manner…….just like Large Group employers do.
Transparency = Knowledge