As the cost of healthcare continues to outpace inflation, employers are faced with the daunting task of finding ways to effectively manage their group health plan expenses while still providing rich benefits to their employees. One of the key factors that can significantly impact the cost and effectiveness of a health plan is the underlying supply chain and risk financing strategy.

In this comprehensive blog post, we'll dive deep into the various health plan purchasing strategies available, with a particular focus on how the supply chain and risk transfer mechanisms can make a significant difference in your overall healthcare costs. Whether you're an HR professional, executive, or business owner, understanding these nuances is crucial in making informed decisions about your company's health plan strategy.

Establishing Common Ground: The Four Primary Components of a Health Plan

Before we delve into the specifics of each health plan purchasing strategy, it's important to establish some common ground. Regardless of the approach you choose, there are four primary components that make up a health plan:

• Third-Party Administrator (TPA): The TPA is responsible for administering the plan on your behalf, handling tasks such as claims processing, customer service, and plan management.
• Network: The network connects your employees to healthcare providers, ensuring they have access to the necessary medical services.
• Pharmacy Benefit Manager (PBM): The PBM manages the prescription drug benefits, negotiating prices and ensuring the appropriate utilization of medications.
• Insurance Component: The insurance component determines how the risk is shared or transferred, which is the primary focus of our discussion today.

These four components work together to provide your employees with the healthcare coverage they need, but the way they are structured and integrated can have a significant impact on your overall costs and risk management.

Fully Insured Health Plans: The Vertically Integrated Approach

The first health plan purchasing strategy we'll explore is the fully insured plan. In a fully insured plan, all four components – the TPA, network, PBM, and insurance – are owned and operated by the same entity, typically a large insurance carrier.

The key feature of a fully insured plan is the risk transfer mechanism, known as the "pooling point." This pooling point acts as a limit or money limit, where if an individual employee's medical bills exceed this threshold, the additional costs are shared by the larger risk pool, rather than being borne solely by the employer's plan.

The advantage of a fully insured plan is that it provides a level of predictability and stability, as the employer's costs are fixed based on the premiums paid to the insurance carrier. However, the downside is that the employer has less control over the plan design and cost management, as the insurance carrier ultimately makes the decisions.

One of the key concerns with fully insured plans is the issue of vertical integration within the supply chain. When all four components are owned by the same insurance carrier, it can create a conflict of interest, as the carrier may prioritize its own profitability over the best interests of the employer and their employees. This can lead to higher premiums and less transparency in the pricing of services.

Carrier Level Funded Plans: A Step Towards Customization

The next health plan purchasing strategy we'll explore is the carrier level funded plan. Similar to the fully insured plan, the carrier level funded plan also has the four primary components owned by the same insurance carrier. However, the key difference lies in the risk transfer mechanism.

In a carrier level funded plan, the risk transfer mechanism is a stop-loss insurance policy, rather than a pooling point. This means that the employer is responsible for paying the initial claims, up to a certain threshold, and the stop-loss insurance policy kicks in to cover any catastrophic or high-cost claims that exceed that threshold.

The advantage of a carrier level funded plan is that it provides the employer with more control over the plan design and cost management, as they can customize the stop-loss coverage to better fit their specific needs. Additionally, the employer may have more flexibility in negotiating certain plan components, such as the network or PBM.

However, the carrier level funded plan still maintains the vertical integration within the supply chain, which can limit the employer's ability to fully optimize their healthcare costs and leverage the best vendors for each component.

Non-Carrier Level Funded Plans: Disrupting the Supply Chain

As employers become more sophisticated in their health plan purchasing strategies, many are exploring non-carrier level funded plans as a way to break free from the vertically integrated supply chain and gain more control over their healthcare costs.

In a non-carrier level funded plan, the four primary components – TPA, network, PBM, and stop-loss insurance – are all independently owned and operated. This allows the employer to "unbundle" these services and select the best vendors for each component, rather than being limited to the options provided by a single insurance carrier.

The key advantages of a non-carrier level funded plan include:

• Customization: The ability to tailor the plan design and vendor selection to the specific needs of the employer and their employees.
• Cost Control: The opportunity to negotiate better pricing and terms with each vendor, as they are no longer part of a vertically integrated supply chain.
• Flexibility: The option to easily replace underperforming vendors without having to completely overhaul the entire health plan.

By disrupting the traditional supply chain, non-carrier level funded plans empower employers to take a more active role in managing their healthcare costs and ensuring their employees receive the best possible care.

