What a physician has learned about health benefit plans and saving money


Holly B. Perzy, MD, MMM, FAAP, FACP, is chair of the Internal Medicine-Pediatrics Department at the MetroHealth System in Cleveland. She will be speaking Oct. 24 at the 2019 Health Care Conference in Columbus.

I entered medical school, as most do, to “save the world” with the idealism that my knowledge of the body and human nature would be enough. After 30 years in primary care, nothing could be further from the truth. Beyond the fact that dealing with human nature is tough enough, how people access their health care is extremely complex. When you think of access you likely think of going to the doctor. You might think of finding a doctor you like, who is in a convenient location, who is taking new patients, who is in your network and who has office hours amenable to your schedule. Or, you might think of access as simply trying to reach “your” doctor through often vetted and numerous phone calls, an email that may or may not be answered in a timely manner for your concern or sitting patiently for hours in a full waiting room with a good book only to have a 5-10 minute face-to-face encounter with the doctor.

However, through my recent work, I have learned that the access concept begins earlier. Most Americans acquire their health care through their employer. From the annual Kaiser Family Foundation reports, we know that health care costs continue to rise despite the numerous attempts to bend the curve and control costs. We know that premiums are rising disproportionately from employee wages and inflation. We know that to offset that rise, employers are shifting that cost disproportionately to their employees. (See graph.)

We also know most employers are not in the health care business. For several years, I had an opportunity with our health system to help develop a direct employer-to-health-care-provider contracting strategy, thus enabling me to discuss health care concerns directly with employers and their health care consultants and advisers. What have I learned from talking to employers?

1. There is a disconnect between buyer and user. In most cases, the purchaser of health care is the employer while the direct consumers or users of the health care plan are the employees. This creates an inherent disconnect between health care buyers and users. There are not many other consumer products where the purchaser is not the direct user. So, does the buyer really understand what the user needs or wants?

2. Complexity in understanding leads to relinquishing control. Health care is a costly, complex product to purchase and use. It is also a significant expense for most employers. Given this reality and the fact that the business of health care is not most employers’ core business, employers rely on their health care subject matter experts, their consultants and advisers to make suggestions and often completely lead their health care acquisition process.

3. Purchasing goals differ and influence final product. Consultants and benefit advisers are a large, important part of the health care procurement chain. This cost may be known as an agency cost. An agency cost is an internal expense paid externally to someone, known as an agent, for acting on behalf of the company. “Best” purchasing decisions might not occur because of misaligned incentives. For example, the consultant may be credited from a third party based on the representation of their total book of business, so moving that client to another payer might result in loss of revenue for the consultant but be an overall better plan for the employer. What do they recommend? This conundrum might result in lack of total transparency of bias or benefit of exactly how these decisions affect each party. Furthermore, an employer might want to change plan design for business reasons, and there is often no mention of how the product end user, the employee, is affected by these decisions.

4. Change is disruptive but might be best in the end. Complacency with status quo is easy...change is arduous. Making decisions that require substantial change to an employer’s health care plan takes hard work, enhanced communication and change management. Changing plan design can be very disruptive but manageable by acknowledging concerns upfront and having a change management strategy in place. However, keeping the same plan and process is simply easier, especially if you do not fully understand the acquisition of health care process. Changing requires an in-depth level of understanding of how decisions made will affect all parties, advisers, employers and employees. In the end, understanding decision rationale will lead to better decision making for both the employer and the employee.

In addition to my direct employer work, I have worked clinically at the MetroHealth System, the local safety net hospital in Cleveland. As a primary care physician, I have seen firsthand the plight of individuals seeking health care: the uninsured needing care, the insured who cannot afford the out-of-pocket expense and avoid care, and those regardless of insured status who had a catastrophic life-altering health care event requiring financial resources beyond their means. The reason I have stayed at MetroHealth for my career was the strength of the mission and that no matter the financial scenario, my job as a physician was solely to render the highest quality of care. But how could I deliver quality care if patients made care decisions based on the economics of their employer’s health care plan design? I needed to help. How could I affect change with these employers? How could I help beyond my clinical care and expertise?

