Could Transparent Pricing Be The End of Employer Self Funded Group Health Benefits?

It's the newest buzz being touted in group health benefits.? It's the latest cover story used by insurance brokers who identify as benefits advisors.? But is price transparency really a miracle cure for overpriced employee health benefits? Or just the newest designer drug being pushed by a health insurance complex, determined to keep brokers in business and businesses buying group health insurance???

We all know that consuming healthcare is not like buying new tires or shopping for a cheap oil change. In these routine situations customers expect to pay more for the high quality tires or the fancy synthetic motor oils, and rational customers can weigh features and benefits against cost. Customers get to decide how much they are willing to pay for enhanced quality or performance. But healthcare is just not fungible like that, it's an individual sport, with individual preferences and individual consequences.? Plus, most people are infrequent flyers and highly episodic consumers of healthcare. Most individuals lack the experience or medical knowledge to self diagnose and prescribe their own care.??

Take CT scans or MRIs for example. Most employees don’t even know what the letters stand for, much less do they need one, or how much it should cost.? Triage, diagnostics and treatments are almost always provided by fee for service providers who send bills long after services are provided.? Since most prices in healthcare are negotiated between providers and big health insurance companies its no surprise that these prices have outpaced core inflation for many years.? And sadly, price transparency is just another insurance industry tool to drag employers deeper into the swamp of self funded group health insurance.??

The idea behind price transparency is that when the price of a commodity is widely known then competition rules, and higher prices will align with higher quality or better accessibility.? While true of a rational market.? Healthcare is not rational due to a host of factors including the individual nature of health, sickness, treatments, providers and payment models.??

While price transparency in healthcare is great for engaged cash consumers, it becomes a poison pill for companies electing to self-insure their employee health plan. This happens in two ways. Firstly, because the perpetual quest to contain the cost of benefits price transparency is just an open invitation for benefit advisors and employers to manipulate employees with incentives designed to steer healthcare decisions, and restrict choices to control claims.? Oh sure, it seems perfectly logical at first. The ‘benefits advisor’ says “to contain premiums you have to control claims”. But its a a slippery slope, at best.

Secondly, price transparency gives employees (and ERISA lawyers) easy access to market pricing which can be used as evidence to claim mismanagement by the employer.? The recent case against Johnson & Johnson is just the first ‘canary in the coal mine’ for large employers. A red flag warning to all large employers that employees can sue their employer under ERISA rules for fiduciary breach and mismanagement of health plan assets. And the ERISA lawyers are revving up their engines. ??

When you sign up for health insurance the insurance company agrees to pay your medical bills, you in turn agree to accept the insurance company dictating where you can go for healthcare (using networks), what care is covered, and what is not.? But when the employer is paying the claims under a self funded arrangement this quickly turns into a sticky situation that pits employers against employees.?

But employer’s dreams of low cost employee health benefits will always embrace the irresistible but dangerous temptation to steer consumption and restrict employees' options in hopes of reducing claims and containing premiums.? A perilous balancing act between profits and employees’ health, that comes with a side order of ERISA exposure and personal liability for health plan managers.

Most prices in healthcare are negotiated between doctors, hospitals and insurance companies, without a customer in sight. It's an odd negotiation because both the Insurance company and fee-for-service healthcare providers benefit from increasing the prices. The insurance company pays employee health claims, adds a margin and that becomes next year’s premiums. But for an employee paying with an insurance card, the price of healthcare is meaningless once they have met the deductible.???

The freedom of customers to choose based on price and quality is a prized right of consumers everywhere and the bedrock of every successful market. But it’s not like that in healthcare. In free markets price and quality matter when customers pay with hard earned cash. Free market transactions involve motivated sellers and free wheeling customers with a problem to solve, a need to be met and the resources to pay for a solution they want. ? In the marketplace for healthcare customers have relinquished price and quality to the health insurance overlords.

Yet group health insurance continues to be incentivized by federal tax subsidies for employers.? The unsurprising result has been hyper-inflation and an irrational market for healthcare services.? Rational consumers and price relevance have been disenfranchised by insurance brokers, benefit advisors, and insurance companies all in the continuing pursuit of profits.? The well intended push for price transparency has the unintended consequence of placing a target on the back of every self funded employer.? So until employers get on board with replacing group health insurance with group health benefits using the Individual Coverage HRA, price transparency will do nothing to reduce the cost of healthcare.?