Save Money on Your Health Plan by Turning Back the Clock

When I first got into the employee benefits business in the late 1990s, the industry was in the midst of the managed care revolution. It seemed that every client I worked for was in the process of swapping out PPO and Indemnity health plans for HMOs. It was with good reason. As health care inflation began to accelerate, HMOs offered a convenient alternative. The revolution was founded on two fundamental changes to the traditional way of delivering health insurance. First, HMOs offered a limited network – a member had to seek care from only the providers in the HMO network (which were typically far fewer in number than in PPO plans at the time) because HMOs do not offer out-of-network coverage. Second, many early HMOs employed a gatekeeper model – meaning that the member had to seek care first from his or her primary care physician. That physician was in charge of issuing referrals to specialists if the member’s condition warranted it. These sourness of these restrictions were balanced by a sweet incentive – a new concept called the copay. The sour part of the equation had the potential to save plan sponsors serious money: gatekeepers naturally keep utilization of higher-cost specialists down, and by limiting their networks (and driving more business to a smaller group of doctors and facilities), the insurance companies could negotiate lower reimbursement rates.

As the calendar flipped over to a new millennium, these plans were losing steam. Gatekeeper models fell out of favor quickly amidst public backlash. Additionally, plan sponsors and their advisors put pressure on insurance carriers to add more and more providers to their HMO networks. Interestingly, the sour part of the equation went away, while the sweet part (copays) have proved difficult to root out of the healthcare system. Looking at it this way, it’s difficult to argue that the managed care revolution wasn’t a failure. But one of the pillars of early managed care seems to be making a comeback – limited networks.

Every major health carrier we work with these days has some type of limited network that plan sponsors can choose at a lower price than the carriers’ full PPO network. I find the approach that Blue Cross Blue Shield of Louisiana (BCBSLA) is taking to be interesting and instructive, so I’m going to use them as an example. Several years ago, BCBSLA rolled out a new product in the Baton Rouge market called Community Blue. Many of us saw the product as a reaction to the historically testy relationship between BCBSLA and the large Catholic health system in Louisiana, Franciscan Missionaries of Our Lady (FMOL). Community Blue carved out FMOL physicians and facilities (as well as most other providers in Baton Rouge) in favor of their chief competitor, General Health System and Baton Rouge Clinic. The Community Blue plans were priced aggressively, and we saw some adoption by employers.

Now BCBSLA is doubling down on this approach by offering two other products in the same vein. One offers access to the Ochsner system and one offers access to FMOL. But each product eliminates the other two competing health systems. As in the old managed care days, each product is priced with a significant discount over their PPO networks. When a plan sponsor offers one of these limited network products, BCBSLA allows them to offer three plans to their employees. This allows an interesting plan design idea.

In Baton Rouge, the FMOL system, the General Health system, and Ochsner are the three primary options for receiving care. Your typical Red Sticker has a preference for one of these, and does not use the other two. By using these three different plans, employers can save money and give their employees a choice of any of the three systems. But the catch is, the employee has to commit to that system. I think – given choice – many employees would be willing to do so.

And so, as employers continue to look for new ways to save money on their health insurance program, everything old is new again. I suspect we will again see employers asking employees to sacrifice provider choice in exchange for lower cost. Viva la revolucion.

Limited networks are just one way to save money on your health plan. Want to hear some others? Drop us a line at bayoubenefits@gmail.com