When the independent think tank finds that on average, prices paid to hospitals by younger, healthier policyholders were 100 percent higher than what Medicare would have paid for the same procedures, it’s easy to understand the impact that payment contracts based on what Medicare pays can have on health plan costs.
In contrast to traditional fully insured plans, self-funded health plans with reference based pricing (RBP) enable consumers to learn the cost of treatment before they receive it. This is the advantage of basing provider payments on publicly available cost and quality data rather than arbitrary network discounts. And because Medicare varies its pricing by geographic region, providers are compensated fairly, and medical price inflation can be controlled.
From Big to Small
While very large employers were early adopters, the model is becoming far more commonplace among smaller groups that partially self-fund. TPAs are helping some of these plans realize overall savings in the 20 percent range and for a plan with 300 members, this can mean annual savings of $1 million or more.
In a marketplace that has lacked transparency and accountability for far too long, Medicare reference is proving to be not only a market disruptor, but an approach that can help employer-sponsored health benefits thrive. Contact us if you want to learn more about how a RBP plan could work for you.
In 2017, according to the Centers for Medicare and Medicaid Services, healthcare spending for every man, woman and child in the U.S. totaled nearly $11,000 – more than any other wealthy country. The interesting thing is that very few of us really know what goes into this number or who pays the bills. Here are a few facts you may find interesting.
The average cost of employer-based health insurance for a family in 2019 was $19,616.
The Census Bureau reports that 91.5% of Americans have health insurance coverage.
In 2017, the average ER visit cost about $1,400 – an increase of 176% in 10 years.
Federal, state and local governments currently pay for about 45% of all healthcare services.
From 2000 to 2016, spending on prescription drugs rose by 69% – more than any other component.
The Kaiser Family Foundation reports that in the past year, 50% of Americans put off needed healthcare because of cost.
In a recent decision by the U.S. District Court for the District of Columbia, the AHA lost its bid to avoid having to disclose rates hospitals negotiate with insurers. While an appeal is expected, this is a win for the administration, which is committed to providing patients with understandable information about the cost of medical services.
The rule approved last year required hospitals to post a list of standard charges and
rates they charge for diagnostic-related groups (DRGs). These charges were, however,
posted as “chargemaster rates” – a format that meant little to the general public.
By requiring that hospitals post median prices negotiated with commercial health
insurers, CMS believes that providers will be forced to compete on price and that
consumers will be better able to make informed choices.
In other developments, the Trump administration was stopped from requiring that
drug companies disclose prices in their TV commercials. The President also brokered
an agreement with drug companies and insurers to limit Medicare recipients’ copays
on insulin to $35 a month. This will go into effect in 2021.
Inflation-adjusted limits for contributions to health savings accounts and high deductible health plans for the coming year were just announced. According to the announcement, eligible individuals with self-only HDHP coverage will be able to contribute $3,600 to their HSA in 2021, an increase of $50 from 2020. Those with family coverage will be able to contribute $7,200 in 2021 and those who are 55 years of age or older will be able to make an additional “catch-up” contribution of $1,000 to their HSA.
While minimum deductibles for HDHPs will remain the same for 2021 plan years at $1,400 for self-only coverage and $2,800 for family coverage, the maximum limits for out-of-pocket expenses will increase to $7,000 for individual coverage and $14,000 for family coverage.
With nearly 40 million workers laid off or furloughed as a result of the Coronavirus, many organizations have urged Congress to expand COBRA coverage. Most of their concerns are focused on encouraging Congress to subsidize COBRA premiums for these workers so that existing health conditions will not get worse because care is delayed.
To date, the Department of Labor and the IRS have extended the time period workers have to decide to enroll in COBRA. With the President’s order setting the end of the national emergency for COVID-19 at June 29th, individuals would have until August 28th to enroll in COBRA. DOL and IRS have also given workers 30 days beyond the end of the national emergency to pay their COBRA premiums for March, April, May and June. Should the Administration decide to extend the national emergency, these timelines would be adjusted accordingly.
America’s Health Insurance Plans, a national trade association whose member companies provide insurance coverage and health-related services to consumers and businesses, has released a study revealing the breakdown of today’s healthcare premium dollar, as follows:
23.3 cents of every premium dollar is used for prescription drugs
22.2 cents cover the cost of physician services
20.2 cents are used to pay for office and clinic visits
16.1 cents are used to cover hospital stays
13.5 cents are applied to care management, administrative expenses, business expenses, provider management and other fees
4.7 cents of every dollar go to taxes, and…
AHIP reports that on average, 2.3 cents of every premium dollar make it to the bottom line as net profit.
A recent IRS proposal would enable workers to use ordinary health reimbursement arrangements (HRAs) to pay for direct primary care program memberships. In addition to giving workers the peace of mind in knowing they can fix the costs of primary care, the proposal would help primary care doctors reduce the time and money they spend on administrative work and make them far more efficient.
The IRS says this would be accomplished by declaring that payments for direct primary care arrangements and healthcare cost sharing ministry memberships are expenses for medical care under Internal Revenue Code Section 213. While this step will have a significant impact on healthcare providers and payers, there are sure to be many questions asked within the health benefits industry. The period for comments on this proposal will run through August 10, 2020.
When President Trump signed the Families First Coronavirus Response Act into law in mid-March, employers with fewer than 500 employees became responsible for providing paid leave to certain employees through Dec. 31, 2020.
The benefit extends to employees unable to work or telework due to the need for leave to care for a son or daughter under the age of 18 that has been impacted by the closing of a school or place of care as a result of a federal, state or local emergency declaration. According to the law, the first 10 days of this leave may be unpaid but provided with pay after 10 days at a rate no lower than two-thirds of an employee’s regular rate of pay. Paid leave is not to exceed $200 per day or $10,000 in aggregate and employees cannot be required to use available paid time off before receiving the benefit. This expansion applies to employers with fewer than 50 employees even though they are not currently subject to FMLA.
Uninsured people needing medical treatment for the coronavirus will be able to get that treatment without concerns about out-of-pocket costs or unexpected charges. Thanks to the federal stimulus package passed by Congress in early April, hospitals and healthcare providers that treat these folks will be paid for unreimbursed care at current Medicare rates.
While the law does not require that health insurance carriers and employer-sponsored health plans waive cost-sharing charges such as deductibles and coinsurance for coronavirus patients requiring medical treatment, many groups are pushing for this relief. In response, some large insurance carriers and health plans have said they would waive out-of-pocket costs for in-network COVID-treatment through the end of May. Pressure for this relief is expected to mount as shutdowns of non-essential businesses continue and more and more workers are laid off or furloughed.
Relief for HDHPs and HSAs
In another emergency ruling, the IRS said that HSA users with high deductible health plan coverage can use their coverage to pay for testing for SARS-CoV-2, the virus that causes COVID-19 pneumonia, without having to be concerned about satisfying the minimum deductible requirements common to HSA coverage. The same flexibility will now also apply to HSA account holders who need to use their coverage to pay for treatment of COVID-19 pneumonia. The IRS has cautioned that this guidance only applies to the COVID-19 emergency and does not void the other requirements governing High Deductible Health Plans and Health Savings Accounts. Since regulations and requirements regarding benefits for COVID-19 continue to evolve rapidly, plan members are advised to consult their health plan before seeking testing or treatment.
The Kaiser Family Foundation reports that annual premiums for employer-based, family coverage increased to $20,576 in 2019. This represents a one year increase of about 5 percent and a pattern of similar increases each year throughout the past decade, significantly outpacing the rate of annual inflation over the same period.