I first entered the business of employer self-funding of healthcare plans in 1992. At the time, self-funding (or partial self funding) was relatively new to all but the largest of employers. Unfortunately unwitting brokers and administrators often led employers into poorly crafted plans that left employers holding the bag for run-out claims or deficit carry forwards. I spent a great deal of my time then explaining the difference between self-funding done correctly, which was safe and effective, versus self-funding done incorrectly.
With the growing popularity of reference based reimbursement or cost plus services to replace the failed PPO system, I once again find the need to explain the difference between RBR/Cost Plus done correctly and the incorrect application, which can often lead to significant employer/employee angst.
RBR/Cost Plus offers employers the opportunity to lower healthcare charges by 30% or more and will soon dominate the healthcare landscape replacing the current PPO system that often grossly overpays hospitals and physicians. However, as with self-funding, there are correct and incorrect applications of this type of program that will definitively lead to an employers’ success or failure.
The first mistake most RBR/Cost Plus plans make is in the application of claim re-pricing. Many administrators assume that a singular benchmark like Medicare is in and of itself a sufficient mechanism for a commercial claim. While Medicare, as the largest payer of health provider services in the US, can be one reasonable benchmark within a cadre of benchmarks, it often will not result in fair and just reimbursement to providers when used alone.
The second most significant mistake plans make in attempting RBR/Cost Plus application is variability of fiduciary responsibility and decision making. For RBR/Cost Plus to function effectively there needs to be a named fiduciary within the ERISA plan document where the buck stops for all decisions. If multiple parties involved in a plan have the ability to override decisions or exercise discretion, it will create “chinks in the armor” of the program that will be susceptible to attack and the possibility of failure will increase dramatically.
The move away from PPO plans to RBR/Cost Plus involves a paradigm shift in the way a health plan is managed and applied, so a significant amount of education for employers, employees, and dependents is absolutely essential. Some so-called experts suggest that US employees are not smart enough to participate in the healthcare buying system. I completely reject that assertion. All of us manage our money to some level or degree every day and employer sponsored plans are made up of co-mingled funds with employees now contributing up to 40% of that fund. Employees at all levels of education would be appalled at how PPOs allow charges for toothbrushes of $1,000 or more or extra bed pillows at $400. If employees are shown how to apply the same kind of prudence and logic that they apply when buying a flat screen TV or car to healthcare they can and will become eager participants in the purchase of healthcare services. A quality RBR/Cost Plus system will offer tools and member support to educate employees, in addition to very proactive member advocacy to address any issues related to specific hospital bills.
Finally, few companies are set up to manage RBR/Cost Plus plans effectively. It is not a clerical process and thus requires significant acumen with regard to many state and federal laws and regulations as well as provider services and finance. Your company should carefully consider altering your group health-plan to an RBR/Cost Plus solution as it is the only way you will receive fair value for the healthcare dollars you spend. However, it is extremely important that you look beyond the possible dollar savings and choose a partner that is experienced and capable and one that will make the paradigm shift a positive one for a company and its health plan members.