With their financial backs to the wall what are plan sponsors to do these days in maintaining an affordable and usable health plan for their employees?
By Bill Rusteberg
Health care finance in this country has become a highly regulated government utility. New regulations are issued almost every day, enough to make your head explode. Essentially none address rising health care costs in any appreciable way. In fact, many of these regulations actually increase health care costs.
No dollar limits on health care, maximum out-of-pocket requirements, minimum loss ratio requirements all contribute to escalating health care costs.
With their financial backs to the wall what are plan sponsors to do these days in maintaining an affordable and usable health plan for their employees?
Risk transfer is one answer, but not in the traditional sense of the word. The traditional risk transfer method is facilitated by ceding risk through an insurance policy. But that doesn’t work out in the long run because the risk is inevitably ceded back to the plan sponsor in the form or higher rates and increasing exposure.
There are other methods of risk transfer more employers are embracing these days. These employers have run out of other options. Yet they are required to offer employees “Affordable Health Care” under government direction and oversight or face punishing government sanctions.
Risk Transfer #1
Specialty drugs are bankrupting health plans with average costs amounting to as much as 25-50% of total plan spend and growing. So why cover these expensive drugs at all? Drug formularies change all the time. Some drugs are dropped from the list while others are added. A list driven formulary can be developed using a dollar amount as the determining factor in which drugs are included and which are not.
Pharmaceutical manufacturers have patient assistance programs in place for those Americans who don’t have insurance to cover these expensive drugs. Most Americans qualify for free drugs under many of these programs. Pharmaceutical manufacturers are hesitant to turn a patient away due to the adverse publicity they will receive if they do so their program requirements are quite liberal. After all they don’t need any more congressional scrutiny these days.
More employers are dropping specialty drug coverage from their plans. From an actuary standpoint, aggregate attachment factors are reduced 18-22% on average which effectively eliminates the risk corridor in stop loss policies. In our experience all affected plan members have been able to qualify for manufacturer assistance programs and receive their specialty drugs for free.
Risk Transfer #2
Internal Revenue Code 501R requires not-for-profit hospitals to have a Financial Assistance Policy in place for community members who cannot afford hospital encounters regardless if they have insurance or not. These financial assistance policies are tied to the Federal Poverty Level (FPL), some as high as 600% FPL. A vast majority of Americans will qualify for financial assistance under these policies.
More employers are designing their health plan as excess coverage to Financial Assistance programs. This effectively reduces hospital expense exposure by 50% or more.
Risk Transfer #3
An additional risk transfer is one few plan sponsors have adopted only because they fear armed IRS thugs knocking on their door at 6:00 am in tow with a CNN camera crew. This strategy has been used by a mid-western TPA for more than a decade and has not been challenged by any regulatory agency that we are aware of.
Risk transfer of high risk individuals within the employer’s health plan is accomplished through the individual health insurance market. Plan document language includes “Plan administrator may terminate a member’s coverage at any time if it is determined to be in the best financial interests of the plan member.”
The employer assists the plan member in purchasing an individual health insurance policy, pays the premium and all out-of-pocket costs (deductible, co-insurance) for the member thereby eliminating high risk individuals from their plan.
We have two legal opinions addressing this strategy: one says “Do it, it’s perfectly legal” while the other says “Don’t you dare do this, you’ll end up on Sixty Minutes!” Plan sponsors considering this strategy would be wise to seek a legal opinion until they find one they like. So take your pick and be happy.
Plan sponsors adopting these risk transfer strategies can take comfort in knowing a move to business friendly Communist China won’t necessarily be an option to consider anymore.
RiskManagers.us is a specialty company in the benefits market that, while not an insurance company, works directly with health entities, medical providers, and businesses to identify and develop cost effective benefits packages, emphasizing transparency and fairness in direct reimbursement compensation methods
