With the cost of health insurance growing to unsustainable levels, employers are desperate for a way to stop the skyrocketing expense. Healthcare costs are predicted to reach $30,000 by 2020 for a family of four, according to a 2016 Benefits Benchmarking Survey. And according to a study of independent insurance agencies, the median in-network deductible with an employer-sponsored health plan increased 50% in 2016.
There is a growing recognition by employers that the old approach of raising deductibles and increasing the premium contribution from employees will no longer work. As a result, employers are coming full circle from the 1980s when the idea of inserting an intermediary between the employer and the healthcare provider arose in the form of a Preferred Provider Organization (“PPO”) or managed-care company.
An increasing number of employers, particularly mid-market firms, are going back to removing the middle-man altogether, and working directly with healthcare providers.
In a recent study conducted by Oliver Wyman, nearly half of all employers said they would be interested in contracting directly with provider organizations. The direct contracting approach offers savings of as much as 40% over traditional fixed cost PPO health plans.
While the approach of direct contracting—for the most part—has been limited to large employers such as Boeing, Intel and Walmart, this too is beginning to change as self-funding grows in the middle market. According to the Employee Benefit Research Institute, the proportion of midsized companies with 100 to 499 employees that were self-funded increased 19%, to 30.1%, between 2013 and 2015.
Spurring this growth is a new insurance product known as a stop loss group captive. This health insurance solution enables employers with as few as 25 employees to self-fund their employee health benefits while mitigating the volatility that historically prevented smaller employers from utilizing the cost-cutting strategies 98% of larger employers utilized for years.
To explain, the most damage in today’s health insurance market is being conducted by managed-care intermediaries that hold employee health data hostage. A medical captive eliminates this bad behavior and opens the door for employers and their providers to take control.
Cost containment is impossible without health data, and with claim data transparency, employers are able to take action and mitigate rising costs. In addition, strategies to reduce the cost of pharmacy, chronic care and preventable illness are best delivered by the clinicians of the provider under a direct relationship with the employer.
As such, the direct contracting approach is a community effort. All participants—from the CEO of the provider system to the employee to the CEO of the employer—work together toward a common goal of improving health and eliminating waste.