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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.