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Benefits Strategy Top 10 List – Summary of the 2015 Large Employer Conference

benefits strategy

AmeriBen, the large-employer TPA who works with many Blue Cross plans around the country, hosts an annual management conference bringing together some of the most innovative unbundled large employers in the U.S. to discuss strategy and best practice.  Because each of these employers has opted out of the traditional “ASO”—or bundled carrier—benefits insurance option, they are able to experiment with new vendors, plan designs, and approaches that are beyond the typical scope of benefits strategy.  What follows are 10 of the most interesting topics discussed in the fall of 2015.

TEN: Eliminate Ineligible Members During Enrollment

Most employers are shocked to learn that 3-5% of their membership is ineligible for the plan.  These ex-spouses, cousins, and aged-out children avoid detection and, according to Nucleus Research, cost about $3,500 each per year to your plan.  The typical solution, an eligibility audit, is costly, time consuming, and disruptive.  Benefit Focus, an enrollment vendor, recently published a breakthrough solution: require members to snapshot and upload documents proving marital status/age during enrollment.

NINE: Value Based Benefits for Engaged Disease Management Members

Disease Management helps chronically ill (and expensive) members become compliant with maintenance treatments.  Unfortunately, it is famously difficult to engage these members, let alone contact them, with typical engagement rates falling in the single digits.  Some employers are creating incentives for these members to engage with nurse managers, from waiving copays on prescription drugs, to reducing deductibles, to preferred plan designs, and are getting a great response.

 EIGHT: Carve Out Telemedicine from the Plan to Provide 1st Dollar Coverage

Because the savings on telemedicine are so significant, most plans pay for the visits completely to incentivize use.  The challenge is with high deductible plans, where 1st dollar coverage for traditional healthcare benefits is prohibited.  Some legal circles have found justification for carving out the Telemedicine as a separate benefit, thus allowing the plan to provide blanket, fully paid coverage.  (Warning: this strategy is controversial and most legal counselors will advise against it; we simply had a couple of large employers whose legal teams are comfortable with the strategy and find success with it).

SEVEN: Increase the Number of Pre-Certification Conditions

Quantum Health, an established market leader in member engagement, uses this strategy to have many more opportunities to engage the population and see what medical procedures are being purchased.  When a provider calls in to certify a treatment, a plan can determine the medical necessity, in/out of network use, and the price and quality score of the provider.  This gives the plan opportunity to make adjustments or ask necessary questions in follow-up calls to the member.

SIX: Triple High Deductible Health Plan Enrollment through Decision Engineering

Plans save around $2,000 for each member who buys a high deductible health plan, and because of this plans are eager to encourage adoption.  Unfortunately, when a high deductible plan is introduced, the adoption rate is usually dismal.  Benefit Focus, an exchange enrollment vendor, just published research suggesting that adoption rates for HDHPs triple when at least two options are presented instead of one (even if the difference between them is slight).  With two options, it feels less like a novel plan and more like an established alternative.

FIVE: Identify Outlier Provision Thresholds and Add Them to Case Management Watch List

When large claim costs reach a certain threshold, the typical discount is not applied and a new contract provision changes the way the claim is paid.  Frequently, these provisions multiply the amount due, making a large claim that much greater, to financially devastating effect.  Savvy companies are discovering the most damaging outlier provisions within their network and managing around them to proactively avoid crossing these damaging thresholds.

FOUR: Using Smarter Narrow Networks

Traditional direct contract networks establish a strong discount with a single provider, but unfortunately, no single provider is high quality in every department.  Furthermore, if a much lower cost provider might be available nearby, even the additional discount could result in a more costly procedure.  Imagine Health, an innovator in the Narrow Network space, uses a breakthrough strategy to avoid these two pitfalls.  By doing an RFP over a geographic region, they eliminate underperforming systems, departments, and providers on quality scores, and then transparently broadcast the competitive price of procedures and require RFP participants to perform 20% below average.

