Self-insured health plans cover an estimated 94 million of the 156 million employees in the United States, meaning almost 60% of all employees are covered in a plan that is fully or partially self-funded, according to Healthcare Finance News. While employers can save money by funding their own health plans, most don’t want to go into the business of managing healthcare and insurance. That’s why they turn to a third-party administrator (TPA) to manage their plans and help them save money.
Choosing the right TPA is crucial to launching and running a cost-effective self-insured health plan. But most employers and brokers are evaluating TPAs with faulty criteria: They look at about 15% of the costs they will incur, rather than considering 100% of the costs.
Why are we looking at only 15% of costs?
When brokers make decisions about which TPAs to recommend to their self-insured clients, they often look at the fixed costs. That makes sense because it’s impossible to know what the variable costs will be.
The variable costs of a health insurance plan mainly include claims, and an employer can’t know in advance how many employees or employee family members will experience broken bones, cancer diagnoses, diabetes complications or other health issues in the coming year.
The fixed costs, which include administrative fees and stop-loss premiums, are easier to pin down. However, they represent only about 15% of the cost of employer-provided health insurance.
Keep in mind that health insurance costs are skyrocketing (employers with more than 1,000 employees have seen their spending on employee health costs rise 51% from 2008 to 2018, according to the Kaiser Family Foundation). That means brokers and employers are making decisions about one of the biggest expenses businesses face, based on only 15% of the cost.
Evaluating the Other 85%
The remaining 85% of health insurance costs arise from claims, and those are the costs that continue to rise year after year. By ignoring this larger bucket of variable costs, brokers and employers aren’t giving themselves a chance to lower their claims cost, which is much more substantial than the 15% in fixed costs.
It’s true that claims represent many unknowns, but a TPA with the right systems and solutions in place can help reduce the cost of claims, even as healthcare costs continue to rise every year. To evaluate how a TPA might help you save on these bigger costs, ask questions such as:
- How can you help me mitigate risks? Some TPAs employ professionals to review each bill to catch any mistakes and make sure the services are billed correctly. They can also unbundle charges that are bundled to make sure they are appropriate.
- How will you help reduce costs for cancer patients? Practically every employer’s plan will cover patients who are being treated for cancer. A strong TPA should have a program to identify these patients and reduce the costs for their care, possibly using reference-based pricing strategies.
- Do you have other products and services in place to help me reduce my claim spend? For instance, TPAs that can help employees navigate episodes of care and make informed decisions about which providers to use can help reduce costs. TPAs can also use real-time data to help newly diagnosed employees make decisions about treatments and providers before they run up unnecessary costs.
There are many opportunities for TPAs to implement programs and services that can aid in decreasing claims costs. So rather than focusing on the 15% of costs that everyone else reviews every year, harness the opportunity to really transform your costs by evaluating the 85% that comes from better care management.
To learn more about TPAs and how Lucent Health can help you evaluate costs, visit https://lucenthealth.com.