Healthcare is the Biggest Opportunity For Economic Expansion

Healthcare is arguably the biggest opportunity for economic expansion in our communities.  Allow me to illustrate:

The Largest 10 Employers in Amarillo employ approximately 20,000 local residents.  That’s 10% of the entire City’s population, employed by just 10 organizations. (I know, wicked math skills).

If each of those 10 employers reduced their annual healthcare/benefits spend per employee per year by $1000, which is completely possible, that is an additional $20 MILLION that can potentially remain in our local economy.  *There are 10,000 employers in Amarillo….imagine the economic impact if 10%, 20% of local employers started doing this.

What can companies do?

Now, how do companies reduce their healthcare/benefits spend $1000 Per year Per employee?  A combination of innovative solutions that address inpatient hospital pricing, specialty pharmacy, primary care, ER utilization, outpatient procedures and surgeries, imaging and diagnostic testing costs, outlier claims, and managing chronic conditions like diabetes.

Companies have purchased healthcare/benefits a certain way for decades now.  The overwhelming majority still believe the “best” or “most economic” way to deliver healthcare to employees is via a pre-packaged insurance policy from a big insurance company.  This simply isn’t true.  Big insurers make it easy for employers to buy insurance, true, but how well have they controlled costs for employers?  Why do rates always go up?  Why have health insurance costs risen twice as fast as wages for the past 20 years?  Why does your insurance plan pay $5500 for a single MRI when I can get it for $500?  How did ACA impact the way health insurance companies make profits?

These are all questions that employers (the real purchasers of healthcare in this country) should be asking.  Problem is, they’re struggling to find people who can actually answer these questions.

The $16,000 CT Scan….yikes!!

About a year ago, I picked up a new client after almost a year of conversations about all these things.  One day, in a meeting in his office, I asked him if he would be willing to share his health plan’s data with me.  (they were/are self-funded).  Claims data, utilization, participation, high claimants, trigger reports, IBNR reports, the whole 9 yards.  He agreed.

After a few hours of analysis, I came upon the high claimant report, where an employee had incurred $30,000 of medical claims in one month.  Upon further inspection, I discovered that this company’s self-funded plan had PAID $16,000 for a single abdominal CT Scan.  One scan, $16,000!

I initially thought this had to be a typo, but it wasn’t.  The employee had gone to an emergency room with abdominal pain, the provider ordered the CT, and then billed the employer almost $50,000 for the scan and ER visit.  After the “PPO discount”, the member was billed their deductible, and the plan PAID almost $20,000 for this episode, $16,000 for the scan alone.

This is a scan we can get for $375, so how on earth did this happen?  I’ll tell you….it’s because no one was paying attention, including the TPA who adjudicated and paid the claim! 

It was time to inform the employer, which I did in a follow-up meeting.  He asked if there was any way he could get it fixed, and I said there was.  That is the day he hired me to be his advisor.  After that, we were able to recoup the majority of that $16,000 that was improperly paid to that provider.  But if I hadn’t been analyzing his claim spend, it would have never been caught.

Better understanding the healthcare finance model

Proactive plan management isn’t something employers are used to doing.  They think to themselves, “We buy insurance to protect us from things like that”, and they don’t realize how the financial side of healthcare works against their company’s financial interests.  It seems counter-intuitive when we first explain to employers that health insurance companies actually make more money in the long-run as claims go up, not down.  That’s right, as their costs (claim payments) go up, they have more reason to continue raising premiums on employers and employees…..AND THAT’S WHERE THEIR MARGINS ARE…..in the premiums.  The Affordable Care Act (ACA) cemented this into law via a provision called the “Medical Loss Ratio” or MLR.

The MLR says that an insurer must hold back 80% or 85% of all premiums to cover medical claims, allowing them only to keep 15% or 20% of the premiums for overhead, investments, and yes, PROFIT.   So their profits are DIRECTLY linked to the premiums they collect.  Now, if you were a big insurer, would you want to have 20% of a million, or 20% of a billion?

That wasn’t a trick question…..it’s obvious they want 20% of a much, much larger number.  So, in order to raise premiums, they have to justify higher premiums with larger losses….BIGGER CLAIMS!  This was an unintended consequence of the ACA, when the federal government was trying to limit insurer profits.  What they did is cause premiums to rise…..and look at what premiums have done since passage of ACA….

Costs have exploded for employers and employees, but most have doubled down on the same tactics.  Most employers, in an attempt to reign in costs, have simply SHIFTED costs on to their employees through higher deductibles, co-pays, and out of pocket amounts.  The average deductible has exploded across the same time periods.  These aren’t coincidences.  It is the result of the system at large.  You see, the system isn’t “broken”.  It is working precisely how it was designed, and it was designed to help insurance companies, big pharma, and big healthcare systems.

Time to look at other alternatives, and that requires that we challenge our conventional wisdom, challenge the way we’ve always done things, and challenge our own preconceived ideas of how to best deliver high-quality healthcare at a much lower price.