The COVID-19 crisis and its economic fallout have exerted huge financial pressure on employers, many of whom will have little choice but to at least contemplate layoffs.
In the last week of March alone a record 3.3 million Americans filed first-time unemployment claims, yet the U.S. is still only in the early stages of the pandemic. The cost of COVID-19 testing and treatment is expected to soar for employers and commercial insurers, likely to top $100 billion, according to a recent report from Covered California.
Further, commercial health insurers are likely to increase premiums next year anywhere from between 4% and 40% to make up for increased medical claims this year and remain solvent into the future, according to the report. For employers already dealing with an economic downturn, the results of these increased costs – and the downstream effects on employees and morale – could be devastating.
While layoffs are one painful option, the other choices aren’t pretty either. Some employers may drop coverage altogether while others will shift more costs to employees. Higher premiums will take a bigger bite out of employees’ budgets, leaving less money to spend on housing, food and other necessities.
However, layoffs, cost-shifting and dropped coverage should be employers’ last option to combat rising health costs. Employers should first consider implementing other tactics that have been proven to reduce costs, such as self-funded plan with medical bill review, reference-based pricing and care navigation.
Medical bill review: Careful analysis of every line item on a claim can lead medical reviewers to find sometimes costly errors, which are more widespread than many employers may think. For example, Medical Billing Advocates of America estimates that up to 80% of medical bills contain errors. Most often, errors are associated with duplicate charges, services that were never performed and unnecessary “upcoding.” The best medical bill review programs include a clinical component, assuring that procedures comply with standard medical treatment protocols. Our experience has shown that medical bill reviews can easily reduce charges by around 10% of a claim’s initial estimated cost.
Reference-based pricing: Reference-based pricing is a cost-containment tactic that uses an evidence-based, preset benchmark to establish pricing rates for medical tests and procedures. To engage in reference-based pricing, employers come to the negotiating table with several key pieces of information: data about what amounts providers have historically billed for various procedures, what amounts they have accepted as payment, and most importantly, what Medicare reimburses for the same procedures within that market.
In most cases, Medicare’s rates form the basis of the industry standard for price benchmarks. A common misconception associated with reference-based pricing is the goal is for employers to obtain rates that match Medicare. Instead, the more realistic goal is to negotiate rates that only exceed Medicare by a certain percentage.
In many instances, there is a significant amount of room for negotiation. In less-competitive markets, providers have more pricing power and are more likely to charge rates far in excess of Medicare. For example, in its recurring series about regular Americans who have struggled with high medical bills, NPR recently highlighted the plight of a North Carolina man whose insurance paid two-and-a-half times the Medicare rate for an appendectomy.
Care navigation: Employers know that healthy employees are more likely to be productive and obtaining important preventive and clinically necessary medical services is among the best way for employees to remain healthy. However, financial health – for both employers and employees – may be dependent on finding a quality provider that charges fair prices without a balance bill. And that is likely to require better care navigation services than most employees have historically had access to.
A website and 1-800 number may help employees find high-quality providers that charge reasonable prices, but that is only the beginning of effective care navigation. What employers really need is an advocate who establishes direct communication with employees about their health plan details and up-to-date information on which providers offer quality services at appropriate rates and are also open to reference-based pricing. Member advocates help employees select the appropriate provider before receiving care and counsel employees after the care episode to navigate them through the billing process. When employees are armed with the proper knowledge, they are far more likely to choose a high-quality provider that delivers services at a reasonable and fair price.
At such an early stage of the COVID-19 pandemic in the U.S., we can only guess at the long-term consequences for public health and the economy. But it doesn’t take a fortune teller to see that the effects will be severe, far-reaching and long-lasting. Despite widespread economic uncertainty, employers should look to layoffs only as a last resort. Before taking such drastic steps, employers should investigate every resource available to help them lower healthcare costs in other ways, such as self-funded medical bill review, reference-based pricing and care navigation.
Larry Thompson is Chief Strategy and Revenue Officer at healthcare cost containment company Advanced Medical Pricing Solutions (AMPS).