euclid managers legislative review


Bending the Health Plan Cost Curve

Employers have been fighting to cotrol the costs of their employee health plans for many years.  Some initiatives have worked… for a time. Other efforts have come up short.  One thing is certain, employers still wnat to lower the costs of their health plans.

This issue of Legislative Review explores some of the initiatives that employers are using – or exploring today. 


Self-funding or – self-insuring – has been a longstanding approach to saving on benefits costs. Traditionally this option has  been most popular with larger employers.  Larger employers can withstand the lack of a predictable cash flow which occurs as employers must pay claims as they emerge versus a level premium payment in insured plans.  All but the largest employers include some from of stop-loss protection as a part of their self-funded plan.   In some cases, employers purchase stop-loss coverage cap the expense to the plan for a catastrophic or large claim.  And, employers who are more risk averse may purchase both types of stop-loss.

Some employers have found that renewing a self-funded program can be complicated. A bad claim year may make stop-loss coverage too expensive or unavailable for the next plan year.  Employers may also find the fluctuations in montly expenses difficult to finance.   And, terminating a self-funding plan to return to an insured plan can have significant exposure to claim run-out.


Insurers have responded to some of the concerns of self-funding by offering level-funding plans. Level-funding plans emulate premium-based plans in that employers pay a monthly rate which incorporates claims, stop-loss and administrative expenses. Employers are, as a result, protected against unforeseen costs with the opportunity to receive reimbursement at the end of the plan year for dollars which weren’t needed to pay claims.

Level-funding options may not be available for all employers interested in pursuing the option. Insurers offering level-funding plans may screen for better risk profiles.

There are several provisions or areas of concern that employers should review when considering level-funding. These are:

  • Terms of the contract which define the employer’s responsibilities and liabilities as well as the services provided by the level-funding entity.
  • Termination provisions especially coverage for run-out claims liability the employer may face. A contract that ceases payment of claims after 12 months, for example, could result in a number of claims that come in after the contract’s coverage ends.
  • Additional reporting requirements not required by insured plans. Level-funded plans are considered to be self-funded meaning that 5500 filing may be required for small employers who have not had to file due to the small employer exception. Non- discrimination rules may also be applicable. And, to the extent that employers receive claim data, HIPAA compliance becomes even more of a concern.

Reference Based Pricing

Some employers are adopting reference based pricing (RBP) plans that attack health plan costs at the source – the fees providers charge for their services. A RBP plan is an alternative way to pay health care claims than the traditional usual and customary or discount off billed charges approach. Typically the plan pays providers based on some multiplier of Medicare payment.

Here’s an example of RBP:

  • Provider bills $400 for a service
  • A PPO or contracted arrangement might pay $250 for the service
  • Medicare would allow $100 for the service
  • RBP at 150% of the Medicare allowance pays $150.

The health plan saves significantly over the billed charges as well as what the plan may have paid under a PPO or network based plan.  The hope is that the provider will accept the plan’s payment of $150 without balance billing the patient for the $250 difference between the plan’s payment and the billed amount.

In addition to lower claim payments, RBP plans may overcome network limitations. The plan doesn’t have in or out-of-network providers which employees may find more attractive. But, the downside is that providers may pursue the balance bill amount dunning the patient for the difference.

RBP plan vendors should have a team dedicated to intervening in balance billing situations on behalf of plan beneficiaries.  If not, beneficiaries will be put in the middle of fee disputes; a situation that most employers and employees would rather avoid.

Education is critical for employees in a RBP plan. Given the possibility of balance billing, employees need to know how the plan will respond to a balance billing request and whether the employee will have any responsibility to pay the disputed charges.

Initial forays into RBP plans relied on providers being reluctant to pursue “excessive” amounts for fear of a public backlash. Recent experience has found that providers are not so reluctant – perhaps to stem the tide of employers adopting RBP plans.

There have been a plethora of RBP lawsuits. Among the issues cited in the lawsuits were:

  • Deficiencies or inaccuracies in plan documents. For example, a plan document might reference Usual and Customary fees instead of RBP
  • Breach of fiduciary The provider might argue that the plan is using an arbitrary claim process or that there was “improper payment”
  • Unlawful trade practice
  • Misrepresentation
  • That the patient is responsible based on signing admission documents that called for the patient to “pay any ”

Proponents of RBP plans maintain that setting the RBP reimbursement level at a sufficient level can reduce balance billing and litigation. They have found success with reimbursement levels approximating 140% to 150% of Medicare. Other plans make an initial payment at the 150% of Medicare allowance. If there is push-back, the plan administrator can negotiate a higher reimbursement rate that may be as much as 180%.

Direct Primary Care

Some employers have decided that they can set up their own medical facilities to both save money and enhance employee access to care. The employer hires or enters into a contractual arrangement with medical experts to provide primary care for employees and their families.

Building an onsite or near site medical clinic is a costly proposition beyond the reach of most employers.  Newer developments in DPC bring together several employers in the same area to share in the cost of the facility and services.

DPC arrangements, as law currently stands, may bar employees from participating in Health Savings Accounts (HSAs). This is because the DPC arrangement charges no or limited fees to patients which would mean that the plan does not qualify as a High Deductible Health Plan. Also, the tax code is unclear whether monthly payments to physicians under the DPC model meet the Internal Revenue Code Section 213(d) definition of qualified medical expenses.

There are efforts underway in Congress to clarify the tax code to give DPC models more flexibility under the tax code.

Due Diligence Required No Matter the Option

Before adopting these or any proposals, employers and their advisors need to understand the details and nuances inherent in them. Employers may find that communication with employees and their families is especially important.

The compliance issues should also be thoroughly understood. Self-funded plans have more rules for employers. Employees may lose benefits such as access to state-based mandates or state-based continuation coverage if their plan is no longer insured.

And, before adopting a new strategy, considering what it takes to change if the strategy doesn’t work is always worth thinking through.

Letter from Karen Knippen

Trying to get a handle on employee health plan costs is a constant and evolving goal for employers. This issue of Legislative Review speaks to a few of the devloping options in additoin to those that are more traditional.

One thing is clear – there is no magic solution for employers. There also isn’t a “one-size-fits-all” answer. Your professional expertise can help guide your clients to the solutions that best meet their needs.

Euclid Managers is pleased to help you with our breadth of products and solutions.

Sincerely yours,
Karen Knippen Signature
Karen Knippen, RHU, REBC Senior Vice President

EUCLID MANAGERS has been serving the independent agent since 1976 with a portfolio of group health, life, disability, dental and individual health. We proudly represent UnitedHealthcare of Illinois, Delta Dental of Illinois, MetLife and UnitedHealthOne Individual. We encourage your feedback and suggestions. Please call your EUCLID MANAGERS Marketing Representative or Marcy Graefen at (630) 238-2915 for more information.

The information contained in this publication is intended for the general information of our clients. It should not be construed as legal advice or legal opinion regarding any specific or factual situation.