Wake-up call for self-insured employers and 8 ideas for what to do 

October 26, 2023

A recent Health Affairs article caused a bit of stir in the world of employer-sponsored insurance: Researchers analyzing data from the Health Care Cost Institute concluded that prices for a number of common healthcare services were moderately higher in self-insured health plans than in fully insured plans. Not surprisingly, self-insured plan sponsors found this concerning. My colleagues and I found it puzzling, since it runs counter to our experience as well as to our understanding of how most carriers negotiate their contracts with providers.  

As is usual in a peer-reviewed paper, the authors acknowledged the limitations of the study and the need for further research. Putting aside the admonition “if you can’t say something nice, don’t say anything at all,” we feel these limitations were material. Perhaps most significantly, the data did not include a plan or insurer identifier, which limited the ability to compare self-insured and fully insured plans' prices under the same payer. In our view, while it may be possible on a national level to find differences in average prices based on the type of funding, there are many factors that affect provider reimbursement levels and the study was not able to control for all or even most of them. What is certain is that it is unusual to see major carriers negotiate different reimbursement levels for the same provider, network, and service, for their fully insured plans versus their self-funded clients. 

We agree with the study authors that self-insured employers have opportunities to seek and obtain lower prices. There are a variety of network products available in the market today ranging from multiple network choices offered by insurance companies, stand-alone networks created by third parties, and some direct-contracting options. Employers can be hesitant to move to different networks because they tend to have fewer providers and employers are cautious when it comes to changes that disrupt their health plan members. Given the reality of rising health costs, it may be time to give these options another look – especially networks designed around high-quality providers to drive better outcomes. There are also opportunities to lower price through transparency tools, as well as plan designs that are intended to steer to lower cost providers at the point of service.  

Of course, while pursuing lower medical care prices can be part of a comprehensive cost-management strategy, it is important to keep in mind that pharmacy costs – which were not specifically addressed in the Health Affairs paper – are a key driver of cost increases and will remain a priority for plan sponsors.  

The researchers also suggest that policymakers could be helpful where employers have limited leverage to negotiate with providers. In general, commercial insurance pays higher prices for healthcare than Medicare and Medicaid. Private plans pay nearly double Medicare rates for all hospital services (199% of Medicare rates, on average), ranging from 141% to 259% of Medicare rates across the reviewed studies. For physician services, private insurance pays 143% of Medicare rates, on average, ranging from 118% to 179% of Medicare rates. Medicaid reimbursement is nearly 30% below Medicare.  What does that mean to private plans? It’s complicated.  As an example, physician reimbursement under Medicare has actually decreased 26 percent over the past 22 years when adjusted for inflation because of the lack of adequate adjustments. Reimbursement shortfalls across all of the public health plans result in cost shifting to private plans. 

• Commit to affordable plan designs. One of the biggest reasons people delay care is because they can’t afford to pay for care. Encourage use of preventive care and chronic condition management. 
• Provide advocacy support to help plan members get to the most appropriate care and setting. 
• Review the emerging spectrum of virtual care for options to help rein in costs while making care more accessible and affordable to plan members. 
• Now is the time to consider the long list of network options that exist in the market today and could result in cost savings.   
• If you haven’t explored reference-based pricing, you might want to do so. The protections offered by the No Surprises Act make this a more attractive, and less risky option for plan members. 
• Make mental health a priority. People with medical conditions often have mental health needs. People with mental health needs often develop medical conditions. It is an investment you can’t afford to overlook. 
• Focus on pharmacy. Prescription drug costs are a top driver of medical plan cost increases mostly associated with new drugs and the cost of specialty drugs.  

All signs indicate that we will see faster health plan cost growth in 2024. Employer plan sponsors – and particularly self-funded employers – will need to use all possible levers to manage costs and preserve affordability for plan members. That’s something we can all agree on.