THREE: Integrate Members Into a Mobile Hub

The solution delivering the best results for a population does not come in a box, but is a coordinated effort of several best-in-class strategies.  Unfortunately, this makes things confusing for members who don’t have time or attention devoted to learning the resources provided to them.  The simplicity on the other side of this complexity is delivered by a new breed of technology that coordinates all vendors into a single application and interface.  Jiff, the leader in this space, uses artificial intelligence to customize the interface for each member and deliver and incent solutions that matter to that individual.  This solution dramatically improves member experience and boosts engagement as much as 200% or more for most vendors.

TWO: “Narrow Network” Your Specialty Drugs

Specialty drug costs are skyrocketing with year-over-year increases in the double digits.  One strategy to help curb trend is to assign a “preferred” specialty drug in each major treatment category (where 2+ drug options are competing).  This simple strategy can help get exclusively lower prices than what would otherwise be available through channeled volume and reduced competition for the seller of the drug.

NUMBER ONE: Stack a Virtual Narrow Network Atop an Existing PPO Network

Healthcare Bluebook is about to release a quality/price matrix on most impatient procedures that will allow consumers to compare high/med/low on quality next to high/med/low on cost for a full value calculation.  A plan design that successfully encourages members to use this tool for decision making would essentially be able to place it atop any PPO network and reap huge rewards, without significant additional costs, contracts or negotiations.  The impact to overall healthcare cost could quickly exceed 20% of medical spend.

Why Private Exchanges Kill the Cadillac Tax

One of the most pernicious of many pernicious features of healthcare reform is the infamous “Cadillac” or Excise Tax. This tax was so unpopular a part of the the ACA that its initial planned effective date in 2014 was pushed back to 2018–intentionally long after the ACA’s presidential author had left office.  The excise tax seeks to create more equal footing between the classes, since rich benefit “Cadillac” plans are not taxed at the same level as wages.  As the thinking goes, people with rich benefit plans (executives, for instance) pay less taxes as a percentage of total compensation than those at the same income level who do not have rich benefits (since $1,000 in benefits is taxed less than $1,000 in wages).  The Cadillac Tax was designed to offset this perceived injustice while increasing the revenues available for ACA.
Unfortunately, the plan was poorly written and the actuarial estimates were off, so much so that Towers Watson estimates the Cadillac tax is estimated now to hit over half of all plans by the time is goes into force–far more impact than what had been purported.  Furthermore, the tax overly penalizes union members who have excellent benefits.  The unions are ostensibly the constituents of the politicians most concerned about the tax inequality in the first place, which undermines the tax’s political support.
Due to the heavy handed and widespread consequences of the tax, some have theorized that as we near its implementation date the tax would be eliminated or pushed back again.  The only challenge with this strategy is that the government isn’t getting any richer and the ACA isn’t costing any less now than when it was originally foisted on the American people.  There will be strong motivators for the government to keep this tax in play.  Furthermore, employers are planning for it, as the excise tax is on the short list of planning topics for every major brokerage company.  With companies finding creative ways to scale down the value of their plans to avoid this tax, the likelihood decreases that the tax will hurt wide groups of people, thereby reducing the political risk of keeping it in play.
What this all means is that companies who are innovative enough to scale back their benefits to avoid the tax–with the least amount of disgruntlement among their employees–will be the strategic winners.  Companies who anger their populations, cause turnover, or embroil themselves in labor disputes while ratcheting down benefits will be losers, as will those who pay the 40% penalty the tax demands for those who maintain high coverage.
This is where private exchanges come into play: private exchanges have arisen as one of the primary strategies to combating the Cadillac Tax.  Exchange providers have found that when exchanges are used for open enrollment, the enrollment in high-deductible, lower-cost healthcare plans often triples.  These plans cost less per month in exchange for the member taking on more financial responsibility.  If enough members switch to these less-rich plans, it reduces the actuarial value of the benefits package and eliminates Cadillac Tax liability.  The most elegant part of this solution is that the members opt-out of the high cost, rich plans voluntarily, thereby avoiding population disruption that could occur if rich benefits were forcibly removed.

