How is Commercial Group Healthcare Financed?

When you buy health insurance for your company, there are 5 basic business components to how your premium dollar is allocated by the carrier. It is critical to understand how your money is being used by the carriers. This description DOES NOT describe how a self-insured plan operates; the components are the same, except YOU get to pick who you want to manage each of those pieces.

Here are the basic components listed and a description of each:

  1. Network – Typically, the name of the carrier. This is how provider contracted discounts are available to your plan and how claims are paid. A fee is associated with this service, included in your premium, even though it is the carrier contract. Provider discounts are typically 450% above Medicare base, and carriers will not divulge what the pricing is by a provider under the guise of “confidentiality”, you are entirely in the dark about what you pay.
  2. TPA – The part of the system that processes your claims, any discounts are applied and pays them to the providers. The critical element is how accurately claims are paid on your behalf, the plan’s administration, and payments to all administrative vendors, including brokers/consultants.
  3. Care Management – The part of the system that manages member utilization, pre-certification, and disease management, the essential element here is how the gatekeeping is managed to utilize your plan.
  4. PBM – A separate entity, usually owned by the carrier, that provides access to retail pharmacies and specialty drugs. Carriers keep all profits, spread pricing, and rebates – this is a huge profit center for the carrier. Your formularies are created to maximize profits for the carrier.
  5. Stop Loss – Reinsurance that provides a financial backstop for large claims, again typically owned and operated by the carrier, designed to maximize profit for the carrier. Two other options are commercial reinsurance carriers and captives. They want you to believe that “pooling”, by adding more companies to the pool, creates a better claims experience. This is just not true. Health Risk Management is required.

There is a significant gap in understanding between products; fully insured, level-funding, and self-insuring products. The pros and cons of each product are rarely discussed other than discouraging a move to a self-insured product. Most likely, you were told there was a significant increase in the financial risk for self-insuring – which is not true. The risk in self-insuring is always a known number. Cost is mitigated with risk management, and the total cost is priced in the underwriting process – risk follows cost. With self-insuring, any money NOT spent for claims stays in your pocket, NOT the carrier. This is where the financial advantage moves to you.
Fully Insured – Plans owned and operated by publicly traded companies and premiums controlled by State Insurance commissions are the only way to increase profits for the carrier is to increase the premium, premium allocations are controlled by ACA mandates for small and large group plans.
Level Funded – Plans owned and operated by publicly traded companies; premium controlled by the carrier, carrier contains. ALL elements of the plan, the amount of refund (if any) and usually contractually obligates the employer to renew to receive any surplus funds from the contract year.
Self-Insured – Plans owned and operated by the plan sponsor – YOU. The plan sponsor controls premiums and the risk level, but it is always a known maximum number. Plan sponsor chooses ALL providers to manage the plan eliminates excess fees & costs to maximize claims surplus to the plan, not the carrier. Plans sponsor utilizes multiple risk management tools to control costs.


Value of Health Plan Data

The most EFFECTIVE way to pay less for healthcare is to pay less for healthcare. How can you do that?
With your healthcare claims data, your data is THE MOST IMPORTANT asset to properly manage and finance your healthcare risk. If you are level-funded, you may see some data, but nothing that will help you control your costs or improve the well-being of your population. The publicly traded carriers have financial control over your plans, and they have no interest in controlling costs on your behalf. A Level-funded plan runs similarly to the fully insured plans the carriers offer and, in many respects, are operated by the carrier in the same way. The only real difference is that the carrier might let you have some of the surplus to entice and obligate you to renew.
A self-insured plan sponsor owns the data and allows you to make efficient and effective financial decisions. You should always have access to all YOUR data.

Importance of Primary Care – Utilization of the healthcare system for your population.

We have all been going through some eye-opening experiences lately. From this devastating pandemic to the social justice upheaval to the terrifying political landscape and toxic culture we are all living in, these experiences have made us see how critically important the value of our benefits plans truly are.
The model of maximizing access to primary care makes even more sense right now. Providing an incredibly vibrant and solid foundation of primary care for everyone in your plan, whatever you end up calling it, can be the best way to move your population’s health forward and build a truly patient-centered working healthcare system.
Investing in prevention, chronic disease management, patient education, screening, and early aggressive care, and mental healthcan make change happen. Primary Care is critical to the Health Risk Management of your plan.

If we were to build a solid foundation of primary care for the healthcare system in this country, one that gets everyone access to all the care they need and is blinded to insurance status and the ability to pay, and it helps patients overcome their misconceptions and their fears about coming into a system that may previously have hurt them – then we’d be off to a better start.

So, if you’re out there listening, if you’re reading this, now’s your chance. You can be a part of the solution by helping to choose the right path for your members to make so many things better.
David Loggins
CEO, Reset Healthcare