Employers in America Have a Problem – Their Health Plan!

Written By: Edward Smith

Date: May 16, 2016

Employers in America have a problem, and Dave Chase succinctly captures the essence of this dilemma in his most recent Forbes article, “Health Plan Industry’s Worst Nightmare: Employers Realizing They Are Actually The Insurance Company”.


Allow me to summarize and offer commentary on the issues Chase discusses in his article that I see affecting our employer clients every day.


Let me preface my comments by saying that health insurance companies are chock full of great people, passionate and well-meaning, doing their best in a very flawed system.


The Affordable Care Act
(more specifically, the Medical Loss Ratio provision)

Rather than controlling spending, it provides a perverse incentive to health insurance companies to increase the scale of their operations and allow overall healthcare costs to increase. Why? When the government caps your profits at a percentage, the rational response of a CEO who has been charged by his/her shareholders to increase profits is to simply figure out how to increase the denominator. The only way to do that is to accelerate the growth of healthcare spending. According to Chase, “The continued hyperinflation of premiums would accelerate the employer realization that they need to take matters into their own hands and disintermediate health plans. A growing number of employers are doing exactly that.”


Any Company Over 100 Employees is an Insurance Company in All but Name. Why?

Dave rightfully points out that if a company has claims over the amount that the insurance company planned to achieve their profit target, they’d simply get it back in the following year through increased premiums. Anyone who has had to buy health insurance for their employees knows this to be the case. It’s one of the reasons self-insuring and working with TPAs is appealing to many companies. Once they do this, transparency into what is actually happening proves to be eye-opening.


What is the Value of Your Health Insurance Plan?

Does it improve patient or care team experience? Does is improve medical outcomes or lower costs? To all of the above, the answer is a resounding no!


Chase explains, “Some will say creating a PPO Network is a key part of their value. That may have been true at one time when they may have negotiated special pricing with particular providers. Today, most PPO Networks are little more than glorified yellow pages. The high quality transparent medical markets, in contrast, have solved healthcare’s most vexing problem — pricing failure.

It’s common for the prices in a transparent medical market to be 40% lower than a so-called PPO discount because the process is radically streamlined for all parties. The results are a huge benefit to providers, employers and employees in these situations.”


My Final Analysis is This:

It’s only going to get worse, perhaps a LOT worse, but our team guides clients each and every day in taking back control and winning the healthcare battle (using the strategies Chase mentions and more)!


For more information or to schedule an appointment, contact me at edward.smith@hutchinsontraylor.com or 706.298.2161.


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