Advanced Benefits Strategy: The Five Pillars of Antifragile Plan Design

We look at the many forces at work today within the healthcare industry and it’s any wonder that companies are surviving.  With skyrocketing fee for service costs, increased utilization, the onset of Rx specialty drugs (still in its infancy and already concentrating towards a lethal dose for plan sponsors), and the administrative juggernaut of healthcare reform, plans are under assault.  Unfortunately, many employers are approaching the future’s looming uncertainty the wrong way, making them subject to greater cost increases, jeopardizing the plan’s financial stability and increasing its fragility to coming shocks.

Every plan is unfortunately subject to varying levels of fragility: some are barely avoiding a default event, others are financially stronger and will be able to hold on for a number of years, but all are still fragile to cost trends in the high single or double digits.  What most plans attempt to do is to become robust (defensively strengthened) against potential “foreseeable” events or conditions by following the crowd and staying with a “bigger is better” mentality when designing their benefits.  To survive, however, firms cannot simply accept the premise of high-single-digit annual cost trend, and then run to the largest PPO and simultaneously ratchet back benefits to survive.  The logical extreme of this scenario would eventually have every employer on the same network, receiving 99% discounts on $10 million procedures until bankruptcy ensues.

Drawing from the philosophy and definitions of Nassim Taleb’s book Antifragile: Things that Gain from Disorder, the reality is that the opposite of fragility, or “Antifragility” is what plans must seek to become, not robustness.  To clarify terms, Fragility is a trait of a system weakened by uncertainty.  Robustness is neither helped nor hurt by uncertainty.  Antifragility describes a system strengthened by uncertainty.  (Read: Fragile systems suck lemons.  Robust systems build lemon shields.  Antifragile systems make lemonade).

Unfortunately, most firms avoid the very Antifragile principles that would allow them to profit and find strategic advantage from uncertainty and chaos.  The allure of following a crowd and ease of lazy thinking puts them in a box preventing breakthrough performance, crippling their plan and their employees with unsustainable cost increases.  At best these cost increases are met with annual benefit reductions and further clinging to a PPO discount, at worst employees are dropped entirely or sent to an exchange, the pinnacle of lazy action and a full relinquishment of empowerment.

It need not be so.  In fact, many firms in the U.S. have health care costs increasing at or around the rate of inflation.  These firms are gaining significant strategic advantage over their competitors who follow a robustness crowd mentality.  These results are not easy to obtain, but they are achievable by taking simple actions on the following common sense “Pillar” principles:

1. Transparency:  For clear thinking and wise decision making, it is critical that the plan sponsor and members have accurate, transparent data.  This principle flies against the self interest of other parties, however, who profit from obscurity.  Specifically, the plan should seek:

(A) Pharmacy price transparency and pass through rebates.  The pharmacy network model is complex and convoluted and hurts the decision making ability of the plan.  A transparent, pass through model gives the plan control and transparency over where its costs truly lie, unencumbered by a spread, and access to the full rebates provided by manufacturers to again profit accurately from decisions made.

(B) Cost/Quality Transparency.  Neither the plan nor its members can make wise decisions about their about the cost of services without a price transparency tool to shed light on the costs for major services.  Likewise, members and plans need at least rudimentary means of distinguishing the quality of services offered by providers.

(C) Plan Data Transparency.  Plan Sponsors need to have clear, accurate, and timely data with respect to their own claims costs so they can gauge performance and make decisions about the risks and opportunities of the plan.

2. Independence: To be most responsive to shocks, changes, and opportunities, plans need the maximum amount of independence possible to make decisions and adjust course.  This requires plans to “un-bundle” their plan and “self-fund” their claims (note: this is referring specifically to large employers, around 200-300 enrolled employees and up).  The crowd mentality is to group in with a large network, and have the network use all its services to meet pharmacy, disease management, and stop loss needs, largely to the exclusion of all other vendors.  This holds the plan hostage, stifles innovation, and relinquishes stewardship and responsibility.  It is also a recipe for a high cost trend with little option of addressing it.

