Fighting for your healthcare funds: third-party administrators and other members of the self-insured benefits industry claim they are in a war for their very existence. Their enemythe dreaded BUCAS and the government. Their hope of survivalyour self-funded healthcare benefits dollars. Are they worth it?
Lawrence Thompson enters a session room–a session room not unlike any other at a typical insurance trade show–and he transforms it into a battlefield. Dressed in a crisp dark suit to match his proper Jamaican accent, Thompson wields fact after fact to march his audience from one logical point to another. He gives reason to fear, reason to doubt, then reason to hope. He is driving his lecture to one conclusion. He is at war. His audience is at war along with him. Whether they know it or not.
“We’re in the trenches,” he declares. “The guns are firing.”
At this point in the speech, if listeners had shields, they would bang them; swords, they would raise them; voices not confined by courtesy in a convention center, they would raise them.
Thus, after arming his latest recruits with his truth and leaving their faces figuratively covered in war paint, Thompson leaves for another session room, another audience, another platoon of allies.
He is taking volunteers from you, employers.
“The employers are the ones we’re trying to protect,” Thompson says, “and yet most don’t even know it. Employers rarely know what is going on with (BUCAs) and TPAs. All they want is the best price and service with the smallest rate increases.”
“If most knew the real truth,” adds Thompson, executive vice president with Healthaxis, a solutions provider for healthcare payers, “they would use TPAs more and help us fight for their own freedoms.”
Employers, here is your chance to learn what really is going on with the so-called BUCAs–the major health insurers, a la Blue Cross-Blue Shield, UnitedHealth, Cigna and Aetna–and third-party administrators in the health benefits universe. Are you with the self-funded market–and its promises of control and competition against the healthcare oligarchy–or are you against it?
That oligarchy, made up of the country’s large healthcare insurers, has profited in the last years from what Thompson calls the best underwriting cycle in history. But the BUCAs are still hungry.
The BUCAs are feasting on self-funded plans of many Fortune 500 employers via administrative services organizations, says Jerry L. Castelloe, senior vice president at TPA CoreSource Inc. These so-called ASO subsidiaries contract with self-funded employers to administer benefits but don’t assume any risk.
BUCAs like the arrangement, says Thompson. “They are focused on the self-funded market, and they are moving downstream pretty rapidly,” he says.
They’re not just acquiring TPAs, they’re buying stop-loss carriers and vendors that service TPAs.
Why? Therein flows a revenue stream as big as the Amazon.
“All employers with more than 5,000 employees utilize some form of self-funding or alternative risk transfer, so just about any Fortune 1000 you talk with will most likely be self-insured,” says James Kinder, CEO of the Self-Insurance Institute of America Inc.
If you’re not shaking in your boots just yet, employers, let us mention another phrase: presidential contender Sen. Hillary Rodham Clinton. These days, not just the former First Lady is offering up government-involved healthcare systems. It seems all the Democratic hopefuls are, as well as some Republicans. That could make 2008 the beginning of the end for employer-based healthcare, say self-funded market proponents.
Most power players in Congress, says Kinder, support the abolition of the employer-based health system, largely put in place in the postwar boom when employers needed to attract workers with such perks.
The worst-case scenario here, according to Thompson and others in the self-funded world, would be that the federal government mandates its own healthcare system, and then–gasp!–hires the BUCAs to administer it.
“It wouldn’t surprise if the BUCAs don’t put a real emphasis on and a heavy legislative front to be administrators,” says Kinder.
Employers then would be free of healthcare responsibilities, a good thing, right? But what would also disappear would be the tax breaks employers get on premium contributions. The current modicum of free market. The rising consumerism. A healthcare market where employers are in control, even if it’s control over a painful line item.
With government and big healthcare in charge, warn the self-funded folks, employers could expect ineptitudes that come with all government-run programs. Just look at Canada, they say, where folks must escape south of the border, away from their socialist system, to timely, excellent U.S. healthcare.
EMPLOYERS FEEL THE PRESSURE
The obvious question for employers, however, is how much this battle really concerns them. Is all this us-versus-them talk actually only about self-preservation on the self-funded market’s part. If these independent vendors and TPAs really deserve to be around, after all, let them prove it. Not with Braveheart rhetoric, but with better services and cheaper prices.
“With healthcare costs continuing to go up, depending on what indicator you look at, 7 percent to 12 percent, 15 percent, every year,” says Castelloe, “employers can’t stand it anymore.”
But employers realize merely griping about these increases won’t cut it. They must learn how to cope.
Dr. Ronald Leopold, a high-energy speaker, occupational medicine physician and industry leader for MetLife Institutional Business, says he’s hearing employers say, “We can’t keep doing things the same way.”
“The employer, they’re sort of waking up to, ‘Oh my god, we’re just going to live with this forever,’ ” says Shawn Jenkins, CEO and president of BenefitsFocus. “The days of just stamping yes to the renewal … are gone.”
Jenkins, who operates out of Charleston, S.C., yet without the sweet-tea drawl you might expect, has had contact with dozens of insurers and thousands of employees through his benefits software firm.
His point is clear this new state of mind puts employers in the drivers’ seat. Employers won’t find any easy answers for prices–not like the “90s with the HMOs–so they have to get creative.
“I think employers are just going to have to shop,” he says. “It’s just a more aggressive marketplace out there.”
As for employers’ benefits consultants, brokers and agents–they’ll have a “real interesting five years ahead of them,” he adds.
One such broker, Bill Sharon at Aon, says that employers are pulling two levers in the marketplace to cope. The one is pricing. Bigger discounts drive employers to the biggest health insurers and networks, which with their competitive advantages can get (or at least promise) lower discounts on claims.