Captive Health Plans: Sharing the Risk, Reducing the Burden

Another health plan purchasing strategy that has gained popularity in recent years is the captive health plan. A captive plan is a type of self-insurance where a group of like-minded employers come together to form their own insurance pool, known as a captive.

Similar to the non-carrier level funded plan, the captive plan has independently owned components, including the TPA, network, PBM, and stop-loss insurance. However, the key difference is the addition of the captive pool, which serves as a second layer of risk transfer.

The way a captive plan works is that each participating employer contributes a small amount to the captive pool, which is then used to cover any high-cost claims that may arise within the group. This shared risk approach helps to mitigate the financial burden on individual employers, especially for smaller and medium-sized businesses that may be hesitant to take on the full risk of a self-funded plan.

The benefits of a captive health plan include:

• Risk Sharing: The ability to spread the risk of high-cost claims across a group of like-minded employers.
• Cost Savings: The potential to reduce stop-loss insurance premiums by transferring a portion of the risk to the captive pool.
• Purchasing Power: The opportunity to leverage the collective buying power of the captive group to negotiate better rates and terms with vendors.

By joining a captive, employers can gain the advantages of self-funding while mitigating the risks associated with it, making it an attractive option for those looking to take more control over their healthcare costs.

Self-Funded Plans: The Ultimate in Control and Customization

The final health plan purchasing strategy we'll explore is the self-funded plan. In a self-funded plan, the employer takes on the responsibility of paying for employee medical costs directly, rather than paying premiums to an insurance company.

Similar to the non-carrier level funded and captive plans, the self-funded approach features independently owned components, including the TPA, network, PBM, and stop-loss insurance. The key difference is that the employer is responsible for paying the smaller, more predictable claims, while the stop-loss insurance policy covers the larger, more catastrophic claims.

The advantages of a self-funded plan include:

• Cost Control: The ability to customize the plan design and vendor selection to optimize costs and ensure the best value for the employer and their employees.
• Transparency: Greater visibility into the actual claims data and healthcare utilization patterns, allowing for more informed decision-making.
• Flexibility: The option to easily make changes to the plan, such as implementing cost-saving measures or adding new benefits, without the constraints of a traditional insurance contract.

While self-funding may seem daunting, especially for smaller and medium-sized businesses, the potential cost savings and increased control over the health plan can make it a highly attractive option for many employers.

Choosing the Right Health Plan Purchasing Strategy for Your Business

When it comes to selecting the best health plan purchasing strategy for your business, there is no one-size-fits-all solution. The optimal approach will depend on a variety of factors, including the size of your company, your risk tolerance, the needs of your employees, and your overall healthcare cost management goals.

As you navigate this complex landscape, it's important to assemble a cohesive team that includes key stakeholders, such as your HR director, CFO, and potentially even your CEO. This team can work together to carefully evaluate the various options and determine the strategy that best aligns with your company's unique needs and objectives.

Remember, the path to modern benefits management is not a sprint, but a marathon. You can start small by taking incremental steps, such as moving from a fully insured plan to a carrier level funded plan, and then gradually progress towards more advanced strategies like non-carrier level funded or captive plans. The key is to stay informed, be proactive, and continuously seek ways to optimize your health plan and control your healthcare costs.

Advice for Industrial Companies: Embracing the Change

If your business falls into the 46% of construction or manufacturing companies that struggle to understand how to maximize their health plan purchasing strategy, it's time to take action. The case for change is clear – the majority of healthcare businesses have already embraced more advanced strategies, such as level funding or self-funding, to effectively manage their healthcare expenses.

By exploring the various health plan purchasing strategies and understanding the impact of the supply chain on your costs, you can position your industrial business to be at the forefront of this transformation. Whether it's implementing a non-carrier level funded plan, joining a captive, or transitioning to a self-funded approach, the opportunities to optimize your healthcare spending and provide your employees with the benefits they deserve are abundant.

Remember, you don't have to navigate this journey alone. Reach out to a healthcare benefits consultant who can help you evaluate your options, develop a customized strategy, and guide you through the implementation process. With the right expertise and support, you can unlock significant savings and ensure your business remains competitive in the ever-evolving healthcare landscape.

To learn more about how you can transform your health insurance strategy, be sure to check out our other videos on the BeneSmart YouTube channel. And if you're ready to take the next step, schedule a 15-minute call with me to discuss your specific needs and how we can help.