3. Coordination: Eliminate the waste between providers and diagnoses.  A huge portion of healthcare spend is on duplication of procedures and lack of communication and coordination between providers, vendors and members.  A big part of reducing cost trend can be achieved through vendor selection that facilitates communication between related parties.  This can be achieved through service centers that are highly trained for three way calling and health utilization analysis, as well as outside vendors that integrate fully with vendors and guide members.  I have seen cost savings in excess of 10% immediately upon using the technologies to merely communicate and eliminate redundancies.

4. Education: Members must become educated consumers of healthcare.  The natural progression of data access is data use: once members have transparency surrounding provider pricing and quality, and plan incentives exist to encourage the use of this data, members can begin to educate themselves and seek education to make wise decisions.  Plan sponsors can also take steps to educate their members around the highest cost drivers or areas with greatest waste.

5. Alignment: The rewards and the drawbacks need to be aligned between the plan and the members.  The vast majority of plans exhibit heavy incentive imbalances that hurt the ability of the plan to make rapid and sustained progress along cost lines.  Frequently the plan can experience downside or upside, but the member rarely has access to either, and lacks incentive to make wise decisions.  A superior plan will add downside to the member through high deductibles or other penalties for making expensive choices.  The plan design of the future will include both positive and negative incentives to members that align with the upside/downside calculation of the employer.  These plan designs are just now starting to appear on the landscape and offer far better incentive to wise decision making.

High healthcare costs are the natural punishments received by plans that do not know or do not have the discipline to implement the correct principles of benefits strategy.  Hopefully these pillar principles can be a starting place for plans looking to regain control of their costs and systems.

The Paradox of Specialty Innovation: It Will Save Lives and Bankrupt Everyone, and What to do About It

Is it just me, or did it seem like innovation was predicted to dry up in healthcare as a result of ACA?  With all the statistics of doctors getting paid less, anecdotes of them retiring early, and even stories of pre-med students becoming art majors, I was certain that a dearth of innovation would also be upon us.  I was shocked to discover that the opposite is true: over 5,400 new drugs are currently in late stage testing (the most ever recorded).  Also, in 2012 the FDA approved the second-greatest number of drugs since 1998, and is on track to approve the greatest number ever in 2013.


This silver cloud comes with a shadowy lining, however: the majority of these drugs are specialty drugs.  Specialty drug approvals have now overcome traditional drug approvals, which is also a first.  The paradox of all this innovation is that we are going to be flooded with some pharmaceuticals so amazing that everyone will need to have them—and they might just threaten to bankrupt us all.


Specialty drugs are the Ferraris of pharmaceuticals.  They have more horsepower and niche ability than the sedan, but you pay for it.  They are harder to deliver, trickier to prescribe, and require advanced, specialized pharmacies to provide them (think $2,000 oil change).


Luckily, they have composed a very small portion of our drug spend since forever, but this is no longer the case.  These new innovations are virtually guaranteeing that they will begin to take over as the standard.  Doctors, too, have traditionally been hesitant to prescribe specialty drugs.  This is no longer the case: as physicians are sold to more and more by specialty drug reps, and see the great results these drugs generate, doctors are prescribing them with greater frequency.


So, what can you do to protect yourself?  There are a few things on the radar, all of which will be fleshed out on this blog in more detail if you are interested.  The short answers are as follows:

