How Late Will Late Adopters Be Late?


It’s been eight years since I wrote Health Care Strategies for Texas Political Subdivisions:

Since then there have been early adopters who have blazed the trail for others to follow. But most Texas political subdivisions still have their heads in the sand.

By Bill Rusteberg

It’s been eight years since I wrote Health Care Strategies for Texas Political Subdivisions. Since then there have been many early adopters who have blazed the trail for others to follow. But most Texas political subdivisions still have their collective heads in the sand.

Some political subdivisions are now at a crossroads. They now know they are paying third party intermediaries a lot of money for the privilege of overpaying for health care. Their TPA has provided them irrefutable evidence they are paying many multiples of Medicare through secretive managed care contracts they cannot see nor audit. If they continue their health plan the old fashion way relying on PPO contracts negotiated between PPO networks and their provider partners in smoke filled rooms, they must understand that pleading ignorance is not an option for inaction anymore.

These employers, though, continue to complain that claims are not getting lower compared to last year, or the year before that. Claims, instead, go up year after year.

Their solution? I recently saw a video of Commissioners Court at Guadalupe County, Texas wherein the court was struggling with what to do with their upcoming renewal. Claims were running high, reserves were at a dangerously low level, and an imminent rate increase was coming. Their consultant gave a 45 minute analysis of the terrible news.

His presentation was essentially the same one I was using in the late 1970’s and 1980’s. It went something like this:

“There is not much we can do about health care pricing. Costs are going up due to an aging population, new technology and inflation. We have the best and most advanced health care system in the world. The best way to control costs is to cost shift to the employees. Let’s try that and see if it works. Maybe later we can give them back better benefits. Plus, we must install a Wellness Program so your employees can be taught how to take better care of themselves (because they are too dumb to know whats good for them………….. and besides it’s their fault claims are so high?)……. !”

A group properly managed by an independent TPA would know better.

If I had been the consultant at Guadalupe County I would have acknowledged ever increasing claims and the reason why by saying:

“Yes, you are right, your claims are up and you can bet they will keep going up. As long as you continue to rely on secretive managed care contracts, gifting public monies through contracts whose prices are not disclosed, and which contain annual escalator clauses, and egregious stop loss provisions tied to turbocharged hospital chargemaster rates (Hospitals Dismiss Significance Of Chargemaster Prices?), your medical costs are guaranteed to increase year after year. As you know, while paying your claims under your PPO contract,  we have also  repriced 100% of your claims benchmarked against Medicare allowable rates for comparative purposes. For the first time ever you now know you are paying, on average, 338% of Medicare (Actual case for a Texas school district) for your health care, or 50% more than you should. And you are paying enormous fees for the privilege of paying more. You cannot plead ignorance. Failure to act now is not an option, your fiduciary duties precludes inaction. Other Texas political subdivisions are predictably and measurably saving 30% to 50% or more off PPO driven pricing. And, some of them are going to the same medical caregivers you are. At this point, doing nothing is not an option.”

Of course a lack of Texas size Cojones among many political subdivisions, as illustrated in the current biennial legislative session at the state level, (Has Texas Lost It’s Cajones?) precludes any meaningful chance for consideration of common sense alternatives. The status quo is so ingrained that reason and logic is not part of any sensible equation.

Early adopters of reference based pricing strategies on the other hand have experienced flat trend, time and again (Beating Medical Trend – Managed Care vs Reference Based Pricing). Yet their contemporaries, known as Plan Sponsor Eunuchs, pay 50% or more for health care using the same doctors and hospitals.

How late will late adopters be late?