I ran across this tweet the other day, reminding me of one of my favorite topics to talk about with my LSU classes:
https://twitter.com/ddiamond/status/948716953035821056
Savvy employers – especially those that are self-funded – have realized for a number of years that health insurance network design often doesn’t make a lot of sense. In theory, insurance carriers build their networks based on what providers (physicians, hospitals, etc.) will accept as their reimbursement schedule for the types of services offered by that provider. But in practice, we get the wild variations alluded to in the tweet above because – especially when dealing with large/prominent providers (i.e., the big hospital in your town) – it becomes a negotiation rather than a “take it or leave it” price.
It may surprise you that in the example shown in the tweet, the cost of a knee replacement in Minnesota could cost as little as $6,186 or as much as $46,974. You may be even more astounded to learn that – based on prior studies – the quality of the outcome for the patient likely has no correlation to the price paid. In other words, it is just as likely that the poor individual (and/or plan sponsor!) who paid $46,974 for a knee replacement had a “bad” outcome as it is that they got the very best outcome. Similarly, the individual who paid $6,186 could very well have had one of the best outcomes.
So why does this matter to plan sponsors? Well, if you’re paying the claims as a self-funded health plan, the answer is obvious. Assuming the outcomes are the same, you’d rather have the member receive care from a lower-cost provider. That would create a better financial outcome for both the plan and the member. Even if you have a fully-insured plan, if you are large enough that your claims experience plays a factor in your renewals, this all matters.
And what can a plan sponsor do about it? Slowly but surely, carriers are making progress on giving you and your members options. Narrow networks – where the carrier makes cutbacks to what providers they allow your members to see – are becoming more prevalent. Here in South Louisiana, we are finding that these products often offer significant cost savings to plan sponsors… if they are willing to eliminate key hospitals and/or physician groups from their network. Many carriers now also provide tools for members to research the cost – and in some cases, quality – of the providers they are considering. Publicizing these tools to your members is a no-brainer.
In a perfect world, I’d like to see carriers take things a step further when designing networks. The methodologies exist to measure the quality of the outcomes on a physician-by-physician basis for many types of procedures. Wouldn’t it make sense to design a network where only the providers with the combination of the best outcomes and the lowest prices are in the network? Or at least that your member was incentivized to see a lower cost/higher quality provider? There are stumbling blocks along this path (chiefly the objections of the medical community to “outsiders” measuring quality), but I am hopeful that we will continue to get closer to this type of intelligent network design.
Want to learn more about network design, or chat about your specific situation? Drop me a line at bayoubenefits@gmail.com.
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