Denman: Data key to controlling health-care costs

Employers that offer health insurance to their employees are, just now, implementing new or revised insurance programs, most of which reset with the calendar year.

January might also be a good time for employers to consider what they’ll do at their next renewal and think about a long-term strategy.

So suggested Seth Denman, a health-insurance consultant and co-founder of GDP Advisors LLP, who spoke at a forum in Loveland late last year sponsored by independent insurance broker Flood & Peterson Insurance Inc.

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Denman recommended a long-term strategy because waiting for the annual renewal conditions offered by insurance companies is a losing proposition for most companies.

“Employers spending $1 million [on health-insurance premiums] now will spend $15 million in 10 years at the 9 percent average annual increase rate. The focus of most employers has been on this year’s premium, not what’s coming,” he said.

Employers who don’t look farther down the road will continue to shift costs to employees, will look for plan changes that reduce coverage and will still face premium increases, he said. Increases far exceed inflation, as every chief financial officer is well aware.

This year, 2019, marks 10 years since the passage of the Affordable Care Act, which was supposed to help control costs. But implementation of the law, waivers given to certain provisions and uneven application of the law worked against that motivation.

Denman said the law turned insurance companies into finance companies — they finance (with consumer premiums) health services. And the 85:15 ratio of payments for health care to payments to insurance administrative costs did not stop insurance companies from finding other ways to make money.

They received a waiver on that 85:15 rule for the pooled claims part of insurance — the fund within an insurance plan that pays for big claims with risk spread over an insured pool of at least 10,000 people.

They also bought up pharmaceutical providers with three of the largest insurance companies controlling and profiting from 85 percent of all the drug distribution in the country, he said.

They’re not alone. In the health-care provider part of the puzzle, hospital groups have been buying up medical clinics. And once hospitals have control of clinics, they can achieve an 8:1 return on their investment because they control where doctors in those clinics send patients for services or treatment, Denman said.

It can seem beyond the ability of a typical employer to control. And it is without having data to form decisions, he said.

Health-care costs are equal to units consumed times the price of each unit, he said. To reduce costs, either the units consumed or the price of each unit has to come down, he continued. He said that fully insured plans do not provide the employer with access to specific data about how the plan is being used. Self-insured plans, which are now available to companies with as few as 10 employees, provide greater access to data.

He said employers need to look beyond the discounts that insurance companies tout when signing companies to plans. “Discounts don’t matter; prices do,” he said. Until a company knows what the actual cost of a procedure or service is, the amount of discount has no meaning, he said.

Employers need to know the average wholesale price for drugs, not the retail price charged to consumers.

Denman suggested several ways for employers to take control of the health-care benefit that they offer employees.

“The lowest hanging fruit is to understand the prescription-drug program. Don’t use a PBM [pharmacy benefit manager] that is owned by your insurance company,” he said. Cigna owns Express Scripts, and United Healthcare owns OptumRX. Health-insurance company Aetna is owned by CVS Health, a PBM company.

He also advised employers to find out if the insurance company’s provider network includes doctors employed by the insurer. If so, they may be driving up costs by adding services at a higher rate than would otherwise be the case.

A third strategy for reducing cost is to find out what other companies are in the risk pool and also understand what the risk pool profit is for the insurer.

Denman cited a few companies that help to control insurance costs, one of which is in Northern Colorado. Tengo Employee Health, a company that offers risk-pooling options for self-funded plans, was created by Bonfire Effect, Associates in Family Medicine, UCHealth and Flood & Peterson. It’s been holding increases to about 3 percent a year, Denman said.

The future for health-care coverage will likely be pooled activity and collaborative action of multiple companies, he said.

He said Amazon.com Inc., Berkshire Hathaway Inc. and JPMorgan Chase & Co. recently joined forces to create a pool of about 3 million insured people. The lessons they learn will provide insight for other employers.