Jim’s Take

In 2018 the average employer in the US spent on healthcare $16,900 per (insured) employee per year.  That number comes from Milliman Care Guidelines, a national organization that gives guidelines for good care and whose recommendations are followed by thousands of hospitals.

Mind you, that’s NOT premiums … that’s the actual cost of medical care that the employees incurred and paid for, either directly (deductibles, copays, coinsurance) or via the plan (what the plan paid on their behalf).  Premiums were on top and would add an additional 18-20% to that number.

That number is calculated at the cost per employee per year.  Yet some people are young, others old, some groups have lost of families; some are mostly singles.  High-cost areas, low-cost areas.

If your group is younger than average, that’ll reduce the yearly cost; older will increase it.  If you have more than the average number of employees with dependents, that will increase that cost; mostly singles will reduce it.

The key isn’t so much what the number is; the key is:

How Much of That Is Unnecessary, i.e. Waste?

The generally accepted percentage of wasted health dollars averages about 30%.  Actually, it’s about 27-40%, so 30% is a pretty conservative fraction.

But think about what that means: if your group is average, then you’re throwing $5,070 down the chute for each insured employee each year.

Let me rephrase that: Your INSURER is throwing $5,070 of your money down the chute.  Why? Because, under ACA guidelines, they get to keep their allowed mark-up on the claims, which totals between $761- $1,014 PEPY.

And nobody would be dumb enough to throw away $1,000 per employee per year away if they had any control over it.  Yet you’re throwing away $5,070 PEPY away.

The differences between you and the carrier are:

  • You’re throwing $5,000 away, not $1,000
  • They have control over it; you don’t.

How About Downright Fraud?

Here’s the flame that really burns my posterior:  One-third of that “waste” figure is estimated to be outright fraud. ProPublica had an interesting story about fraud and the bum that pulled it off. (https://www.propublica.org/article/senators-call-for-closing-loopholes-that-make-health-care-fraud-easy

David Williams, a personal trainer in Texas, bilked Aetna, Cigna and UnitedHealthcare for something like $4,000,000.  And here’s how he did it:

  • Even though he’s not an MD, he got an NPI (National Provider Identification) number.
  • Medicare doesn’t check the qualifications of those applying for NPI numbers – heck, you or I could get one.
    • They say, “It’s not our fault.  Congress didn’t authorize us to check them.  It’s their fault!
    • Hey, that’s Washington DC … to whom some folks want to hand over ALL of our care.
  • Carriers require a provider to have an NPI in order to bill, but then when the bill comes in, they just pay it.  Why? Heck, the “guy has an NPI number; it’s gotta be OK.
  • Here’s the icing on the cake: Williams’s ex-wife and her father ratted Williams out to the insurersyears before they did anything.
    • The carriers continued to pay.  And pay. And pay.
    • And why not – they just passed on the cost of the fraud to you, the employer.
    • They got to keep the mark-up on the fraud.

But What Can You Do?

Aye, there’s the rub” – thanks, Will Shakespeare.  There are two answers to the question of what you can do:

  1. You can do nothing.  At least until you change something.  As long as an insurance company is paying your claims for you, you’re paying.
  2. Once you change something, you can begin to attack the problem.  You’ll never get rid of ALL the waste, but you can get rid of a lot of it.

Those same Milliman Care Guidelines (MCGs) break levels of care into tiers, depending on the level of control/management.  One of the vendors we use for our clients tracks the PEPY medical costs for the three tiers. The annual levels and their costs for 2018 are:

  • MCG Loosely Managed – $11,040 PEPY
  • MCG Moderately Managed – $9,142 PEPY
  • MCG Well Managed – $3,885 PEPY

Hold on there, Sparky!  I’m NOT telling you that you can lower your costs by 75%.  There’s a lot of demographic and “corporate culture” stuff going on in there, particularly in the Well Managed cohort.  I don’t know enough about that “MCG Well Managed” cohort to draw specific lessons you can apply to your company’s health plan.

What I CAN tell you is that there is a heck of a lot more than just 30% waste that’s there for you to take back.  

And here’s the good news: in most cases while you’re lowering costs, you’re improving quality and outcomes.

This is the first of some as-yet-undetermined number of “episodes,” and I plan to talk about the specifics of each mechanism.  But you don’t need to wait for the episodes … why not email me (jedholm@bbibenefits.com) and ask me to show you how the “book-that-will-be-written” can be applied to your particular company today.