The insurers settled and agreed to set up an objective database of doctors’ fees that patients and plan sponsors could rely upon.  However, the settlement didn’t require insurers to use it.  Instead of using the new $95 million database, all of which was paid for by insurers, they pulled the classic bait and switch.  Insurers began determining out-of-network reimbursement rates based upon Medicare rates.

In most instances, a policy mimicking Medicare rates reduces reimbursement more drastically than the initial rates regulators were trying to increase.  Doctors receive lower payments for services rendered and patients have significantly higher out-of-pockets costs.  I don’t defend insurers’ exorbitantly low out-of-network rates, but can you can see the hypocrisy from regulators in so far as Obamacare?

Today, most health plans have one level of benefits for care rendered by an in-network provider and a lower benefit for services from an out-of-network provider.  Insurance carriers encourage use of in-network providers because doing so helps control claim costs.

In-network providers have contracted with the insurance companies to provide medical care at reduced prices.  In exchange, the insurance companies direct patients to the in-network providers.  The arrangement increases business for the providers and decreases claims cost for the insurance company.

Treatment out-of-network is a different story.  Out-of-network providers have no agreement or incentive to reduce prices and control cost.  At times, however, they may provide a level of care or service that a particular patient needs or wants.  Patients seeking care out-of-network need to be aware of the way their benefits will be calculated.  There is more to it than the out-of-network deductible and co-insurance.

Insurance policies have clauses and exclusions against treatment that is not medically necessary. There are also provisions that the carrier only allows the Usual, Customary, and Reasonable (UCR) charge for a service provided.  Over the last few years, many carriers have begun to define their allowable charge or UCR limit as the amount negotiated with in-network providers.  The difference can be substantial.  For instance, if the retail price of a surgery is $4000, the discounted amount could be $2500, a $1500 discount.

When his son, Ethan, was a baby, doctors said he had a rare liver disease.  The family, which was in a health maintenance organization, had to appeal three times to get approval for the out-of-network surgery that saved the boy, now 10.  So Mr. Glaser was overjoyed two years ago when his employer switched to a PPO that promised out-of-network coverage.  Including premiums and deductibles, he and his employer paid about $14, 600 a year for family coverage.  But he discovered that at 150% of Medicare rates, it still fell far short.  In the case of a $275 liver check up, for example, the balance due was $175. (NY Times 4/24/2012)

Jennifer C. Jaff said she maintained out-of-network coverage with $14,000 in annual premiums because she has Crohn’s disease and is at high risk of colon cancer, which killed three of her grandparents.  Last year, after a terrible experience with an in-network doctor, she said, she returned to a top specialist who had performed her colonoscopy and upper endoscopy.   Even with 250% Medicare rates as the benchmark Ms. Jaff owed $3,137 of a $4,200 doctor’s bill.  (NY Times 4/24/2012)

If in-network benefits were paid at 80%, the patient would owe $500 for the surgery (20% of $2500).  A patient receiving care out-of-network would not receive the benefit of the discount.  Out-of-network benefits may be paid at 60%.  The patient’s responsibility is 40% of the UCR amount of $2500 or $1000, plus the difference between retail and the UCR amount ($4000 – $2500) or another $1500.  The total owed by the patient would be $2500 on a $4000 surgery.

To avoid surprises, it is important that your employees understand how out-of-network benefits are calculated.  Some providers will agree to write off all or part of the balance.  A financial agreement before receiving services is critical.  After services are rendered, many providers are not willing to discuss discounts.

On Wednesday September 26, 2012 I picked up a rental vehicle from the Cleveland airport.  The original reservation called for a mid-size automobile.  Since I was driving approximately 100 miles to our warehouse, I wanted to keep gasoline costs reasonably low.  Hence the request for a small automobile.  Those of you whom travel quite a bit I’m sure appreciate the Hertz Gold and Avis Preferred services.  As I approached the space where my vehicle was parked I noticed that it was not a Chevy Cruze but instead a SUV!
  
