Understanding Employer Sponsored Health Care Options

Financing of the health care benefits paid by employers comes in many forms.

The simplest form of this is the fully insured product. Most small employers understand that this is their only option. In the small group market, the employer looks to the insurance company for “off the shelf” products and chooses the plan or plans that best meet the objectives and costs for the specific group. In the far Northstate these products are delivered primarily by Anthem Blue Cross and Blue Shield of CA.

When choosing from those plans, the employer has the option of choosing different network options from the carrier. For example, Anthem small group offers plans with the full PPO network or a smaller network (called Select). In the smaller network plans the insurer has typically negotiated lower payments to the providers and is able to pass the savings on to the group in the form of lower rates. Premiums are highly regulated and are based on the experience of the entire pool for the geographic region.

Fully insured plans are similar to renting a home; i.e. you have a roof over your head, you don’t build equity, but if anything fails, the landlord pays the bills (and may raise your rent to cover it later).

Larger employers have more options. They may consider partial self-funding. In this case the multiple components of the plan are purchased separately and are combined to provide funding and administration of the plan. These include:

  1. TPA (third party administrator)-the entity that adjudicates and pays claims
  2. Stop-loss carrier- the insurance company that assumes the risks for the plan over a certain threshold per individual and/or aggregate for the entire group
  3. RX: The PBM (Pharmacy Benefit Manager) provides negotiated prices and network for pharmacy benefits as well as negotiates rebates that can be returned to the employer
  4. Network: The plan will often rent a PPO (Preferred Provider Organization) network from an insurance carrier such as the Blues, Cigna etc.
  5. Utilization review: This service reviews procedures and hospitalizations for medical necessity. This may be provided by the TPA or outsourced to a separate vendor.

All these moving parts make the plan more complicated to administer, but also give the employer a clear understanding of how the plans’ funds are spent because detailed claims information is available. If the group is more healthy that the average, the firm can save money on the premiums. Partial Self-funding is similar to owning the home: you get the benefit of appreciation and the risk of depreciation of value if the neighborhood changes. The risk and rewards are yours.

A new variation on the partial self-funding scheme is structured in what is known as Captive Insurance Groups. They could be compared to the condo concept. You share the bigger risks with your neighbors and can access some economies of scale with larger purchases. Several employer join together to purchase and partially self-fund benefits.

Both forms of partial self-funding may use a combination of Reference Based Pricing and PPO for claims pricing.

With Referenced Based Pricing, the third party administrator sets benefit reimbursement levels based on a multiple of the Medicare reimbursement rate. Typically claims payment allowances are set at 125-150% of the Medicare reimbursement rate. This can be a challenge for employees as there is no pre-negotiated contract with the vendors and the insured can be left to negotiate with the provider for charges in excess of the allowed amount.

A PPO contract sets reimbursement rates with the provider and they may not balance bill the insured above the allowed amounts. Self-funded plans “rent” PPO networks for their plans. The Blues are the most expensive to rent, but provide the deepest discounts and greatest provider penetration.

I find it intriguing that the employer sponsored group market is getting more interested in Reference Based Pricing. At the same time, the insurance industry is also discouraging the public from considering any of the public option or “Medicare for All” proposals.

Clearly, there are multiple version of “Medicare for all” and public options, and as they say, “the devil is in the details”. But make no mistake, the insurance industry uses the Medicare reimbursement rate as a threshold for reimbursement as well as Medicare rules for allowed procedures and services. They are even returning to RVS (Relative Value Schedules) which were the standard when I started in the business 40+ years ago. In those contracts every procedure is assigned a flat dollar value and that is the limit of allowed reimbursement.

As the health care debate evolves, keep in mind Medicare’s rules and payment schedules are often the basis for the plans in which you are insured.

