Transparency in the healthcare world has been historically low. And because of this, consumers have no idea how much services actually cost when they need medical care. And when consumers – your employees – don’t have that information, guess who picks up the tab? That’s right, you, the employer, in the form of higher claims costs, and therefore, higher insurance premiums.
I had knee surgery recently. As part of the process, I needed an MRI. I did some research on the cost for an MRI within 20 miles of my home, and found that I could obtain one for $446 on the low end or $2,804 on the high end. That’s a 628 percent cost difference!
It’s not just MRIs that have a huge variance in cost. Almost any procedure you can think of has a significant variance. A few more quick examples (based on 50-mile radius in the Bay Area):
- Lower back MRI (with and without contrast): Ranges from $603 to $5,071.
- Rotator cuff arthroscopic surgery: Ranges from $5,675 to $52,750.
- CAT scan of abdomen and pelvis (with and without contrast): Ranges from $425 to $6,089.
- Colonoscopy: Ranges from $1,018 to $6,937.
And the list goes on. Even a routine adult doctor visit ranged from $95 to $362, a 381 percent variance.
Most consumers also don’t know about the fact that the price variance is for in-network providers. Many people assume that if they go to an in-network provider, the insurance company has negotiated the same reimbursement for all of them. Clearly, not true.
So let’s explore why these price variations ultimately impact employer healthcare costs, and what you can do about it.
The Uninformed Employee and the Rising Cost of Employer Benefits
Let’s take a quick look at what usually happens when the average person, an employee at your company (or their covered dependent), needs healthcare services. Let’s say this person needed the same knee surgery I had. A typical team of medical professionals needed would include a doctor, a specialist, a surgeon, an anesthesiologist and a physical therapist.
After everything is said and done, the patient on a traditional healthcare plan may have paid anywhere from $50 to as much as $1,000 total for all the required care. This patient would know how much he or she paid, but how much did the doctor actually charge for the office visit? How much did the specialist charge? How much was the MRI? The surgery? The physical therapy? And ultimately, the cost to you, the employer?
The average person would have no idea, nor would he or she think to even have this issue on the radar whatsoever. And therein lies the problem.
Because it is the employees of a company and their covered dependents that have all the control of what’s being spent on claims, the employer is at the mercy of that process, and will see a large renewal increase if claims amount to more than expected.
3 Ways to Lower Healthcare Costs: Consumerism, Transparency, Education
Consider this: On average, a person spends only 19 minutes when shopping for his or her benefits coverage; according to a February 2014 presentation by Assurex Global, this is less than any other major purchase like a TV or computer.
Can you imagine if employees had the proper incentive to do the price and quality research when they needed healthcare services? We could massively reduce healthcare costs by simply treating the purchase of medical services as we do with any other major purchase. Proper plan designs and price/quality transparency together are called “high-value” healthcare, and it is proven to work.
The good news: The game is slowly changing to give proper incentive to those shopping for healthcare. Healthcare providers are beginning to provide more and more cost and quality information. Right now, most of that’s geared towards the government collecting data, which it can then make public.
However, many of the insurance companies are now providing tools for employees to easily obtain cost information, and quality information is improving – a big improvement from only 5 years or so ago when provider contract agreements specifically banned the insurance companies from providing this information.
And while the spotlight lately has been on initiatives like public and private exchanges, these are not the “silver bullets” to reduce rising healthcare costs. The real answer is educating your employees and empowering them with tools to easily shop for cost and quality.
1. Consumerism: Consumer Directed Health Plans
Consumer directed health plans (CDHPs) such as health savings accounts (HSAs) have been growing in popularity since their inception in 2003 because they’re beneficial for both employees and employers.
Instead of having a traditional PPO or HMO that leaves a person with little to no incentive to find out where the best prices are for a health visit or procedure, the HSA puts the power in the consumer’s hands to do that research.
Here’s why: HSAs are bank accounts where money is deposited and taken out tax-free. Employees also earn tax-free interest on their contributions, and can use the account to pay for their medical expenses.
HSAs are creating smarter consumers because:
a) They have a high deductible that they are responsible for.
b) They are allowed to keep the money if they don’t spend it.
HSAs have been proven to make more informed shoppers. In fact, Anthem research from 2014 also showed more than $9,000 in cumulative savings per employee after four years in a CDH plan.
2. Transparency: Medical Costs Availability
Five years ago, if I wanted to schedule a knee surgery, I could have called 15 different places to ask how much it would cost, and none of them would have told me. Even the insurance company would have had a tough time telling me how much it would cost. In some cases, the contracts the carrier signed with the providers wouldn’t let them.
This is changing considerably. Now, consumers can go onto Anthem.com, for example, and look up procedures to see how much each facility charges or how much is going to be paid for that surgery at different providers. This is true for all major carriers like Blue Shield, Cigna, UnitedHealthcare and Aetna.
There are other third-party transparency tools emerging such as Castlight Health, MPower 360, and Healthcare Bluebook, to name a few. These organizations help employees navigate through the confusing maze of providers, and where the high-quality, low-cost facilities reside.
3. Education: Research and Awareness of Healthcare Options
As an employer, there are several next steps you can take to help reduce healthcare costs;
- Learn about the advantages of high-deductible healthcare plans and HRAs/HSAs, and be ready to communicate those advantages to your employees if you choose to offer those plans.
- Make sure your employees know the best way to get the most from their plans by providing resources on how to shop for providers and procedures. The more people know, the better decisions they’re going to make, and the lower the cost of the premium to you, the employer.
- Communicate strategically about the importance of healthcare shopping to employees. Sharing increases to costs and potential savings may be more impactful than issuing a standard memo from human resources.
Lowering healthcare costs and trends is not an easy task, but implementing the right strategies and tools to encourage high-value healthcare purchasing has proven to do just that for many of our clients. In a future post, I’ll discuss in more detail high-deductible healthcare plans, and how they can benefit both employees and employers.