  1. Design your plan to encourage treatments that graduate from lower to higher cost.  Basically, put in place a preauthorization on any high cost drug.  Next, when someone calls in requesting it for the preauthorization, check to ensure all the lower cost treatment options have been exhausted, and start with the ones that haven’t been used yet.  Then go to the lowest cost of the expensive drugs.  Only at the final step do you “green light” the most expensive treatment.  This seems intuitive because it is, but most plans don’t have this step-by-step solution in place.
  2. Use specialist pharmacists for specialty drugs.  This also seems pretty intuitive, but ensure that the pharmacy that is dispensing the drugs has a specialty pharmacist on hand to double check everything.  They can catch overdosages, mis-diagnoses, or mis recommendations done by doctors who might not be as familiar with either the drug or the condition.  Talk to your PBM about options here.
  3. Dispense 15 day segments when just starting out.   The rockiest part of any new patient-to-drug relationship is right at the beginning.  Many people try a new prescription and hate the side effects so much they only take it once or twice and then toss the bottle, and then your plan is out a bunch of money and your member converts to a healthcare emergency in waiting.  Instead, only prescribe 15 day supplies for the first 2-3 dispenses, and check in with the member every two weeks.  Your PBM should be able to help you with this, or your TPA, but you can make this happen and then you’ll avoid the waste and ensure the program is going to work long term before you commit a ton of resources in meds.
  4. Use Bioidenticals.  A “Bio-Identical” of a specialty drug is similar to a generic of a brand name: it basically does the same thing at a lower cost.  There are differences in “bio-identicals” and “generics” because “generics” are essentially “identical-identicals” and “bio-identicals” are not absolute copies of the original, but are pretty close.  These bio-identicals may not be prescribed as readily by doctors because they will not have all the advertising budget behind them, so you will need to ensure your plan and preauthorization strategy has them written in there and that you ensure you use them before prescribing the full agenda with specialty drugs, that could cost many times more than the bio-identicals.


There you have it.  A quick summary of the most important ways your plan could save millions and millions of dollars over the next couple of years on specialty drugs.

Which PBM is Best?

This is one of the most common questions that empowered[1] self-funded plan sponsors ask when laying out their benefits strategy.  As with other financial vendor questions (e.g.  “Which credit card is best?”), the answer depends a little what you need and how you use it.  However, I can give you some fantastic advice about how to compare them.  What follows is a rough sketch of some benefits of three important PBMs and how they might be able to help your self-funded plan operate better and save money.  This is not meant to be comprehensive, and is meant to be mostly unbiased (disclosures at bottom).[2]

CVS Caremark: Caremark is currently the second largest PBM in the country.  Its main differentiator is that it owns the CVS drugstores, and this is a huge differentiator.  Here’s why: for all plans, chronic illnesses are the top source of cost, and the best answer to this cost is getting your members (1) on mail order drugs and (2) ensuring they take these drugs.  CVS’ abundant drugstores allow your members to get mail order pricing in person to pick up their drugs at any CVS location, which provides choice about how to obtain the meds while maintaining the lower cost to your plan.  Lots of people like to pick up medicine in person, and it’s faster.

Furthermore, every year more of these locations add Minute Clinic operations, which can save your plan a ton by allowing your members to get prescriptions and see physicians at the same location.  CVS is also working to get these physicians and pharmacists tapped in to your members and their pharmaceutical needs to drive up consulting, education, and adherence.

Bottom Line: Caremark could be a great bet for your plan and members if you are in an area with many CVS drugstores and clinics, especially if you have a lot of members with mail order prescriptions.

Express Scripts: When Express Scripts (ESI) bought MedCo, it became the largest PBM in the country.  The combined company is very good at research and outcomes and offers a lot of services that could benefit your plan.  I’ll discuss the ones most interesting to me.  First, they have research centers where pharmacists specialize in a few of the most high-impact positions.  These specialty research centers audit all the claims that are coming through and find gaps and opportunities, and will reach out to your members to correct them, improving adherence and removing waste.

Another area is catching fraud, waste and abuse, specifically with drug abuse.  Claims data files through databases that check the drugs prescribed against what should be expected, looking especially at high street value and addictive drugs, and then puts the information in the plan’s hands and cuts off the members’ ability to abuse the system.

ESI has also negotiated a preferred network of pharmacies that, if used by the members, will deliver focused plan savings, and is a wider network than just using one brand.

Bottom Line: ESI is a thorough PBM option that is exceptionally clinically strong, which helps address adherence issues, treatment gaps, and drug abuse.  They have great discounts, as well.

Navitus: The Navitus name is almost synonymous with the innovation of transparent PBM pricing, which is a solid trend that has increased steadily in recent years.  The Navitus transparency model operates by allowing plans to pay a flat fee per month in exchange for (1) full rebates, (2) no spread or margin paid to the PBM on pharmacy claims, and (3) fee transparency paid to external parties.

