The Next Phase of CDHP…And What Reform of Healthcare in the United States Should Be…

Back at the advent of PPOs, health insurance deductibles were extremely low, the insured covered by a group health plan had very little out-of-pocket liability, and the cost for a group health plan was a fraction of what it is today in relative dollars.  So, what happened to this concept and just where did things go so wrong?  Why is that in the era before group health plans and managed care that medical services were so readily available and relatively inexpensive?

In this author’s opinion, there are three major reasons for our healthcare debacle: provider abuse of the system; ridiculous judgments by our judicial system and government intervention in general; and finally, but just as important to the financial sustainability of our healthcare system, the lack of financial responsibility of the patient.

After the insured has met their deductible and out-of-pocket maximum, providers are many times free to do whatever they want by continuing to provide the patient with services that are of “medical necessity” in their judgment.  For the most part, the services that are recommended by the provider are accepted by the patient without much question, partially because the patient has no further financial responsibility.  “Who cares?  The insurance company will pay for it” was, and still is, the prevailing attitude among those who have met their out-of-pocket responsibilities.  This problem is obviously going to escalate with the continued decrease in patient responsibilities under healthcare reform.  Sprinkle in the ridiculous judgments of our judicial system that have been raising malpractice insurance rates and other provider liabilities over the years, toss in the fact that after meeting deductibles and out-of-pocket maximums patient’s have no incentive to make sound financial decisions on their treatment, and there you have it…a system out of control!

These reasons, my esteemed colleagues, are THE fundamental problems with our healthcare delivery system, NOT the insurance carriers making too much money and having no competition. (Are you kidding me Mr. Obama?  No competition? Then why don’t you have our government investing in the health insurance companies?  And by the way, did you happen to mention to the American public that the majority of employees covered under group plans are actually self-insured by the employer, so there is no insurance carrier reaping the benefits?).  Have you noticed how hospital systems all over this country are growing by leaps and bounds?  THEY are the ones making most of the money in our healthcare delivery system.  I can tell you that my health insurance company stocks are most certainly not!

Okay...I’ll step down from my anti-PPACA soapbox and get back to topic...employee-paid benefits.  So, just what should we do if employers still wish to provide valued benefits to their employees AND effectively control costs?  There is a unique and simple solution that bundles the high-deductible “Consumer-Directed” concept (i.e. the insured taking more financial responsibility for their healthcare decisions) and combines it with a voluntary supplemental, $0 deductible defined benefit health plan that will cover the most frequently utilized healthcare services (Phys. Office Visits, Diagnostics and Rx), and for a relatively nominal cost.  The cost for this “first layer” of fixed-indemnity limited medical coverage averages about $100 per single employee per month.

This Defined Benefit + Stop-Loss model is being dubbed by its creators as the “Benefit Partnership” concept.  The basic idea behind the model is to create a healthcare partnership between the employer and its employees.  Since employee contributions are continuing to increase as their employer needs to continue to shift costs to manage rate increases, the basic premise of employees sharing in the cost of insurance will be nothing new and unreasonable to most employees.  The “partnership” is created in that the employer will absorb the entire cost of the high-deductible to cover large claims, and the employee would pay for the underlying limited medical coverage if they would like coverage for routine and maintenance services – but only if they want it.

The employer has the option to design a major medical plan that would have a deductible of $5,000, $10,000 or maybe $15,000, depending on their budget and risk appetite.  Employees, in turn, are offered several different levels of first-dollar limited medical plans (fixed-indemnity that are not subject to PPACA regulations) that will cover most routine and essential services that fall underneath the high deductible amount.  This underlying coverage can be entirely employee paid (and pre-tax), employer paid, or a combination thereof (e.g. the employer might pay for a lower level limited medical plans and offer the employee a buy-up).

In one case example, a group provides a major medical plan that has a single employee deductible of $10,000, and is willing to take some risk and purchases reinsurance over a specific deductible of $75,000, and also provides a defined benefit limited medical plan that will generally pay about 85% of expenses incurred below the deductible level, the TOTAL cost for this plan would average about $225/single employee/mo.  Due to budgetary constraints, if the employer wants to make the underlying fixed-indemnity medical plan entirely voluntary, their share of that cost would be less than half of that $225/month! (In addition to the self-funded risk, of course).  If the employer does not wish to take any risk, and fully insure the high deductible, average savings are still substantial.

This two-pronged approach is a tremendously cost-effective solution, which after routine services, transfers some financial responsibility to the insured so that they will be motivated to “shop” for their services and not abuse the insurance plan – especially considering the defined benefit structure of the underlying limited medical plan.  Therefore, the “GAP” in coverage is between the first-dollar limited medical coverage and the high deductible plan, but this would generally be comparable to a gap at the front-end of a high-deductible plan in terms of overall exposure.  But the key advantage with this model is that the majority of the time, the first-dollar limited medical coverage eliminates most of the out-of-pocket costs for the insured.  Perfect!

This concept is truly a Win-Win for the employer and its employees, and can also be a win for the savvy broker or consultant that is willing to think outside the box.  This concept is truly a method to better ensure the economic sustainability of group healthcare in the United States.  Economic sustainability is where our government should be focusing its “reform” initiatives – just as the private sector is forced to do to ensure its survival.  That is unless it gets bailed-out by the government…that is the taxpayers and consumers of goods and services sold in this country.

About the Author

Jerry Van Ness is the Director of Sales for The American Worker Plans, Inc.  In his 20 years of experience in benefits he has represented several leading group insurers of all types of health & welfare products and administrative services, retail benefits consulting, and risk management at the employer level.  He can be reached at Jerry@TheAmericanWorker.com or 866-215-9300.