How to “Free Marketize” Your Plan

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Many healthcare providers and hospital systems have a great deal invested in the status quo of healthcare. It is becoming widely known that many healthcare systems are masking revenue streams, taking federal dollars to reimburse themselves for ‘uncompensated care’, and relying on political favors to maintain their monopoly status. Meanwhile, they are bankrupting patients and self-funded health plans while continuously claiming imminent bankruptcy.

Self-funded employers have been forced to rely not only on PPO networks to give a percent off billed charges from these providers, but also on Third Party Administrators who often are rewarded when Plan costs are high. Like the PPO networks, who are taking a portion of the ‘savings’ as an additional revenue stream, many TPAs have similar business strategies.

For a self-funded employer, these costs are not paid with Monopoly money. These cost increases can mean the difference between having to increase Plan funding verses giving raises, buying new equipment, or increasing staff. Incenting employees to use providers who offer up front, transparent, bundled, cash-based pricing can save that employer millions
of dollars in claims in just a few years.

The free market movement in healthcare is vital to fixing the problems with our country’s current healthcare delivery system. Healthcare transparency provides you and your employees with the information and the incentive to choose healthcare providers based on value. Value is not just about price, but rather price and quality.

You and your employees are inundated with media, advertising, and hype that incorrectly conveys that valuable healthcare has to be expensive; the highest quality care will cost more, or that the cost should be ignored. However, the quality of healthcare is not related to the price in the way consumers are taught to shop for other goods and services. Better quality care is almost always delivered at a lower price. High quality and low complication rates combined with efficiency, enables these providers to charge far less than a low value competitor.
  For a self-funded employer, being part of the free market movement is very important to the long-term success of your Plan. Competition in healthcare delivery is the key to sustaining affordable, quality benefits for your employees.

As a Plan Fiduciary under ERISA, it is important for you to pay attention to where your claims dollars are going, and whether these charges are reasonable. Complying with the fiduciary responsibilities outlined in ERISA is becoming a hot topic for the Department of Labor. Embracing bundled, cash-based pricing that is not based on ‘a discount off’ an unknown starting point is crucial to fulfilling the fiduciary responsibility of being self-funded and using health Plan dollars to only pay for reasonable costs.

Step 1: Determine Who is Minding Your Dollars?

Finding the right “facilitators” or “vendors” can greatly impact your Plan. What value do your current vendors provide? In what way, and how much, do they get paid? Have they embraced the free market and advise you to use Plan assets in the most prudent way? Do they understand that network/PPO discounts have no real-world value? Seek out find brokers/consultants who believe the free market is important to your Plan and understand that transparency is important in their business as well.

Are you using an ASO (carrier) as your TPA? TPAs generally have multiple revenue streams, from commissions on a stop loss policy, to percentage of savings on out-of-network or third-party recovery. Insurance carriers masquerading as ASOs are able to find even more ways of hiding their compensation (especially if they also own the network, the stop loss carrier, PBM, etc.). Even though many of these revenue streams are considered standard industry practice, they are not transparent, nor are they in the best interest of the self-funded employer. ERISA requires that self-funded employers use Plan assets only for reasonable expenses. The inability to quantify the exact compensation paid to their TPA puts employers in a non-compliant position with ERISA, and may violate the employer’s fiduciary responsibility to the Plan. Getting an automatic windfall when the client has a poor claims year puts your TPA at odds with your best interest.

Step 2: What do your Contracts Say?

Self-funded employers must read all of their contracts carefully. If a vendor includes language that prohibits you from acting in the best interest of your Plan (and thereby complying with your fiduciary obligations under ERISA), these contracts should be modified, or the vendor replaced. Commonly, PPO networks have language that prohibits you from reviewing specific claims, negotiating directly with providers, etc. Many ASOs have language that not only makes your data their property, but also language that gives them the right to make claim determinations outside of what is included in your Plan Document. Your TPA and Agent/Broker should not be signing any contracts on your behalf since they are not the Plan Administrator.

Step 3: Incorporate free market facilities and physicians

This is not as difficult as it sounds. There are surgical facilities, imaging providers, direct primary care physicians, and other medical providers at all levels who would love to do business with you in an open and honest way outside of the PPO networks.  There are many free market programs you can purchase (check how the vendor offering them is compensated) that assist you with this, but depending on your location and needs, it may not be necessary.  You can learn more about this at and in future issues!

Step 4: Incentivize Your Employees to Buy Better

Many employers are incorporating free market facilities and Direct Primary Care into their plans and waiving all out of pocket costs for employees. The pricing is so much better that these employers are lowering their attachment points, lowering their reinsurance premiums, and most importantly, significantly impacting their claims spend. We will talk more about this in upcoming issues!

Protecting your Plan and reducing your claims costs is not rocket science or a gimmick. The ideas and strategies outlined in this publication will help you learn how to incorporate these ideas and set you on a path to long term success. All it takes is just a little bit of know-how, the guts to challenge the status quo, and the determination to go in a new direction!

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Jay Kempton

About Jay Kempton

J. Wayne Kempton is the President and CEO of The Kempton Group; one of the founding members of the Free Market Medical Association; a board member of the Society of Professional Benefit Administrators; and a member of the Health Care Administrators Association. Mr. Kempton has a Bachelor of Science degree in Business Administration from Oklahoma State University and is Life, Health, AD&D, and Property and Casualty Insurance licensed in multiple states.

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