A Health Insurance Strategy of Charging Your Employees More is Not a Strategy

Here’s a familiar conversation. A manufacturer says, "We need to keep our costs down." Their broker responds, "No problem, we can do that. Let's bring in a high-deductible plan." DCW Group knows that is not a health insurance strategy. It’s a cheap parlor trick.

Putting in a Health Savings Account alongside a PPO may reduce an employer’s costs in the short term, as premiums are cheaper when the plan doesn’t cover as much, but every year those costs will keep going up. Instituting a high-deductible plan is a one-year bandage, not a sustainable health insurance strategy. Rather than continuing to increase your employees’ contribution, it's time for your manufacturing firm to change your approach to rising health insurance premiums.

Low Premium is Not the Answer

Stop looking at which carrier is offering the lowest premium. Anyone can lower a premium. Just offer a worse benefit and charge more for it. Ultimately, chasing the lowest acquisition cost is not the right health insurance strategy.

Health care consulting firm and independent actuary, Milliman, has studied how employers spend money under any form of benefit plan. What they found was, 20% of the plan cost is a fixed expense, such as plan administration fees or stop loss premiums. The other 80% of plan cost is variable. It changes depending on what services your employees are getting, where those services are being performed, and what kind of claims you are amassing. By managing the supply chain, the 80% of variable plan costs within employers’ control, DCW Group can reduce the health plan cost.

Manufacturers don't have to offer less benefits. In fact, the only way to do reduce cost is to offer a better benefit, and offering a better plan starts with giving the employees an incentive to make the right decisions.

Fake Numbers

Insurance carriers will say their biggest value-add is their network discount. This is one of the biggest lies ever sold to the American public. In health care, there are four numbers, two of them are fake and two of them are real:

• Provider Cost – Real Number - It costs a provider a certain dollar amount to perform procedures
• Medicare Reimbursement – Real Number - Medicare reimburses based on a fixed fee schedule
• Charge Master – Fake Number – What your doctor or hospital bills you for services
• Network Discount – Fake Number – A negotiated reduction off of the charge master

Providers have to bill Medicare the same way that they bill your private insurance. Diagnostic codes represent procedures, such as a major joint replacement, and the providers use those codes to bill insurance companies. Medicare also requires providers to submit their data on complications, infections, re-admission, length of stay, etc., which are then aggregated into a quality score that is put together by the Centers for Medicare and Medicaid Services.

Same Procedure, Different Prices

Using real Medicare data from Pittsburgh, PA, as an example, one hospital bills $22,000 for a joint replacement procedure. Another bills $97,000 for the same procedure. Although the first hospital has the highest quality score from CMS, most patients go to the more expensive, brand name facility.

Even within the same health system, meaning hospitals that are owned by the same parent company, charges can vary by tens of thousands of dollars. It’s for a variety of reasons, such as building a new facility at one location where they need to offset that capital expense, but the reality is it’s all made up. If it wasn't, it would be standardized.

Even a network discount of 90% is irrelevant if the provider can simply bill more for the services. If insurance carriers are negotiating better and better discounts each year, hospitals should be making less profit, right? This is why relying on the network discount is not an effective health insurance strategy. It’s taking a fake discount off of a fake number.