I could help easily and affect change by simply showing employers the value providers bring to the table, both financially and clinically, when they can talk directly with an employer. I assumed employers would flock to control and save money for great health care, right? That was about as naïve as my medical school idealism. Why? Because of the learning points I previously outlined: there is a disconnect between the buyer and user of the health care plan. Buying health care is complex and costly, so employers often outsource this to experts to make decisions for them. Knowing that change is hard, keeping the status quo is often much easier.

Given how complex, costly and hard this is, where could I even start to evoke change? If only there was an employer who greatly valued its employees, understood the aftermath of its health care decisions and sought to find a solution mutually acceptable to both the employer and the employee. If only there was an employer who understood the purchasing of health care, the risk, and the complexity. If only there was an employer that was willing to listen to more than their current consultant. If only there was an employer willing to change the status quo. If only...

This is obviously a tall order, but was achievable with HKM Direct Market Communications, a Cleveland-based business. This employer provides integrated marketing solutions to customers throughout the U.S. HKM was at a decision point because of sustained rising health care costs to either significantly cut back on their employee benefits, transfer much more of the health care expense to the employees with unaffordable deductibles and copays, or lastly, scale back dramatically on the business itself. None of these were acceptable choices to the employer. Luckily, the employer’s CEO had knowledge of the insurance industry, so he was willing to try something vastly different, like changing from his traditional fully insured plan to a plan that was self-funded, resulting in taking on more risk but also more control. The employer was then able to set his “risk” tolerance, and through a level funding process, minimize cash flow fluctuations and have a predictable monthly cash outlay. This was achieved through many provider-employer discussions and data sharing that resulted in a direct employer-to-provider relationship and health care contract. Thus, we designed an employer specific health care plan that:

  • Had an affordable, lower deductible plan minimizing employee out of pocket and premium expenses.
  • Had a predictable monthly health care expense for the employer.
  • Resulted in a first year 19% reduction in overall health care costs.
  • Resulted in 8% reduction in premium costs by year 3 – an unheard-of scenario for businesses today.

Through this level-funded process, the month-to-month fluctuation in risk was mitigated so cash flow was predictable for this smaller company. The amount of risk the employer was willing to take determined the predictable cash outlay. For instance, the lower the monthly risk desire, the higher the stop loss premium and predictable monthly costs. Being self-funded and in control of his own monies, the employer would deposit their expected claims into their “own” bank account and pay a predictable monthly stop-loss premium. Unlike insurance, monies not used in claims costs remained in his bank account. If higher costs reached his stop- loss threshold, then premiums would rise the following year or as we saw, lower costs lowered premiums in subsequent years. Furthermore, being self-funded allowed for greater data transparency and the ability for the employer to work directly with the provider to optimize the health of the employees and have a true partner in this company’s health care journey. What most employers do not realize is that regardless of their core business, they are also in the business of health care. When most companies realize this, they can then dramatically affect change.

In summary, health care is a complex industry where the buyer might not be the user of the services. It is an industry where we have benefit advisers and consultants who serve as agents for the company regarding health care. Advisement and recommendations are often built with an insular view and misaligned incentives.

So, why would an employer not want to also have a health care partner expert for health care? Would you listen to someone tell you what is wrong with your car and how to fix it if they were never a mechanic, engineer or never worked on a car? This is what direct employer-to-provider contracting can be for any employer. An employer can have a partner, a consultant, a subject matter expert, a health care delivery system to ensure the employer has the best quality of clinical care with a positive health care experience utilizing a direct pricing model to help save significant health care costs.

Now, this is taking idealism to reality.


2019 Health Care Conference

Oct. 24 | Columbus

Join us on Oct. 24 at the 2019 Health Care Conference and explore the current state of health care and the issues facing this growing sector. Delve into the opportunities and challenges that emerging technologies are creating as well as critical updates on key issues facing the health care industry. 

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