It is challenging to directly compare the Navitus cost against the traditional PBM cost, but results suggest the cost savings could be significant because groups recapture money from so many areas.  It is virtually certain that the discounts negotiated by Navitus with the pharmacies are lower than are negotiated by the other PBMs.  Nevertheless, because Navitus does not mark up the discounted price with a spread, it is likely that the group will pay less per scrip than they would with a larger PBM in many, if not the majority, of cases.  Furthermore, a plan will be able to see exactly what the cost structure looks like and will be able to more easily track all its expenditures with the transparent model.

Bottom Line: Navitus may or may not be the lowest overall cost of the PBM options, but you know exactly what you are paying them and where your dollars are going, which is empowering for good decision making.

In summary, this is a very quick and rough assessment of three multibillion-dollar companies, and represents this author’s opinion of the respective strengths of each when you hire them for your members and your plan.  Any time you are bidding, ensure you (1) know your plan’s greatest weakness on the pharmacy side, and (2) interview each of them (and others) with these needs specifically in mind to see who offers the most for your plan.

[1] Empowered plan sponsors are those who have the option in their self-funding arrangement of choosing a PBM.  If you are a plan sponsor who is being prevented from selecting a PBM of your choice, you may want to consider a new arrangement, working with an unbundled TPA instead of a fully bundled arrangement.

[2] I gained this information from Caremark at a free lunch meeting, from ESI at a free conference, and from Navitus on a conference call.  There was no payment for writing this article and no commission or fee paid to anyone who uses these services.  At the time of this writing, none of these companies sponsor Benefits Strategy, either.

Two Paragraph Insanity: New Legislation Considered

In response to a small minority of illegal drug abusers, some states are pushing legislation that would make illegal pharmaceutical drugs (pills) that can be “crushed” into powder.  This is because when drugs are crushed down they can create a better high when they are used for recreational, illegal purposes, and pharmaceutical manufacturers can make drugs “crush resistant.”  However, before we get excited about having the U.S. switch over to crush resistant tablets, the cost must be remembered: crush resistant pills cost 400%-1,100% more than standard pills, and the vast majority of people do not abuse their narcotics.

Oh, and they have never demonstrated that crush resistant pills reduce the drug abuse.  Please, pass this along and deter our activist legislators.

Innovative New Drug Flushes Sugar, Calories Out of Diabetics

This post is a quick alert about a drug we are following very closely and that needs to be on your radar if you have anyone obese on your plan (so, everyone except maybe Nike).

The drug was approved a few weeks ago on March 29th.  It is manufactured by Johnson & Johnson and it could be a game changer for both diabetes and weight loss.  Here’s how it works in lay terms: the intestines work to get rid of sugar in the blood, while the kidneys bring the sugar into the blood.  This drug prevents the kidney enzymes from holding onto the sugar, so it just gets flushed by the intestines, eliminating all the empty sugar calories from the body.

How this helps you: The drug is expensive, but not unworldly so, but could begin helping your members to lose weight without changing their eating habits and reduce blood sugar levels to treat diabetes.  In clinical trials, rats were able to eat anything and everything and did not gain weight.  The drug is currently not approved as a weight loss agent, though it’s being tested for this, but it is approved for treating diabetes, which is the #1 chronic cost killer of medical plans.

We will continue to follow this drug and other pharmacy innovations to help you out.  This could be a real saver for your plan, though.


Pharmacy Benefit Manager (PBM): Basics and Three Ways to Save Money on Pharma

Buying in a group allows for discounts, everyone knows this.  This is what has caused the creation of the large networks, such as Blue Cross, United Healthcare, and the others, allowing the negotiation of heavy discounts with providers in behalf of patients.  Nevertheless, buying drugs from the local drugstore operates along the same principles: if everyone on a plan buys as a group, employers can get superior discounts.  The same is true for prescription drugs, which led to the creation of networks for buying pharmaceuticals known as Pharmacy Benefit Managers (PBMs).

