“By the time you add third party intermediary fees of $1 million and consider the additional balance billing liability to plan participants, Reference Based Pricing may not make much sense to those in the domino parlor.”
Insurance Agent Touts Cost Plus Insurance – Is School District Receiving Fair Value?
By Bill Rusteberg
A San Antonio independent school district budget committee met a few years back to hear a presentation from their insurance Agent of Record regarding the financial performance of their Reference Based Pricing Insurance Plan known to some in the industry as Cost Plus Insurance.
Reference Based Pricing / Cost Plus Insurance doesn’t use a PPO network. Instead, providers are paid based on cost, plus a margin, or a Medicare reimbursement benchmark is used as a claim payment basis.
In a power point presentation, the insurance agent showed a clueless audience some impressive numbers. For purposes of simplicity, here are the numbers rounded off:
Total billed facility charges of $8 million. After adjudicating the claims based on cost, plus a margin, or Medicare reimbursement bench marking whichever is greater, the allowed charges were reduced to $2 million. That is a “savings” of $6 million, or a whopping 75% discount off billed charges.
The third party intermediary which re-priced the claims received a fee of $1 million (above and beyond claim administration fees). That fee has to be added to the $2 million in allowed charges bringing the total cost to the school district to $3 million. The addition of the $1 million fee effectively reduces the 75% “savings” down to 62% (Isn’t that the Blue Cross magic number for San Antonio?)
Since there are no managed care contracts in place, providers may balance bill patients. That liability is borne by the patient, not the plan. This potential liability is not factored in the above numbers.
Among the BUCA (Blue Cross, United HealthCare, Cigna, Aetna) representatives, this reimbursement scheme is called Cost-Plus-A-Lawsuit.
If the district’s plan had been operating under a traditional managed care contract, would they have been better off?
Let’s look at the numbers:
In San Antonio, whether true or not, the BUCA’s tout average facility discounts of 60-75%. Let’s take the lower number. A 60% discount off billed charges in this case would produce an allowed amount of $3.2 million. There would be no additional liability for balance billing attempts, a liability which under Texas law may hound plan participants for as long as 6 years after date of service as well as perhaps far past the date of termination of the Cost Plus Insurance plan at the district, which will occur at some point in the future.
$3.2 million is a large number when compared to $2 million under Cost Plus Insurance. But by the time you add third party intermediary fees of $1 million and consider the additional balance billing liability to plan participants, Cost Plus Insurance may not make much sense to those in the domino parlor.
Where did the third party intermediary fee of $1,000,000 come from? Answer: Directly from health care provider’s pockets (Cup 1) to the third party intermediay’s pocket (Cup 3).
Cost Plus Insurance is becoming a growing market trend these days. With increasing competition among third party intermediaries, fees vary among vendors. The fees in this case are the highest we’ve seen in the industry.
The good news is Cost Plus Insurance, or Reference Based Pricing may make sense (but not always) if structured properly and priced right. In this instance neither is the case.
This San Antonio school district (Edgewood ISD) has since terminated their Cost Plus Insurance Plan and entered into a traditional PPO plan through United HealthCare.
