Healthcare Solutions Alternative Healthcare for the Small Group Market

by Shawn Smith

Are there any solutions to double-digit healthcare costs increases in California? Healthcare providers, medical carriers, and medical brokers would say "not yet." Many Republicans would say consumer driven healthcare plans (CDHPs) are the answer. CDHPs with $2,500 to $5,000 deductibles are the only medical plans offered by some employers in states where HMOs are not as prevalent, such as Arizona. But, until now, CDHPs have not been well received by employers and employees in most areas of California.

Medical plan designs in California differ among small groups (two to 50 employees), midsize groups, and large groups. Under, Assembly Bill 1672, medical plan designs and costs in the small group market are set with a 10% surcharge or discount depending on the health of the group. Since there are more 800,000 small groups in California, the primary focus of this article will be the small group medical market.

Most cost increases at renewal time stem from heavy utilization items, such as prescription drugs, wellness, lab work, and emergency room visits for non-emergencies. The healthcare industry's primary concern is the combination of high-utilization claims and the small financial impact to the employee.

However, a close family member of mine recently had a common outpatient surgery (D&C and laparoscopy) at a local Southern Calif. hospital. The hospital cost for the 90-minute procedure is a staggering $25,271 without the network discount and $15,688 with the network discount. Since the patient's exposure was $2,500, her perception of the group medical plan was "poor" to be kind.

Although healthcare costs are on a steep rise, most would agree with the rule that 15% of the employees produce 85% of the medical claims. Based on utilization, most employers are actually over-insuring their employees with a plan that has a low deductible or no-deductible for hospitalization, outpatient surgeries, radiological diagnostic testing, and emergency room visits for accidents.

How do employers control their healthcare budget from year-to-year with double digit medical renewal cost increases? The only solution seems to be to increase the employeeÕs out-of-pocket medical expense and premiums. Medical carriers are offering the greatest discounts for the higher hospital deductible and co-insurance medical plans. Simply put, the most expensive healthcare costs are the hospital stays which is one of the least utilized areas of the healthcare expense.

Employers considering making the move to cost-sharing medical plan designs must consider employeeÕs financial impact. Tweaking the medical plan design at renewal may provide a temporary solution to rising costs, but will probably upset most employees when theyÕre hit with higher out-of-pocket costs.

Most employees fear their high-deductible and co-insurance costs from unexpected hospitalizations or surgeries. It would be a real problem for a majority of the working class to pay $1,000 to $5,000 before their medical plan pays anything, which would be in addition to monthly premium expenses for themselves and additional family members.

Self-funding of the medical plan deductible is certainly an option. The primary concern for carriers is that the insured will not recognize the difference between their existing fully insured plan and the new consumer driven cost-sharing medical plan, so they will not change utilization patterns.

The small to medium size group employer's main concern with self-funding is the uncertainty of claims and the unpredictability of their exposure. Self-funding for small groups in California has one primary disadvantage; the medical carriers have limited the plan designs that can offer self-funding. With the limited medical plan design options for a double-digit renewal increase, the employer cannot use the self-funding method with other lower cost plan designs and is stuck with the increase on the base plan they have, if there is no increased exposure to that plan to help offset the high renewals.

Shifting first-dollar non-utilization risk might be the best solution for employers. Shifting the first dollar deductible risk to a reimbursement type insurance policy where the exposures for unexpected and uncontrollable items are reimbursable to the claimant. All the medical plans primary utilization items would continue with the smaller co-pays or deductibles. If the reimbursement type policy is constructed to pay only the high ticket, unexpected claims such as hospitalization, outpatient surgeries, radiological diagnostic testing, and emergency room visits for accidents only, there is no change to the utilization of the medical plan. The high-ticket items cause the most financial fears for employees. The benefits from such a plan would only pay up to the claimant's deductibles and co-insurance and only if there were exposure for such items on an EOB (controlled). By only providing benefits for the non-utilization items, the utilization of the medical plan would not change and the employee's perception of the medical plan would change for the better. Isn't this the basic definition of insurance to restore the individual to their financial position prior to their unexpected claim?

Medical GAP indemnity based insurance plans have been available for several years. However, traditional GAP plans do not consider the medical plan designs and will pay benefits to the employee over and above many of the medical plan's utilization items, therefore increasing utilization of the group medical plan.

The GAP type product should mirror the medical carrier plan designs and only pay benefits for non-utilization medical items and up-to the employee financial exposure. The risk is more predictable in that there is historical data available on the small percentage of the population who have actually needed hospitalizations, approved outpatient surgeries, radiological diagnostic testing, and emergency room visits due to accidents only. I refer to this as a Bridge to Consumerism, in that the insured is now involved with filing a claim for reimbursement for an expense that they had absolutely no control over. My idea behind consumerism is the consumer's awareness of the healthcare cost and the encouragement of individual's involvement to help contain healthcare cost. The insured filing a medical benefit claim for their unexpected accident or illness medical expenses is a good first step to the consumerism goal.

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Shawn Smith is Regional VP with Transamerica Worksite Marketing. Call (949) 216-9725 or email at shasmith@aegonusa.com.