For some companies, insurance premium increases can be directly tied to the artificial substitutes for true consumerism hidden in “co-pays,” “preferred provider networks” and “free” preventive care. (Photo: Shutterstock)

Everyone loves a good deal. We’re trained to seek out good value and celebrate a job well done when we pay less for something than we think it is worth.

That’s why the overwhelming majority of Americans have positive feelings towards the benefits that our health plans cover for “free.” Similarly, health plans that include features like modest co-pays for medical care are generally viewed as “great benefits.”

While on the surface, we all tend to feel good about receiving free or inexpensive healthcare at the time of service, we’re often shielded from the actual costs of care. Unfortunately, the actual costs are often wildly different than the amounts patients pay the receptionist at checkout. But since the actual costs are hidden and removed from the decision-making process, all of us are getting fleeced.

As brokers, benefit advisors, or HR personnel, we need to eliminate the broken optics created by the words “free” and “co-pay.” When employees consider their out-of-pocket costs for medical tests, procedures, and prescription drugs, these terms obscure reality and result in bad choices that hurt everyone. 

First, it’s critical that both employers and their employees understand the term “MLR” or “Medical Loss Ratio,” and how medical loss plays into their long-term insurance premiums. They need to understand that the amount of medical and pharmacy bills paid on their behalf by the company’s insurance plan will have a direct effect on the company’s renewal premium, and most likely, the employees’ contributions to those premiums next year. 

With pay increases being lost to increases in health care premiums, employees already have some “skin in the game” but rarely recognize it. These premium increases can be directly tied to the artificial substitutes for true consumerism hidden in “co-pays,” “preferred provider networks” and “free” preventive care. Simply stated, nothing is “free” but rather everybody’s health care consumption adds together as total medical loss, the carrier’s gross margin of 15 percent is tagged on top and the resultant amount gets charged to the employer and employees as their new premium.

Bottom line, insurance pays for nothing and we need to start to make sure employees and patients who have the benefit of someone helping them pay for their health care expenses clearly understand this and have incentives to avoid excessive or unnecessary costs.

As an example, let’s consider the case of flu shots—widely covered at zero out-of-pocket cost to patients with health insurance. Few people realize that a single “free” flu shot can add as little as $12 or as much as $299 to the company’s insurance premiums next year. Being ignorant of the difference in cost (because it’s “free”), an employee could unknowingly pay one provider $270 when the same shot could have been obtained for only $10 at another. 

Now expand this example to consider a company with 300 employees enrolled on their health plan. Applying average rates of flu shot delivery in the United States for 2017, this group of about 750 total lives (including dependents) will receive roughly 350 “free” flu shots per year. Multiply the potential overpayment of $299 per shot by this 350 shots, and this company’s policy could see over $100,000 added to their premiums simply because “free” isn’t really free. 

Co-pays are also a big problem for employers (and indirectly for employees). Take a rough example of an emergency room visit of mild to moderate severity. The difference between going to an emergency room and an urgent care center for this level of issue is about $1070 on average, but this difference is obscured from employees who have a relatively small co-pay, often similar for both types of providers.

Momentum and the minimal difference in financial outcome are the primary reasons employees don’t bother to understand the opportunity to find the convenience of recently open urgent care centers in their areas. If we consider our hypothetical company of 300 enrolled employees again, the financial difference in medical loss to the plan could exceed $150,000.  

Citing just these two simple examples alone, the difference in premium to the hypothetical 300-employee company due to broken optics of the plan design could be over a quarter million dollars. 

We all want to make our healthcare benefits a feature that attracts and retains great employees, but we can’t sustain these costs. How should we advise the businesses we serve? 

  1. Arm companies with benefit plan designs that align financial interests between the employer and their employees. Give people reasons to care about what things cost. Make sure they have incentives to consider cost with quality and convenience when they’re being led to make healthcare purchases by their doctors.

    The best, and most humane, way is to establish employer-funded Health Savings Accounts (HSAs) and/or Health Reimbursement Arrangements (HRAs) that provide opportunity for long-term retirement account growth. Make sure there are substantial financial rewards towards retirement or future medical needs but don’t pay people to be sick. Don’t ever offer cash rewards as this often becomes an incentive to game the system to meet immediate cash needs for non-medical related expenses. 

  1. Reject plans that obscure prices behind co-pays and replace them with HSA-compliant designs where employees can make direct payments from their employer-funded HSA and/or HRA. Seek ways to assure that employees gain an appreciation for the true costs of procedures included “free” in their plans.  

  1. As soon as you incentivize employees to become good consumers, they need good decision tools at their fingertips when they are faced with medical choices. Don’t select a tool that gets between the employees and their doctors, but rather one that allows them to team with their doctors to make solid choices for tests, procedures, and medications based on cost, quality, and convenience. Make sure it is designed first for mobile so it can be used right in the doctor’s office. Ideally, the tool should engage employees even when they’re perfectly healthy by allowing them to monitor the performance of their CDH accounts. Make certain it is one that helps them find the best care at the best price customized for their carrier discounts and networks, but not one that creates “carrier vendor lock” which will require employees to learn new tools when it becomes time to competitively bid out the case or group to a new carrier. 

It’s time we all jump in and become part of the solution. Benefits professionals are in a unique position to make a positive change in our nation’s healthcare system. Pushing consumerism and transparency are powerful tools for making a positive change the U.S. healthcare system while increasing value to clients, new and old.