It’s not exactly news that the cost of health-care is rising. Goods and services, along with premiums, are forecast to have double-digit increases over the next year. What’s more, some experts predict the Affordable Care Act may drive costs even higher.
Health-care costs can weigh heavily on companies’ balance sheets, but one business claims it can help reduce the cost of employer-sponsored health insurance.
According to Steve Kelly, co-founder of ELAP Services, too many businesses accept sky-high markups on medical services. His company works with clients (employers) to help them reduce insurance costs of their employees.
The company monitors re-price claims from hospitals, ambulatory services and brick-and-mortar doctors’ offices by comparing what the costs “should be” based on published Medicare costs that come out every year. An example from its own proprietary data shows the markup on a simple visit to the emergency room: the service delivery charge was near $700, but the bill to insurers was $7,000.
‘Black Box’ of the Insurance World
Kelly says the traditional third-party-payer process obscures the true cost of health-care for both employers and enrollees.
“It’s kind of a black box where the pricing of health-care goes,” Kelly says. “We are advising clients to step outside of the traditional insurance model and instead pay claims on a reference basis.”
Kelly claims the insurance billing process is “designed to hide costs” and that his company sets forth, in documents, the limits of reimbursements for medical procedures and services.
Every year, Medicare bills are published online on the Centers for Medicare and Medicaid Services website, showing what the government reimburses for health-care related services and procedures. Using these figures as a guide, ELAP creates pricing metrics for employers’ health insurance plans and establishes allowable claim limits that can be charged by providers.
“Our claims are accepted 85%-to-87% of the time,” he says. “The remaining 13% of the time we may defend a plan member, negotiate or argue the validity of a bill. We think it’s our clients’ right and obligation to pay a reasonable amount for medical services,” says Kelly.
ELAP takes a per-claim fee on it's clients' bills.
ELAP has 170 self-funded insurance plans nationwide: the smallest client has 150 employees, and the largest has 2,700 employees, not including dependents. It also works in several cities and municipalities where local governments opt to self-insure.
Self-insurance products are common among smaller businesses looking to spread the risk across companies and help keep their coverage costs low.
“We forcefully make the argument that putting a price on a service like a CAT scan—which is a very common procedure with published costs of $403.85—of $5,005.32 billed to employers, is really an absurd game,” Kelly says. “The doctor or hospital will receive a percentage of reimbursement. It’s often an egregious overcharge with no relation to the services.”
A Plan with More ‘Transparency’
For Barbara Newman, CFO of Bill Miller BBQ, a 75-store restaurant chain in Texas, the decision to move into the self-insured model nearly a decade ago was driven by transparency. The company has 4,500 workers, with about 1,500 full-timers and around 1,000 on their insurance plan. The chain has been offering health insurance to workers for years, and they split premium costs 50%-50%.
“We liked the idea of having a model based on costs plus a margin of the markup versus a percentage off billed charges,” Newman says. “We have been with ELAP for seven years, and our costs for employers and employees have remained static.”
Yevgeniy Feyman, a scholar at the Manhattan Institute, says the ACA has made both individuals and businesses more aware of insurance costs, and as result, has made the self-insured population grow. Today, he says about 50% of workers who receive health insurance through their employer are enrolled in self-insured plans.
“These companies decide to enroll in self-insured plans because they are worried about health-care costs,” Feyman says. “Companies want to avoid government mandates and control costs, so self-insured plans are becoming more attractive. For bigger companies, with 500-plus workers, it’s a no-brainer.”
The emphasis on cost-cutting within the industry is a fairly recent trend, he says, as more companies have begun offering benefits to workers.
“Oftentimes, insurers are limited in what they can do,” Feyman says in regard to negotiating down prices. “Now we have companies like ELAP popping up. This has been brought to [companies’] minds by ObamaCare.”
That being said, Newman does acknowledge some risks involved with being self-insured.
“In the fully-insured world, I know what my costs will be this year,” she says. “With self-insurance, I have a contract and my costs are managed carefully, but I don’t know where I will be if there is a heart transplant or another large claim. But we are watching our costs more in the self-insured world. I look at my checks before they go out; if I have a question about a check, I can get information before it’s mailed--you don’t have that option in the fully-insured world.”
While ObamaCare is aimed at increasing accessibility to insurance for people throughout the country, Kelly argues the law is more focused on insurance regulation.
“It’s not getting at the root cause of the issues in the U.S., which is cost,” he says. “We feel the ACA obliquely gets at it, but it may take years to have an impact. Businesses need relief this quarter.”