My first thought was, “wow a complimentary upgrade.”  Then it dawned upon me that no one is renting these vehicles due to the high cost of gasoline.  A few years ago I couldn’t get a free upgrade even if I got on my knees and begged for it.  Now Avis is giving away free SUV upgrades. I, with a smug, walked to the customer service counter and kindly requested a compact or mid-size automobile.  This saved our company $100 in unnecessary travel cost during the four day rental.
  
This past Sunday, September 30, 2012, I spent with friends at a local bar watching the football games.  All went as planned including my having to pay for the tab.  Because most of my friends are single women, this isn’t a big deal.  All that changed when the bartender handed me the bill.  I knew he was a shady character from the outset and like many people in a business transaction will dupe you if the door is left open.

I had been watching the bartender all evening and noticed he was pouring drinks for customers different from what they originally ordered.  I’m assuming his logic was they’ve been drinking all day so no one will notice the difference between Smirnoff and Grey Goose.  So, I’ll charge you for the Grey Goose and pocket the difference. Nonetheless, my bill was a lot higher than it should have been and included a tip! I told him exactly what I owed -and why- saving myself $75 in the process. 

More recently, employers have been increasing employee premiums, although this tactic can only be pushed so until diminishing returns begins to rear its ugly head [decreased employee retention]. Also, if healthy employees opt out of coverage self-insured employers might lose money.  That is why most companies keep premium increases in line with their cost increase.

Among other changes to improve prescription drug costs employers should consider these options for 2013 and beyond:

• The adoption of account-based health plans, which include health savings accounts and health reimbursement accounts.  The higher deductibles in these plans shifts more of the cost to employees.  In many cases, the only costs are attributed solely to prescription drugs.

• Some companies, 38%, will reduce spouse and dependent coverage, while 29% will use spousal waivers or surcharges. As employees have to pay more to cover family members it may be more economical for the husband to be under one plan and the wife under another.

• Limit company reimbursements for prescription drugs to only generic and specialty medications.  While brand medications help successfully treat many diseases, their generic counterparts prove to be therapeutically equivalent where efficacy is the primary concern. Some might say generics don’t work and in this case my suggestion is too try another. A different manufacturer’s product will do the job in many cases.

• Offer telemedicine consultations next year.  It is cheaper to contact a doctor by phone, e-mail and Skype rather than go to an office.  And an employee doesn’t have to leave the workplace.  It’s most often used for acute ailments such as flu and allergies.  It is not considered as a substitute to a doctor’s visit.  When a prescription is required the doctor may simply forward an e-script to the employee’s pharmacy of choice.

• Eliminate prescription drug coverage all together and instead pay for access to some sort of discount program or online pharmacy. Web sites like PrescriptionGiant.com may negotiate significant savings over chain drug stores and discount cards.  Employers could potentially eliminate huge mark-ups, administrative fees and other hidden costs that tend to be significant.  Obviously, PPACA guidelines will have to be considered in this scenario.

Most employers we surveyed, 90%, are committed to offering health care benefits.  They know it’s needed to attract and retain the best employees.  Still that leaves 10% whom are not committed.  If just one multi-national corporation stops offering health benefits then that will trigger other employers to follow suit even though most “say” they are committed to offering it.

The Mckesson software package offers all the bells and whistles plus the ability to easily scale as our business continues to grow. That a company with over $50 billion in annual revenue offers such a product is not surprising. In addition to the standard features expected in a pharmacy management system, Mckesson Enterprise also has integrated credit card processing, electronic PDMP reporting, and workflow management.  Unfortunately, it also comes with a mandatory cost of $7,000 for on-site training and purchase of one PC workstation.

The QS/1 system is installed with every feature required:  SaaS or web-based, PDMP reporting, DUR, and claims submission. Yet, there is no additional expense for training or purchase of a PC workstation.  The QS/1 account manager recommended on-site training (at an additional cost), but I inquired about remote training and my request was happily granted.  Furthermore, the monthly maintenance fee was almost 50% less than that of the Mckesson product saving us another $4,000/year!

