The last decade has been challenging for professionals tasked with managing employer-sponsored-healthcare plans. In addition to incomplete data, plan managers have suffered through unrelenting health care inflation, the failure of industry-delivered disease management programs, and the unfulfilled promises from consumer-driven, high-deductible health plans. Add to that the stress and uncertainty surrounding the passage and implementation of the Affordable Care Act.

Today’s plan sponsors are being lured with the process of effectively dumping plan sponsorship to a strategy known as “defined-contribution plans,” delivered through private exchanges. Placing all responsibility for health care on employees and their dependents is being sold as a compelling advantage for corporations and entities.

There’s no crystal ball to tell us if the contribution strategy can solve the critical issues of high health care costs, but a good prediction may be based on an understanding of proven failures in health care planning.

1. Ignoring chronic disease

Chronic disease consumes the highest percentage of health care dollars. The Centers for Disease Control and Prevention states over 75% of our national health care expenditures are used to treat chronic disease. Our disease-care system accounts for the vast majority of our national spend. Why are chronic diseases not continuously discussed when the subject of health care expenses arise? One answer is that chronic disease management is a long-term investment requiring significant time to develop positive return on investment.

Do plan managers understand the “expense distribution” ratios of their plans — what percentage of their covered members are incurring what percentage of total annual claims? Data analytics indicates 90% of members of a health plan spend somewhere between only $200 and $2,000 a year. In contrast, the top 10% of members are responsible for over 70% of all plan expenditures. This small, costly group represents the sickest members suffering with chronic diseases and illnesses.   

Without proper preventive care and wellness programming, we risk increasing the number of those sickest members spending the vast majority of the health care dollars.

2. Confusing high-cost with high-quality

On an aggregate basis, high health care costs are a result of poor quality. Although as consumers, we typically align the thought of high cost with high quality. A Mercedes costs more than a Chevy. In relation to health care, however, why would one patient require 21 days of hospitalization for heart surgery performed in a small community hospital, while the same procedure may only require a seven-day hospitalization in a national center of excellence or teaching hospital? The problem is our health plan designs equally encourage plan members to seek care at the best hospitals, and unfortunately, the worst. Possibly the 21-day inpatient stay was a result of a mistake or infection caused by surgeons or medical teams possessing less skill.

Actionable health plan data indicates smaller hospitals routinely charge multiples more than centers of excellence. For example, the Cleveland Clinic may charge 50% less than a community hospital for the exact same procedure. In this instance, plan managers should create incentives, big-dollar incentives, for members to seek complex care from the very best health centers of excellence.

3. Being lured by defined-contribution plans

Defined contribution plan proponents argue these designs allow members and consumers the ability to pick fully insured individual policies from multiple carriers offering multiple plan designs best suiting their individual needs. 

Unfortunately, members are led to choices through low-premium dollars, creating financial barriers to low-cost, high-quality primary care. From a young family head to the retiring long-term employee, we all need quality primary care. It’s counter-productive to encourage members, who are often earning the least amount of income, to choose plans requiring $5,000 deductibles prior to receiving necessary, disease mitigating care. This is tantamount to throwing water on a long set of stairs prior to the winter freeze.

Put simply, high deductibles can prevent members from the four things they need to achieve optimal health: disease prevention, early detection, evidence-based disease management, and patient assistance from advocates and coaches to navigate our incredibly complex system. 

Additionally, the connection of health care strategy to pension strategy is not valid.  American business successfully moved from defined benefit pension plans to defined-contribution plans, such as 401(k) plans, but a similar move in the health care industry has not guaranteed success. Employers have a huge economic interest in the health status of their employees with respect to productivity. Employees are human corporate assets, and the loss of employer-sponsored health care will be detrimental to the company’s ability to attract the best employees.

4. Abandoning team-wellness strategies

Imagine a group of employees for a restaurant chain not knowing when they are scheduled to start or leave work. No work assignments, vacation policy, or break policy. This partially describes the manner employees will interact with each other when each has a different health plan design, co-pays, deductibles, and carriers.  Without common health coverage, certain strategic programs and employee-helping-employee wellness efforts will cease.

And consider the loss of employer leverage with the insurance companies. Today, if the managed care organization fails to live up to its promise of providing a health service, the employer has the leverage of all of its employees and dependents to lean on the insurance company. With multiple insurance companies and multiple plan designs, all leverage with insurance companies is lost. A major pitfall is forgetting that groups and large teams of individuals are always stronger than the individual.

5. Failing to evaluate and align vendor-partner goals

Employers should do business with organizations that win when the plan sponsor wins, not conversely. It pays to follow the financial statements of partner advisers, vendors, and administrators. If the partners you’ve chosen are having record-profit years while your plan financially suffers, something is misplaced. Most plan managers fail to have independent data with which to measure the results of their vendor partners. How is it advisable to follow their lead into replacing group coverage with individual policies?

Most individual policies available through private exchanges and the ACA public exchanges are most aggressively priced in plan designs requiring the highest deductibles, prior to any plan member reimbursement. If insurance companies were truly interested in the long-term health of members, then they would be most aggressively priced in plan designs that provide low-cost, high-value primary care. 

In sum, private exchanges and defined contribution plans may be appropriate for younger employee workforces, retiree coverage, or employee populations with rapid turnover. But for plan sponsors who consider employees to be long-term assets, defined contribution plans may be a dangerous road to travel.

Daniel K. Ross is founder and president of Med-Vision LLC and Med-View LLC. With over 20 years’ experience in the employee benefits industry, Ross specializes in health-plan-risk management, health-data analysis, and wellness strategies to help self-funded employers. Reach him through or 813.244.4027.

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