Understanding How Employers Use Point Solutions, Carve-Outs and Third-Party Vendors

“Wait. What? You mean it’s not all about the insurance company?”

For the self-insured employer, third-party carve outs and other vendors usually make up a significant part of the health management program offered to employees and their spouse/partners and dependents.

Healthcare innovators and their investors would do well to recognize the magnitude of investment that transcends “what the insurance carrier covers.”

“The benefits of carve-outs are in their ability to offer better options for managing cost and benefits offered by experienced vendors. Those third-party vendors can customize their programs to meet the specific needs of your benefit programs.” (1)

A headline from a May 2022 survey by McKinsey & Co. shows that 80% of employers surveyed have either adopted, or have an interest in offering, third-party health management solutions offered by third-party vendors and health insurers to improve member experience and manage medical costs. The survey gathered specific information on the following Condition Management programs: Diabetes, Hypertension, Musculoskeletal, Behavioral Health and Family Building (Fertility) Programs.

In that same study, forty-one percent (41%) of respondents say they either offer or definitely will offer member advocacy services. They note that “Member advocacy solutions can improve care navigation and satisfaction by offering members a single point of contact. Increased interest in member advocacy potentially signals a new era of employer benefits in the post-pandemic world in which employers balance cost, satisfaction, and opportunity to more effectively compete for talent.” (2)

“A carve-out allows self-insuring employers to isolate specific risks within the scope of health insurance coverages they provide. A carve-out can include any part of the plan or just a single benefit such as pharmacy or addiction services.

In addition to reducing the costs of providing employee health coverage, employers also use carveouts to ensure consistent access to medical care, provide comprehensive health care and minimize bureaucracy” (3)

Some of the more formalized “traditional” carve-out areas typically include products that may be considered too costly under a regular group policy, such as prescription drug benefits; drug and alcohol addiction services; mental illness screening, diagnosis and treatment benefits; burn units; cardiac care; trauma; neonatal intensive care and organ Transplant

Beyond formalized carve-outs, most employers (especially larger ones) maintain a complex vendor management relationship with a host of health management vendors who can enhance health care access and clinical care for health plan members.

Large, self-funded employers usually support a broader selection of vendors because their larger population can be leveraged to negotiate more competitive rates and customized structures.

 Employers with over 5,000 employees are also maintain an HR and benefits team with enough internal resources to manage multiple vendors. “Not all third-party vendors will integrate perfectly with other vendors; managing multiple relationships while also keeping an eye on the different risk thresholds can be complicated for HR and benefits staff. Monitoring program utilization, claims and administrative costs to measure the success of carve-outs will help employers know if unbundling is working, and how well.” (1)

Mercer National Survey 2020 (4)

A recent Willis Towers Watson survey noted that “Employers are focusing on clinical conditions — including mental/behavioral health, metabolic syndrome/diabetes, musculoskeletal and cancer — to improve health outcomes and reduce costs. Their key strategies for managing these conditions include adopting vendor point solutions, enhancing navigation and evaluating network strategy.”

They asked, “To what extent will your organization focus on the following clinical areas as a means of improving member health over the next three years?” (5)

Willis Towers Watson 2021

Future articles in this newsletter will address the many opportunities each of these categories offer for healthcare innovators.

Third-Party Vendor Categories

• Care Navigation
• Patient Advocacy
• Virtual Care
• Digital Health
• Telemedicine
• Condition Management
• Case Management
• Care Management Carve-Outs
• Second Medical Opinion

Sources

1)    Using carve-outs to get the most of your self-funded health plan | EBA | Employee Benefit News; MARCH 2020

2)    Employers look to expand health benefits while managing medical costs; May 2022; McKinsey & Co.

3)    How Carve-Outs Lower Health Plan Costs – INSURICA

4)    National Survey of Employer-Sponsored Health Plans; MERCER; 2020

5)    U.S. employers focus on providing affordable health programs and boosting employee wellbeing: 2021 Best Practices in Health Care Survey Key Findings; Willis Towers Watson; December 17, 2021