Lack of Price Transparency Leading Employers to Self-Insure

September 07, 2016 - Some employers are finding it difficult to keep contracting with their health payers due to continually increasing monthly premium costs and a general lack of price transparency across the health insurance industry. As such, the notion of a company self-insuring its employees and dealing with medical claims on its own terms is slowly becoming a more popular option.

Adam Russo, Chief Executive Officer of Phia Group, spoke with HealthPayerIntelligence.com about the decision to transition his company toward self-funding health plans due to a lack of price transparency from his partnering health insurer.

“I’m the CEO and cofounder. We are self-funded for our own employees. However, in addition, we represent five million self-funded lives across the country,” Russo commented. “When I talk about our experience, I’m also talking about our clients’ experiences as well. I’m also on the board of directors for the Self-Insured Institute of America, which is our industry’s biggest association representing the interests of self-funded employers.”

When asked about his reasoning to self-insure and some of the biggest problems found when partnering with a healthcare payer, Russo replied, “When we decided to go self-funded, there was a very simple reason. Every year, our healthcare broker would give us three options: keep what you have with a potential 15 or 20 percent increase, increase your copays and deductibles to your employees which would reduce the cost increase, and the third option is to offer worse benefits to your employees. That was it. There was never an explanation as to why any of this is happening.”

Russo went on to explain that other areas of life such as the cost of rent or the pricing behind food and beverages at a coffee shop tend to have reasoning as to why prices have increased. However, in the health insurance industry, a clear lack of price transparency is plaguing relationships between payers and employers.

“In healthcare, there’s never an explanation. The premiums just went up and I’m looking around and our employees are healthy. So what I realize is that we have no control of the spend, and I think that’s what makes self-funding so unique,” he continued. “In every aspect of my business, I can try to control costs except healthcare. Every CFO of a company looks at healthcare like a fixed expense with increases every year. By going with self-funding, the one thing you do have is control. You can design your own health plan.”

With more control of benefits and health plan design, employers are able to see exactly where their healthcare spending is going. This is clearly an incentive that brings some employers to self-fund their own health plans especially due to the lack of price transparency seen within the health insurance industry, said Russo.

When asked how health payers could keep employers satisfied with their services instead of self-funding their own health plans, Russo answered, “The focus on discounts needs to go away. Right now, in the health plan space, everything is based on discounts. The problem is, from a transparency standpoint, what’s the discount from? Off of what? That number is the unknown. It’s a mystery. There is no price transparency.”

“Right now, when most employees go to hospital, they have no idea that there are different quality ratings and different prices among nearby hospitals. The one with the higher cost, does not necessarily bring better quality. Employees only think about what is their copay, deductible, and out-of-pocket costs are,” Russo explained.

Russo compared the potential costs of treatment at two different medical facilities. One may cost twice as much as the other for the exact same treatment but employees will only be looking at their out-of-pocket costs while the health plan may need to cover more costs at the more pricey hospital.

“That lack of price transparency problem is what’s killing us,” Russo exclaimed. “Right now, among most health plans, the provider who wants to be in their network, they can’t be transparent with their prices. They can’t put charges on their website… the prices are not out there. The way it works is the provider joins a network and that network then controls everything.”

“There have been a lot of lawsuits over the past couple of years of different employers suing large insurers … where the employers just want to know the claims data. The health plans say it’s proprietary and that they can’t share it,” he explained. “They can’t share with their customer the details of how the customer is spending their own money. It’s insane.”

Another interesting point Russo brings up is that hospitals can charge very different rates for the same treatment such as knee surgery when pricing private insurance, Medicare, or someone who wants to pay using their own funds. These costs may vary anywhere from $15,000 to $50,000 depending on the payer. There is a general lack of price control found in the healthcare industry, Russo points out.

When asked about the first steps he needed to take to self-funded health plans at Phia Group, Russo explained, “The first thing you have to do when you have a company that wants to be self-funded is obviously look at what they’re doing currently. You need to figure out what they like about their plan and what they don’t like about their plan… Most employers who are self-funding for the first time, there is no difference to the look and feel of the self-funded plan compared to their fully insured situation other than the fact that, instead of paying a premium every month, that employer is paying the actual cost of claims.”

“As you move on in self-funding in your second or third year, that’s when you finally are able to get data. The biggest problem that most companies have when they want to get self-funded in the first year, they don’t actually know what type of benefits their employees are utilizing. They don’t know who’s going to the hospital or who has blood pressure. Once they become self-funded, they actually can see where their spending is going. They can review their data to see where their money is being spent. And then, by year two, based on what their data is telling them, they can customize their self-funded plan to address the actual needs of their employees,” Russo concluded.

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