Insurance Agent Touts Cost Plus Insurance – Is School District Receiving Fair Value?

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“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.”

By Molly Mulebriar

A San Antonio school district budget committee met earlier this year to hear a presentation from their insurance Agent of Record regarding the financial performance of their Cost Plus Health Insurance Plan for plan year 2014-2015.

Cost Plus Health Insurance does not 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 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, the allowed charges were reduced to $2 million.  That is a “savings” of $6 million, or a whopping 75% discount off billed charges. See Hospitals Dismiss Significance Of Chargemaster Prices?

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%.

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, 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. See City of Lewisville Publishes Health Insurance Analysis – Compares Cost Plus To PPO (Scroll down 11 pages to Milliman Report)

As a side note, cash paying customers can expect up to a 50% discount off billed charges almost routinely. See Owe Medical Bills? Don’t Pay Promply, Pay Late & Join The 50% Club

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 have seen in the industry. See Xerox, Eastman Kodak And Cost Plus Insurance

Cost Plus Insurance, or Reference Based Pricing makes sense if structured properly and priced right. In this instance neither seems the case.

It may make sense for this school district to seek competitive proposals this year. After all, it is their fiduciary duty to expend plan funds judiciously. Taxpayers should demand it.

Inside sources at the district have indicated that the current agent of record has  “control of the board” and there are no plans this year to seek competitive proposals. That is bad news for plan participants as well as taxpayers who fund the majority of the costs of the plan.

Molly Mulebriar is an investigative reporter from Waring, Texas – www.mollymulebriar.org

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