The PBM is more behind the scenes for most employees; they don’t have a logo on the cards or on most of the materials.  The large carriers use the PBM to handle the pharmacy benefit in their “back offices” behind the scenes as well.  Nevertheless, these companies are huge and drive a large part of your medical spend through the tools and discounts they employ in behalf of your plan whenever a member buys a prescription drug.  The remainder of this post will explain a little more about the basics of the PBM, how it works, and three ways you can use this information to save money.

The best way to illustrate how a PBM works is with the example of a person buying a drug from a retail drug store, such as Walgreens, that would be valued off the shelf at $100 to someone off the street.  Let us imagine that Walgreens bought the drug from the manufacturer for $50, to earn $50 profit if sold at full price.  Let us now imagine that a member of a large health plan that is self-funded through his/her employer goes to buy the drug.  The employer uses a health network for regular claims (such as Blue Cross), but works with a large pharmacy benefit manager (such as Caremark), behind the scenes to negotiate drug discounts on the members’ behalf.  The PBM has negotiated with the drug store to accept payment of $70 for the drug.  The PBM then bills the plan $80, creating for itself a spread of $10.

From here, it gets a little more complicated.  First, the PBM pays a negotiated fee to the administrator for administering the claim.  Second, the PBM pays a percentage of the spread to the administrator as well.  Third, the PBM pays a fee to the health broker off of the claim as well.  Additionally, the manufacturer of the drug, from whom the drug store bought the drug, offers a rebate on the drug.  This rebate is paid to the PBM directly, and then the PBM shares the rebate with the employer and potentially the other parties as well.

As you can see, this can be very confusing.  It’s not necessarily good or bad, but it is extremely difficult to tell where all the money goes and to whom.  This confusion creates opportunity for both PBMs and employers.  The PBM has big opportunity in the smoke and mirrors to engineer tremendous economics and compete against each other.  The employer has huge opportunity in three areas:

(1) Negotiate Harder: There are so many dollars passing around behind the scenes that you should be able to get more dollars returned in per-scrip fees or a larger percentage of the rebate.  Push hard on the PBM and make them compete heavily against each other.

(2) Audit the PBM: There are vendors who audit the PBM payments and the discounts that are being stated.  Using an auditor to keep the PBM diligent in delivering everything it has committed to can generally pay a strong ROI.

(3) Go Transparent: Some PBMs have the ability to do a “transparent model” that allows you to pay a flat fee to them each month, and then pay the wholesale rate, keep all rebates, avoid a spread, and avoid additional hidden fees.  Sometimes the discounts paid to the pharmacy are a little more than the PBM would have to pay if there were a spread, but the employer is able to see everything that is going on and keep all the additional fees, rebates and the like.  Furthermore, specialty drugs, which are growing in cost insanely quickly, have some of the greatest spreads, so a transparent model can potentially help the most with the cost of these types of drugs.

Look back to Benefits Strategy for on deconstructing pharmacy expenditures.  Pharmacy spend represents one of the greatest opportunities for savings for most employers, and is frequently one of the least understood areas.

Two Paragraph Innovation: Urinalysis by iPhone

A new iPhone application called “UChek” is coming out that will allow users to conduct their own urinalyses from anywhere, using nothing but their phone and a $20 chemical strip.  The idea is for both medical and preventive opportunity; the company imagines its user waking up in the morning, checking him or herself out in the mirror, getting on the scale, and assessing white blood count levels.

If this is possible, imagine the capabilities of expanding this technology to other self diagnotic tests: such as the dreaded health risk analysis.  The HRA is the keystone to a good wellness tracking system and companies spend incredible blood and treasure (pun intended) collecting the data.  The strategic implications could be game changing if an app allowed patients to check in medically each month for discounts, or if wellness programs allowed members via their smartphones to participate anywhere they wanted.  The effectiveness of (currently only quasi-credible) wellness programs and disease management initiatives expand by an order of magnitude.  This will be a trend we are watching closely at Benefits Strategy.

UChek is currently being reviewed by Apple and is going through clinical tests in Mumbai, India.  If it receives approval, it will begin being eligible for purchase for $99 in the app store.

Now if they could just get Siri to understand basic requests…

Barriers to Self-Funding: Why Don’t More Employers Self Fund Their Health Insurance?