Margaret R. Beck
Margaret Beck  CLU, ChFC, CEBS started her insurance practice in Redding in 1978. As an insurance broker/consultant,  she represents businesses and individuals as their advocate.  She assists in choosing proper products, compliance with complex benefit laws and claims issues once coverage is placed. All information in her column is provided to the best of her knowledge, subject to final regulation by the respective agencies. Questions to be answered in this column can be submitted to info@insuranceredding.com. Beck's column is also published in the Redding Record Searchlight.
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6 Responses

  1. Avatar Bruce Vojtecky says:

    I have had Anthem Blue Cross for over thirty years. SUHSD was my employer. All employees and their families were covered regardless of existing health conditions, an Anthem requirement. Most years there would be a modest raise in premiums. Though one year Anthem said there would be a 35% raise in premiums. We created a mixed classified certified group to search other insurance coverage. SUHSD gave the group, less than ten members, $2 thousand in funding.
    Anthem was aware as they had to furnish all information so we could compare. After a couple of months we found that the Anthem plan we had was the best offered, even from other Anthem plans. The reason for higher premiums in the north state over the south state was volume of members. The larger groups would have lower rates. We stayed with the plan we had. One positive result from our investigation was that Anthem did not raise rates 35% but just another modest increase.
    After retirement I was able to keep my Anthem plan though I paid the full premium myself, SUSD only paid employee plans until the employee went on Medicare. Then it was up to the retiree to pay for the full plan. I have used Anthem for the dozen years I have been on Medicare and though I have searched other plans I have found Anthem was the best even though I have used it in five different states.
    Some truths about todays Medicare. It is not free and does not cover vision, dental or hearing except for certain actual surgeries. Free Medicare for all would be very expensive and not free, someone has to pay for it.

    • Avatar Larry Winter says:

      You gave the best reason for Medicare for All in your comment.

      “The reason for higher premiums in the north state over the south state was volume of members. The larger groups would have lower rates.”

      You received health care benefits from a local school district which shouldn’t be in the business in finding health care coverage for their employers. School districts have been struggling for years trying to budget higher health care costs with limited revenue. They can’t just charge more for their product like private enterprise can. Tax payers also paid for your care but with less leverage because if private insurance can compartmentalize coverage, as Margaret Beck has shown, you have smaller pools and therefore higher costs, by definition.

      In today’s America, health care shouldn’t be a “benefit” but should be treated as an investment and security for Americans. Homeland security should start at home. We spend over $700 billion a year to protect Americans that are dying because of lack of adequate health care. People going bankrupt because of our American system. Health security is also Homeland Security.

      Taxpayers are paying for all government employees health care. American consumers pay for all private industry’s employee’s health care. Americans should demand the most cost effective mode of coverage and as you’ve shown in the quote above, the larger the pool, the less expensive it will be for all of us. Medicare for All creates the largest pool of all.

      • Avatar Bruce Vojtecky says:

        Larry, as I stated in my post my Anthem doesn’t cost you one penny. I pay for it fully myself.
        I believe in Medicare for all but it isn’t going to be free, it will cost someone, taxpayers.

        • Avatar Larry Winter says:

          Bruce, I did use past tense when I mentioned your coverage and it was in the broader context of School Districts using limited funding to pay for unpredictable health care costs.

  2. Avatar Robert Scheide Sr. says:

    The first thing to remember when looking at health insurance that insurance companies only make money by denying benefits. So no private insurance can beat Medicare for price. For service Medicare is tops they deny nothing and there is no preapproval for anything and most folks take Medicare as full payment,
    True you will pay something but if you care to look for instance Other taxes pick up most of the tab. Bernie estimates your contribution will be around $2000. Picking up dental, eyes mental coverages saves you lots of money..Take the time to check Bernie and Warren’s plans.

    • Avatar Bruce Vojtecky says:

      Most health providers don’t take Medicare as full payment, only 80% is paid by Medicare, that is why I have Anthem secondary. Rural providers are hurt because Medicare pays only 80% and many patients do not have a supplement insurance and those providers have to write off the 20%.
      Medicare for all has to fund that extra 2o% plus the increased cost for vision, dental and hearing. Right now I pay a little over $100 a month for Medicare coverage and the plans I have looked at for the others are more than $2000. The claims Warren and Sanders make are that the extra funding will be made up by taxing the rich, one claim I saw was anyone making over $123,00 a year.
      I would love to only pay $2000 a year for health insurance and everyone else too.