Average Plan Discounts Don't Matter. Period. Full Stop.

As the saying goes, by focusing on a single element of a problem, you're likely to miss the real solutions. And so it goes with the way in which employers, brokers and benefits consultants have tried to solve the "price problem." For decades employers have looked at the difference in the average discounts between carriers by comparing the total costs of claims "repriced" using one network's contracted rates versus others. Or at least what one might believe are the actual contracted rates.

Irrespective of the accuracy of the repricing, the only thing you're looking at is a perception of the relative height of all the trees in the forest, not their actual height, and not the differences in the trees that can reveal a very different pattern and lead to a very different decision. A decision that actually optimizes plan value, something ever more essential in this new era of heightened fiduciary obligations for self-insured employers. Of course, until recently, that was not possible. But it is now.

The differences in heights and type of trees, configuration of the forest and the zones of greatest yield were all recently highlighted (again) by the work of Gloria Sachdev and RAND in the release of the fifth report on hospital price transparency. The upshot is that inpatient and outpatient prices vary widely between systems, within systems, and are not consistent. By that I mean a hospital can have high inpatient prices relative to Medicare rates, but relatively lower outpatient prices or vice versa. Further, some carriers may have more beneficial rates with hospitals than another for a specific clinical area, such as maternity. The nature of the trees matters.

In a recent Managed Healthcare Executive article on the leap to self-insurance, I remind readers that along with being self-insured comes a lot of fiduciary obligations and ignoring them will land the employer in legal jeopardy. That includes using all the pricing information available to optimize TPA selection decisions and guide employee decisions once the TPA is selected. Examples of the way in which pricing information can be extracted from public data and weaponized for the benefit of employers and their employees can be found in this article I co-authored with Ahmed Marmoush and Ria Shah .

In calls with employers or benefits consultants I rarely fail to mention the title of this post and provide a clear illustration. In Atlanta, much like other large MSAs in which XO Health Inc. will go live in January 2025, there are competing health systems. And those systems have widely varying prices when comparing their inpatient rates and their outpatient rates against one another. We've found that Emory has the lowest inpatient rates relative to Medicare (around 200%) while Wellstar has the highest (400%), and the others in between. Those differences are also very consistent when looking at the published rates for the two largest local carriers. Conversely, the outpatient rates for Emory get into the stratosphere, reaching as high as 1000% of Medicare (yes, that's ten times), while Wellstar's are running around 400% to 500%, similar to inpatient. Don't get me wrong, both are outrageous, but everything is relative.

Why do these details matter and what do these usury rates have to do with average carrier discounts? Because who cares whether United or Elevance has plus or minus 10% ? what will make much more of a difference is where an employer's employees end up getting care. And when I say much more, I mean differences of simple to double or triple, not +/- 10%.

The smart brokers and benefits consultants get it and are rapidly changing the way they assess TPA/carrier choices for employers. Some employers are getting it as well. It's taken a few decades, but we're finally able to do something about Uwe Reinhardt's observation that "It's the Prices, Stupid!!" and not confuse the real decision to make with the idiotic one focused on average discounts.