Increasingly, human resources team members are being invited to participate in the health benefit plan selection process as the health plan assumes an ever-greater role in workforce well-being and sustainability. Historically, the process has been the purview of benefits specialists, leaving many HR professionals outside the equation. As HR gets more involved, it’s important for team members to have a working familiarity with the fundamental evaluation criteria.
Why is HR getting more involved? Organizations are recognizing that health benefits are more than just valued insurance for employees and their families. The health benefit program affords an opportunity for alignment with organizational brand and values; is the foundation for improving employee engagement, productivity and longer-term workforce sustainability; and is a vehicle to support inclusion, diversity and employee satisfaction. For those focused on workforce well-being, health benefits are the linchpin: It’s the first line of defense for illness or injury, emotional well-being via the employee assistance program (EAP) and behavioral health coverage and the engine for recovery, enabling a return to optimal on-the-job productivity and home life.
For the HR professional not familiar with health benefit plan search and selection activities, the following discussion identifies the primary dimensions of the evaluation process and key considerations.
The first consideration is the commonsense expectation of any organization that a service provider can deliver the needed plan of benefits, meet required contractual terms and deliver on requisite service requirements for implementation, plan management or integration with other health benefit partners as well as involved benefit administration systems. Beyond these essentials, the focus tends to be on the accessibility of the preferred provider network, potential disruption of patient relationships, the discounts applied to the cost of various medical services and the administrative fees to be charged. These elements are often accompanied by various performance guarantees ranging from implementation performance to ongoing customer service or claim adjudication as well as meeting financial guarantees such as the rate of future cost growth, referred to as “trend.” Frequently, the competitive process will generate “allowances,” which are funds offered by the involved health plan for use by the employer in such areas as implementation, communication efforts, audits or other plan-related activities.
Access and Disruption
When it comes to the health plan network, attention turns to the ability of covered plan members to easily access network providers and to minimize the disruption of existing facility or practitioner relationships. Access is commonly validated by requiring a “geo-access” analysis that affirms acceptable distances from a member’s location to several in-network doctors and hospitals. This is undertaken for urban, suburban and rural areas. A typical parameter could be “two in-network physicians within three miles in a suburban setting” with actual parameters pre-set by the employer and/or involved adviser. The next step is to assure minimal disruption of existing relationships by conducting a match of participating network providers to those currently being used by plan members using provider tax ID numbers and street addresses. In both instances, the higher the percentage match, the better. Results in the 80% to 90% range are typical, with more being even better.
Unit Cost Discounts
The cost discount applied by the health plan for services in-network is the biggest financial factor considered in the decision process, frequently accounting for 80% or more of the cost decision. The competitiveness of the discount is often described using an aggregate percentage such as 35% or 50% but can vary significantly by locale and by facility or practitioners within a locale. While discount analysis is critical, the nature of discount analysis focuses solely on the cost of the procedure or service and ignores differences in quality of care, efficiency of care and potential variations in outcomes. In addition, the availability of centers of excellence that can speed up a return to functionality and work are not incorporated. Relying solely on a composite discount value can be misleading and thus should be complemented with other analyses such as plan member alignment with available centers of excellence, access to higher-performing physicians (known as high-performance networks) and the opportunity to connect members with primary care doctors contracted specifically for their focus on quality and efficiency of care. The value of these considerations should be incorporated into decision making over and above relying solely on a discount percentage.
Call Out on Unit Cost Discounts
It is important to understand that health plan discount data often lag market developments by 12 to 18 months and are reported by a three-digit ZIP code that can span a large and non-contiguous geographic area. Since an employer’s workforce often is located in a particular segment of a large ZIP code area, the discount being shown may not accurately reflect the niche area where services are predominantly utilized. Care should be taken to assure that the discounts at the hospitals and practitioners most often used are accurately reflected and not subsumed by the broader ZIP code average.
Similarly, many discount analyses utilize an estimated distribution of services among facilities, physicians and other providers. These distributions should be calculated to reflect the actual service distribution for the employer group involved.
Charges are termed administrative fees for a self-funded employer. The so-called “ASO” fee is commonly charged per participating employee per month and is a dollar value such as $45 per employee per month (PEPM). This covers the health plan’s administration, claim processing, maintenance of the network, member services, reporting of results, etc. The fee often is quoted with an escalator such as 2% per year. Other fees are levied for ad hoc services, referred to as shared savings, non-network or variable fees. Both the fixed ASO fee and the estimated value of these other fees should be considered.
Putting It All Together
Taken together, these factors commonly comprise most of the health benefits decision set. Each organization will need to consider what matters to them and what decision criteria should be given the greatest weight — often by developing a scoring approach and summary scorecard accompanied by in-depth interviews with potential health plan partners. While the details may be best suited to the experts on the benefits team, HR generalists can benefit from participating and learning how the program can contribute to larger organizational goals and workforce health and productivity.
Randall K. Abbott is senior strategist emeritus, now retired from Willis Towers Watson’s Health and Benefits Practice.