Should employer health plans stop using insurance for routine care?

That reality is prompting a more fundamental question among plan sponsors and benefits advisors: are employers using insurance for services it was never designed to handle?

Insurance is highly effective at protecting against catastrophic risk.

But many routine healthcare services — primary care visits, lab tests, diagnostic imaging and common outpatient procedures — are predictable, frequent and increasingly available at transparent prices outside traditional insurance billing.

When insurance adds cost instead of value

Health insurance was originally designed to spread the risk of large, unpredictable medical expenses.

Hospitalizations, major procedures and specialty care fit that model well.

Comprehensive coverage for routine care was added later. Routine care doesn't fit the insurance model well.

Yet in most employer plans, a $50 lab test moves through the same claims infrastructure as a six-figure hospitalization.

Providers must code services, submit claims and manage reimbursement disputes.

Each step adds administrative cost that ultimately gets built into the price of care.

The result is a system in which routine services often cost far more than their underlying delivery costs, and employers rarely know the price in advance.

A different way to purchase routine care

Some employers are beginning to test a different approach: separating routine care from insurance while keeping insurance in place for catastrophic risk.

Under this model, employers may purchase certain services directly through simpler payment arrangements.

Examples include direct primary care subscriptions, transparent pricing for lab testing and imaging, and bundled pricing for common outpatient procedures.

In many cases, these services are significantly less expensive when they're purchased directly rather than processed through insurance claims.

The change doesn't eliminate insurance.

It simply uses insurance for the type of risk it was designed to manage.

New roles in the healthcare ecosystem

If routine care moves outside traditional insurance networks, new forms of support will become important.

One is patient navigation.

Employees will need help identifying high-quality providers, comparing transparent prices and coordinating care.

Technology platforms, including many that incorporate artificial intelligence, are beginning to fill this role by guiding employees through the healthcare system more efficiently.

Another emerging role is health improvement coaching.

Many employer health plans are built to pay for treatment after illness develops.

But employers increasingly want to help employees improve their health before medical conditions escalate.

The debate over whether employers should cover high-cost GLP-1 drugs for weight management highlights this challenge.

Employers are spending heavily on treatment but often lack structured support to help employees improve metabolic health over time.

Health coaches and behavior-change specialists could help employees create annual health improvement plans focused on weight, activity, sleep and nutrition, much like a financial planning process.

A practical path for employers

Separating routine care from insurance won't, by itself, solve healthcare inflation.

Hospital and specialty care still represent the largest share of employer healthcare spending.

But routine services — primary care, labs and imaging — are a logical place for employers to begin experimenting with simpler purchasing models.

Insurance will remain essential for catastrophic risk.

But for everyday care, employers may find that a more transparent market — supported by navigation tools and health coaching — offers a more efficient way to deliver care while improving employee health.

Joanne Frederick is the founder of Government Market Strategies, a government healthcare consulting firm.