Why does Mckesson not offer remote training?  More important, why would a company pay significantly more for a product it can attain elsewhere at a much more inexpensive price point? Consider the Benefit Pyramid below.

If a business does not provide insurance and if at least one employee receives federal insurance subsidies in the exchange, the business will pay $2,000 per employee (minus the first 30).  Example: a business with 50 employees, two of whom are subsidized, would pay $40,000 in penalty (50 employees – 30 = 20 x $2000).

If a business does provide insurance, and if at least one employee receives insurance subsidies, the business will pay $3,000 per subsidized employee OR $2,000 per employee (minus the first 30)  – whichever is less.  So a providing business with two subsidized employees would be fined $6,000. With 14 or more subsidized employees (above the tipping point for the formula), the penalty for a 50-employee firm would be $40,000.

To qualify for subsidies, an employee must meet two criteria.  First, his or her household income must be less than 400% of the federal poverty level ($89,400 for a family of four in 2011).  Second, the employee’s portion of the insurance premium must exceed 9.5% of household income.

The mandate makes it extremely expensive to cross the 50-employee threshold.  For example, a mid-sized restaurant that goes from 49 to 50 employees could face a $40,000 per year penalty. Businesses will spend resources determining how many employees they have with respect to the employer mandate.  They will face time-consuming, arbitrary administrative burdens associated with employees seeking insurance subsidies in the new insurance exchanges.

Businesses subject to the employer mandate will receive periodic government reports on subsidized employees that inadvertently reveal personal financial data on employees’ spouses and families.  This raises discomforting privacy concerns and exposure to liability for employers.

For some firms, the employer mandate will result in large fines when circumstances change in their employees’ households.  For example, an employee’s spouse losing a job could trigger thousands of dollars in annual employer penalties.  Employers will not be entitled to know the details of what triggered their penalties  – unless they challenge the employee’s honesty before a government agency.  The employer mandate will increase costs, and businesses will pass them along to the consumers.

COBRA Notifications to Medical Providers

The hospital calls to verify benefits for an employee that terminated six weeks ago.  You heard that he had been severely injured in an auto accident the previous night.  He hasn’t elected COBRA; you know he doesn’t have the money to pay for it anyway.  You advise the hospital admitting clerk that unfortunately the employee is not covered by your benefit plan.  Who will pay for his claims?

Probably your company (not your insurance company) will cover the cost of claims for the terminated employee.  Final IRS COBRA regulations require you to disclose information about COBRA status during the election period or premium payment period.  Proper disclosure to a health care provider would allow them to make or facilitate payment of the COBRA premiums so coverage would be in effect to pay the claims.  Because you failed to make the required information available to them, more than likely liability will be decided in the courts.  Employers have not fared well in these cases.

As for action that must be taken by employers, there isn’t much. Most of the changes are occurring behind the scenes at the insurance company and insurance provider level. Summary of Benefits and Coverage (SBC) documents will need to be distributed to your employees and large employers (250+ employees) will have to track and report benefit costs to the IRS.

The biggest event will be on January 1, 2014, when the much talked about insurance exchanges are to be effective. Some employers are anxiously anticipating some relief from the health care burden once the exchanges are effective, while others are not so sure. It is clear now that most states will not have a reliable exchange in place by 2014. Theoretically, the federal government will step in and provide an exchange in any state that misses the deadline.

Employers plan on “off loading” their health care coverage to the state exchange by paying a penalty and giving employees cash to buy their own coverage much like employers dropped their old pension plans in favor of the “defined contribution” 401K programs. It is all about controlling costs. Federal tax subsidies are available in the state exchange (a family of four qualifies for the subsidy if their income is less than $88,000).

Employers simply can’t overlook this windfall. The problem will be that no subsidy will be granted if employees enroll in a private or federal exchange. In other words…. No state exchange, No federal subsidy. This may leave the employers holding the bag longer than expected. Off loading benefits may not happen as quickly as 2014. Is this good or bad…it depends on who you ask.