What's the Most Critical (but overlooked) Health Insurance Metric for Self-Insured Organizations?

What's the Most Critical (but overlooked) Health Insurance Metric for Self-Insured Organizations?

That's a challenging question because it depends, to some extent, on an organization's culture, the industry it operates in, senior management's perspective on healthcare, and whether you ask the employer or the employee.

But, while it's generally agreed that health insurance coverage is critical to attracting and retaining top talent, health insurance costs have been spiraling over the past ten years. They have rapidly escalated to the second most costly "people" expense behind salaries (growing at nearly three times the inflation rate).

This rising trend is not sustainable and has led to a variety of strategies to minimize the negative impact on corporate profitability – including:

• Planning design changes to minimize cost;
• Shifting costs to employees;
• Eliminating dependent and spousal subsidies;
• Increasing use of incentives to promote screenings/health assessments;
• Direct negotiation with health systems (by employers like Boeing, Walmart, and GE); and
• Creation of wellness/disease management programs to "bend the curve" on healthcare costs.

Keeping those strategies in mind, here are some of the metrics commonly used to track health insurance costs – and an evaluation of their accuracy in reflecting healthcare costs (stars awarded out of a maximum of 5).

Cost Per Employee **

One of the more popular metrics is "Cost Per Employee." This relatively simple metric fosters an easy-to-understand baseline to convey and track cost direction. However, it could be more actionable.

"Cost per Employee" is far more impacted by employee demographics than efficiency and plan effectiveness. Facebook's "Cost per Employee" will be vastly different than a General Motors employee's due to the population's age and associated health habits at each business.

Average Provider Rating ***

In searching for an objective metric to evaluate the quality of medical care the health system provides, a "Provider Rating" (for example, an average across your provider base) would be a big win. The Provider Rating is the measure that your employees and their families are most interested in; it could mean the difference between life and death.

Centers for Medicare and Medicaid Services (CMS), part of the Department for Health and Human Services, has made considerable strides in recent years using metrics to equip consumers with better information to make informed decisions regarding medical care.

In addition to patient satisfaction measures on anything from the cleanliness of their hospital room to explaining their medications to the care provided by their Medicare physician, CMS also tracks specific statistics regarding surgical complications, hospital-borne infections, readmissions for the same cause, and more. The Provide Compare is helpful but could be more comprehensive- overall, the level of resources is overwhelming and needs to be organized into a convenient web app to serve as a true advocate during the decision-making process.

Medical Loss Ratio ****

The Medical Loss Ratio measures the proportion of dollars invested in health plans that go toward providing medical care versus into an intermediary's pocket for administration, marketing, and profit. This ratio gets closer to the efficiency of your healthcare expenditure. Benchmarking with peers is valuable to ensure your costs are competitive.

Unfortunately, it is not particularly actionable and does little to evaluate whether claims are being paid accurately and at competitive prices.

Cost Per RVU (Resource Value Unit) ****

The fee paid to the medical provider is computed by taking the RVU's assigned value times an inflation-adjusted dollar figure to calculate the payment to the provider. Adjustments are made for status as a teaching hospital, specific capital improvements, and geographic pricing index (ranging from 95-105%).

This metric can be incredibly valuable when comparing the cost of health systems to evaluate their relative efficiency versus comparing the cost of 10,000 distinct.

Back in 1989, the Medicare administration shifted from paying based on the rates submitted by the hospital toward a more value-based approach. Working closely with the American Medical Association, every medical procedure was assigned an RVU ("resource value unit") based on the physician's skill, time, and complexity of a surgical procedure. Think of it as akin to a "time & motion" study for medical procedures. As an example, the repair of a complex brain aneurysm (CPT code "61698") is assigned a total RVU of 138.22, while the repair of an ACL using an endoscope (CPT Code "29888") is assigned a total RVU of 28.41 procedure codes. It can be a valuable measure to negotiate competitive pricing if you are evaluating competing health systems within geography.

Healthcare Waste Index (HWI) *****

Given the lack of actionable metrics available to healthcare decision-makers, finHealth has developed the Healthcare Waste Index (HWI). The Healthcare Waste Index was created to quantify the proportion of waste within healthcare expenditures AND enable decision-makers to take targeted actions to streamline the healthcare supply chain further.

There are three distinct components: billing errors, "above market" prices, and administrative waste.

The billing errors represent "black & white" overpayments that should not have been paid, including payments outside of eligible coverage dates, duplicate payments, ineligible spouses/dependents, and various medical coding errors.

The "above market" prices component represents prices charged by medical providers for procedures in excess of the median cost by more than a designated percentage (typically 25%). These prices are "outliers," typically having little to no correlation to the quality of care delivered, and are likely the result of arbitrary costing assignments by the

health system. "Administrative waste" is intended to measure the percentage of charges for administration higher than what is considered an efficient level (i.e., 15% versus 10%).

For example, the cost of CMS to pay for Medicare patients is $8.9 billion on a spending base of $672.6 billion (1.3%). Before you jump to the incorrect conclusion that corporate healthcare expenditures are better controlled than government healthcare expenditures, understand that most corporations perform limited to no audits (versus detailed reviews by Medicare of at least 50,000 claims annually), have no "guardrails" on what they are willing to pay for a procedure (versus Medicare's RVU approach). Most corporations pay 10-20% for the administration of their health plans (versus 1.3% for Medicare). On average, Medicare pays $35 per RVU compared to our review of corporate plans, which shows a rate closer to $82 per RVU.