The second lever, Sharon says, is consumerism. “The consumer-driven movement is here to stay,” he says.
Jenkins equates it to the move from pensions to 401(k) plans from the 1980s to 2000. “We see a continued movement for employers to begin to kind of pull back the curtain for employees and say, ‘Here’s what things really cost, here’s some tools, here’s some help in managing it, here’s some advisors,'” he says, “‘but basically we’re not going to just give you one health plan every year and eat the costs.'”
We’re talking new transparency in provider pricing and quality, online tools to help employees pick plans, new investments in health savings accounts. But said another way, we’re talking cost-shifting. It’s leading toward the employer just saying, “Here’s a set amount of money for your health benefits. Spend it as you please.”
This cost-shifting isn’t that new. “That really rolls us back to the ’50s and ’60s,” says SIIA’s Kinder. “The old days were real simple.” Way back when, says Kinder, such defined-benefit plans were called “base plus major medical plans.”
Some employers seem to be reaching for this second lever because of frustration with the first. They aren’t able to get the price reductions they want from big insurers and provider networks, says John Zuback, CEO of VIIAD, a vendor that offers network management platforms.
Employer frustration with lever No. 2 is also building. After all, encouraging employees to be consumers of healthcare could come back to bite employers in the rump–as top employees shop around for new bosses with better benefits.
So a movement is afoot for more levers. At a businessperson’s breakfast seminar sponsored by Cleveland-based consultancy CBIZ Inc. earlier this year at Philadelphia’s Union League, a building of comfortable meeting rooms, thick carpets and polished wood and brass, Leopold spoke in terms of benefits transforming from “liability” to “opportunity”–“benefits as an investment in job loyalty.”
This doesn’t mean cost-shifting will disappear. Instead, says Leopold, it’s a trend that’s here to stay for the time being. But the key is to build positively on consumerism by diversifying and personalizing benefits plans. Joseph Ellis Sr. of CBIZ, emcee at the seminar, mentioned several differentiator benefits, such as long-term care, pet insurance, health coaches, gym memberships and even “recess.”
HITTING THE DESK
Let’s be honest, however. Creativity with benefits is not driven entirely by goodwill toward employees. It’s also because big players in companies are getting more involved in healthcare–CFOs–and they’re worried about ROIs for shareholders.
“When CFOs start seeing this, they’re going to be massaging numbers completely different than simply sending off a premium or sending off a certain amount of allocations for self-funded plan with stop-loss insurance,” Kinder says with his fair share of twang by telephone from SIIA’s Simpsonville, S.C., office. “They’re going to look at the total picture. The larger employers are going to look at ways that they can retain those dollars within their own organization.”
One such way is through a captive. For a number of years, large employers have been using a captive to provide stop-loss–or low frequency, high severity loss protection–for their self-funded programs, says Jon Bourgault, an attorney with Washington, D.C.-based Groom Law Group, which specializes in employee benefits.
Bourgault says some employers are working on a form of captive never before used for healthcare benefits in the United States, which could also lower costs. It involves a fronting carrier, which insures the benefits and agrees to reinsure some risk with the captive, says Bourgault.
“The thinking is that using this,” he says, “can allow for lower premiums, lower overall costs of providing the benefit.”
It also would allow smaller employers–who can’t necessarily afford to self-fund–to use alternative risk financing for their benefits.
Combine experimental alternative risk transfer methods and the CFO’s attention, and you have captives as a major emerging way to forgo the traditional benefits marketplace.
“I think you’re going to see the use of captive insurance companies explode, absolutely explode, in the area of employee benefits,” says Kinder.
Whatever vehicle employers choose–captive or traditional self-funding–the advantage is control. Whatever lever they pull–pricing, consumerism or creativity–again, employers have the control.
“This is not the kind of thing that insurance companies will drive,” says CBIZ’s Ellis, about the third lever that his company advocates. Employers must own up to their responsibility, he says, to demand these customized benefits structures from the insurers, and TPAs for that matter.
Which brings us back to Thompson’s war and our main question: What side should employers fight for?
There’s the notion of preserving competition, which is waning in healthcare.
“If competition isn’t brought back into the marketplace,” says vendor Zuback, “the third-party administrators, self-insured plans, it becomes much more difficult from an economic standpoint for them to continue to compete.”
But then again, those winning this competition, the BUCAs, are providing valuable services to employers–namely levers one and two. Sure, the BUCA’s steeper discounts could be manipulated to look bigger than they are, says the opposition. But BUCAs have an undoubted superiority when it comes to lever two–consumerism. Says Sharon at Aon, TPAs are hindered by their small size to provide the same online services, health promotion programs, price transparency products and disease management services that BUCAs can.
However, if it’s the third lever you’re pulling, then TPAs could provide the flexibility and creativity needed. Sandra Hartman, regional sales manager with Employee Benefit Management Services Inc., and Nancy Blough, executive vice president at American Health Data Institute, gave an entire two-part presentation at a leading self-insurance conference, sans war drums, on how TPAs provide more personalized customer service, claims-reporting flexibility, closer attention to niche markets like those in rural communities and a variety of services via vendors.
Core Source’s Castelloe, who’s also a member of SIIA’s government relations committee, adds to that list TPAs’ power to integrate multiple solutions versus the one proprietary solution of a BUCA, and a quilt of networks versus the one national network a BUCA might employ.
The client has control, he stresses. “So I do what’s best for the client.”
So whether or not you don the war paint with Thompson, then, might depend on what weapon you take up.
@ On the Web
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MATTHEW BRODSKY is Web editor/senior editor at Risk & Insurance[R]. He can be reached at firstname.lastname@example.org.
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