Medium and large employers have found that they can save an average of 30% self insuring the health care of their employees.
And while policymakers and pundits lament the need for healthcare reform, self insured groups have the power to save an additional 20% themselves, with the simple addition of quota share stop loss coverage and a triage service based on price, outcomes and location..
In the United States, a self-funded health plan is generally established by an employer as its own legal entity, similar to a trust. The health plan has its own assets, which, under the Employee Retirement Income Security Act of 1974 (“ERISA”), must be segregated from the employer’s general assets. The health plan’s assets are derived from pre-tax (in most cases) contributions made by employees, and sometimes additional contributions made by the employer.
The contributions to the health plan’s assets are required to be immediately segregated from the employer’s general assets. Any claims incurred by plan members in excess of the amount contained within the health plan’s pool of assets are the sole responsibility of the employer. The employer, in that case, must deposit its own funds into the health plan’s trust account sufficiently to fund any outstanding claims liabilities.
There are currently over 80 million employees in the US whose health care is partially or completely covered by employer's self insurance.
Healthcare is unique as the largest industry in the US lacking meaningful transparency for consumers in terms of pricing and quality of care. Because consumers typically don't pay for healthcare services themselves they have no incentive to comparison shop. And while health care facilities do not post their prices to the public like most every business is forced to do, data on pricing and outcome quality is available by reviewing data that facilities submit to Medicare.
In reviewing this data, a couple of very striking issues stand out.
Prices for the same procedure range by up to 200% or more even within the same region. And prices Nationwide can range even more. For example a heart transplant in Stanford California will cost you $2.2 million. However the same heart transplant in Dallas will cost you only $400,000 one fifth of the price. Ironically the man set to overtake the world record for longest survivorship of a heart transplant is Ralph Thornton in Dallas who had his heart transplant in Dallas.
The disparity in prices do not match the disparity in quality of care. this is Illustrated attic get away with the example above but detailed review of health care facilities and their outcomes demonstrate that pricing is a result of young facilities cost structures, pricing policies or other factors and not necessarily a result of Market forces as most Industries.
Referring healthcare providers based on price and outcomes, instead of by random chance opens up very large cost savings opportunities. By taking into account the location and considerations of the facility such as price and quality it may in many circumstances actually be more practical to refer employees across town or even out of state at their discretion as a sort of paid vacation or domestic medical tourism.
This process is not difficult and does not need to inconvenience employees. As stated above the ultimate decision of where to go can be left to the discretion or approval of the employee. And while employees may nominally say that they are concerned about quality rather than price, the reality is that most patients do very little research into the healthcare facilities they are referred to. Rather they typically go to wherever they are referred to.
In fact, given the large price disparities, an employer could offer incentives such as travel allowances and even cash bonuses for using lower cost facilities. And, with the availability of outcome data they will often see that there are cheaper alternatives with better outcomes in more enjoyable settings for them. Indeed, the whole process could be be structured as an employee perk or sabattical or paid vacation.
We have analyzed and graphed over 15,000 medical procedures by price around the country by DRG code, facility, and state. The following andomly chosen graphs of procedures demonstrate the large disparity in prices even within the same state. (contact the author for free copies of other state or procedures comparisons).