Financing and administering health care through a self-funded employee welfare plan takes many forms. Financing is accomplished through mix of employee and employer contributions – determining the money value of the plan, current and projected is easy. Determining the actual value is not as easy. Determining who shares in the money sometimes takes a path of convoluted twists and turns.
Money value of a plan is not the same as the value attributed to actual health care dollars to be expended. It costs money to pay a medical care provider in addition to what the provider receives for service, but how much is enough to actually pay a claim?
A city in South Texas thought that paying for a routine cleaning every six months under their self-insured dental plan was fair; local dentist’s average charge for an adult teeth cleaning ran about $64 back in 2007. And the claim administrator at the time charged only $3.75 per employee per month to administer the city’s dental plan. But in reality the city was paying an additional $68 to pay a $64 claim. Ironically it cost the city more to pay a claim than the claim itself.
A further review of the city’s health care finances showed that it took over $500,000 to pay $ 1,500,000 in medical claims. Why? What was the real money value of the plan – $1.5 million or $1,000,000? Or $350,000? Or………
A careful examination of the $500,000 associated with paying the city’s health claims showed three things; unecessary add-on expenses, ill structured stop loss insurance and money flow profits and fees to third parties whose contracts were not directly with the city, but rather with the city’s third party administrator.
Common sense would dictate that it should not take $500,000 to pay $1,000,000 in claims. In reality, it took only $200,000 to pay $1,000,000 in claims. So much for the fixed cost examination.
How about the claims side of the ledger?
The city was accessing a rental PPO network and paying a fee to do so. Claim repricing reports showed (as opposed to proved) that the city was enjoying tremendous PPO discounts and “saving money.” Yet, a careful examination of true health care costs at designated facilities showed that the city was paying on average +300% above cost. And on the physican side, paying on average 140-240% RVRVS. The city’s health care fund was an attractive Honey Pot for intermediaries, and health care providers. Common sense wandered in the wilderness.
So, this city was actually paying about $850,000 or more for a $1,000,000 benefit. Of the $150,000 balance, employee contributions were about $127,000, or 85%.
Another public sector employer’s health care plan was valued at approximately $2,100,000 by the TPA hired to administer the program. Documentaion provided “proved” the value factor. But in reality the actual cost of the program was less. Hidden revenue streams showed that the cost to administer the plan was inflated by over 200%. Of course, not all of this revenue stream was hidden, just most of it. The epitomy of lack of common sense in this case was that the TPA was not only charging a claim administration fee, but they were charging a $7.50 claim transaction fee. In essense, the TPA was charging their client a “check cashing fee” much like Western Union or other vendors charge to cash a check.
Imagine, having to pay $7.50 for each check your TPA writes off your own account. Where is the common sense on that? Never mind that many claims are unbundeled and a separate check written for each sub-charge. What stupidity.
Yet another public sector group, a large school district, is an interesting example of how not to structure a self-funded health plan. PPO discounts are illusory, medical care costs are inflated locally above state averages, and hidden revenue streams exist in most of the subcontracts within the plan. A careful review of existing contracts shows descrepancies that have yet to be explained, although attempts have been made to “explain away” uncomfortable facts and issues. So what is the true cost of this plan? Chances are the true costs are significantly less that what the district is paying.
Reviewing, structuring, analyzing a self-funded health plan does not take a rocket scientist. It only takes common sense coupled with an inquiring mind. There are truthful answers to every question, and prudent plan sponsors should ask as many questions as needed to seek the truth about the true value of health care.
