It's time for employers to "reform" their thinking about managed care and stop allowing the giants of that industry to dictate the costs of healthcare and the accessibility to medical providers.
For most major employers, health plan costs represent the next largest expenditure after employee payroll. Ironically, the same companies that take extensive measures to control the costs of production and operations through careful vendor selection, negotiation, and oversight do relatively little when it comes to their own health plans. They turn control of those plans over to handful of increasingly monopolistic health insurance giants: Blue Cross/Blue Shield, United Healthcare, Cigna, and Aetna (BUCA, for short). What BUCA says, goes. Both in terms of the providers that make up their networks and the costs of their programs, employers have little choice but to take what is given them. Why? Because employers believe there's no other choice.
Used to be, there were plenty of health insurance choices. If an employer's health plan costs were rising to quickly or service was declining, an RFP could be issued and there would be lots of quotes from competing companies. Each competitor would have its own network of doctors and hospitals and its own administrative services. HR people could pick and choose the best vendor for the job. Some employers even combined networks and health plans to build solid programs. Sadly, those days ended long ago. There's been an incredible consolidation of managed care networks since the late 1990's with local and regional PPO's being gobbled up by BUCA, MultiPlan, and a few other behemoths.
Any employers who were going to switch carriers (two or three times, in some cases), to get better rates or networks, have already done so. And since switching more than a few times makes an employer an unattractive risk to other insurers, many employers have remained stuck where they are as hostages of their current managed care vendor. Choices have become so limited that employers give up on the notion of ever changing vendors. They throw up their hands and surrender to ever-rising costs. Defeated, their only hope is that their "captors" will come up with some solutions.
At best, the solutions put forth by the health insurance industry over the past 15 years have done little to control soaring health plan costs. Ideas, such as Consumer Driven Health Plans (CDHP) seemed viable, at least on paper, and were heavily pushed upon employers and the general public by the insurance industry as the answer to rising costs. Unfortunately, without a system that allows complete transparency of all medical costs and objective measures of provider quality, CDHP simply doesn't work. Ultimately, CDHP has become nothing more than a slick way to shift more of the costs onto employees, while allowing insurance companies to continue to reap huge annual profits at the expense of employers whose plans they handle. And that "reaping" will continue, as long as employers are distracted by token solutions promulgated by an insurance industry that blames rising U.S. medical costs, while ignoring its own profit-driven motives, as the major source of the problem.
The recent, "2010 Segal Health Plan Cost Trend Survey," predicts increases in the per-capita medical claims costs will range from 10.2% to 13.3%, depending on the type of plan. That's four times greater than the forecasted annual increase in average hourly earnings and sharply higher than the Consumer Price Index which has remained relatively flat over the past 12 months. Cost inflation for PPO plans, which represent 80% of all employer health plans, will rise by 10.8%, according to the survey. For employers who remain locked into BUCA or other managed care plans, 2010 will simply be another year of "biting the bullet" with regard to rising costs.
But, for employers who are sick and tired of swallowing another year of rising costs, while health insurance companies record new record profits, there are other solutions. Direct provider contracting is one of them. For years, I've talked about my clients, major employers that self-insure their health plans, have their own direct provider networks, and process claims through third party administrators (instead of insurance companies). These same employers are enjoying near zero medical inflation year after year. While clients of BUCA agonize over another year of cost increases, my largest client's annual per employee medical costs are 60% below the national average. Something about direct contracting obviously works very well, but it takes "reformed thinking" to see it clearly and evaluate its potential.
No matter how the health care debate turns out, employers who continue to suffer from rising health plan costs really do have a choice. Continue to suffer at the hands of the health insurance industry or reform their thinking about managed care. I encourage every CEO and CFO to look at where you are today and make the choice.