An alternative title to this article might also be “why certain employers should not self-fund their insurance plans.”  When companies of a larger size first explore self-funding their health insurance plans, it appears to be an easy financial decision; yet making the change requires overcoming a number of hurdles.  (For the reasons why an employer should self-fund its health plan, see an earlier post here Four Reasons to Self-Fund Your Benefits Now). This article will illustrate the obstacles, both systemic and external, that inhibit employers from self-funding their health insurance benefits, and illustrate thoughts about overcoming these obstacles.


First, it’s easy.  Fully insuring a population with health insurance is extremely simple, just buy a pre-packaged plan from a broker and it will cover the population.  Select a few coverage items from a list, such as the deductible, and it is finished until renewal.  Just remember that when large employers with relatively average-health populations (or better) are fully insured, they are probably overpaying (potentially significantly) for this ease.

Second, it’s predictable (in 12 month segments).  An employer buying a fully insured health plan knows exactly what it will cost each month of the year, no matter how many surprises come or operations occur.  This is a short term predictability, however, because the prices change every 12 months at renewal.

Third, fully insuring is an excellent choice for unhealthy populations.  Although the majority of benefits strategies hinge on employers being able to manage the risk of their own populations, sometimes the situation is beyond saving.  If the population of employees is aging, obese, and/or chronically ill, the claims utilization may be quite high.  This can be so extreme that if the employer were paying the claims it would be far worse than having the population be part of a large risk pool, where the insurance company takes the losses instead of the employer.

Fourth, it works best for large populations.  There is no rule that says a company must have “X” number of employees to make the leap to self-funding its employees.  The idea is, however, that the larger a population, the more it is able to balance risk across it.  Hence, if only 10 employees are on a plan, a single big accident could drive losses greater than a decade of premiums.  If the plan has 1,000 employees, the likelihood of a single incident driving huge losses declines dramatically.  Recent articles have indicated that more and more, companies with fewer than 50 employees are making the jump to self-funding their insurance plans because of anticipated cost increases due to ACA, especially for employers with healthy populations.


Fifth, it can be hard to get stop loss insurance.  When a company wants to self-fund its benefits plan, it needs to purchase stop-loss insurance to provide a backstop against catastrophic claims.  These stop-loss carriers need to have claims data and totals so they can price the stop loss insurance accordingly (e.g. a young, healthy population needs a low price, an old, chronically ill population should have a higher price).  The stop loss carrier is not gauging the elderly and sick, it just needs to price the insurance properly so it can stay in business.  Without any data (which will be very hard to get from the insurance company) the stop loss insurance will price the insurance higher in order to be cautious and make up for the business risk of taking a gamble.  There are many ways to get around this hurdle, from buying stop loss from a general agent who specializes in fully insured conversions to doing a semi-self-funded policy with the carrier.  See this post How to Get Stop Loss Insurance if You are Fully Insured for details.

Sixth, insurance companies make more money on fully insured plans.  By some estimates it requires 3-5 self-funded health insurance plans to earn the same money for an insurance company as a single fully insured plan.  Because of this, there is a strong financial disincentive for insurance companies to have your plan be self insured.

Seventh, insurance companies pay more commission to the broker on fully insured plans.  Not all brokers work on commission; some work for a flat, transparent fee or a monthly subscription, or hourly.  However, a large preponderance of health insurance brokers are paid by commissions from carriers.  These commissions are materially higher if the broker has an employer group on a fully insured plan than they are on a self-funded plan.  Most brokers will still do what is in the best interest of the client, but if the client doesn’t ask to be self-funded, it’s not a wonder that the broker may not push for it: more work, less pay.

Self-funding an employee population is the right answer for over 90% of large employers, and 60% of all employees in the United States[1].  Nevertheless, there are still tens of thousands of businesses on fully insured plans who could reap major savings by making the switch.  Doing so is a long term commitment, and will require some work to get the benefits, but the effort in many cases is well worth it.

[1] Thomas, Katie. “Self Insured Complicate Health Deal.” New York Times. February 15, 2012