Are your health insurance vendors actually making more money when your costs go up? It’s a shocking reality that many businesses don’t realize is happening right under their noses. In this in-depth blog post, we’ll uncover the specific ways that misaligned incentives are baked into most group health plans, and show you a blueprint to regain control of your cost drivers.

What Are Misaligned Vendor Incentives?

Misaligned incentives in your health plan occur when a vendor profits more when your costs go up. This is a widespread issue that’s present across the entire healthcare ecosystem, from provider networks and pharmacy benefit managers (PBMs) to third-party administrators (TPAs) and stop-loss carriers.

To put it simply, it’s when the financial interests of your health plan vendors are not aligned with your goal of containing costs and delivering high-quality, affordable care to your employees. Instead, these vendors have built-in incentives to drive up utilization and spending, all while appearing to provide “savings” and “discounts” that mask the true cost inflation.

Real-World Examples of Misalignment

Let’s break down how this plays out with some of the key vendors in your health plan:

Provider Networks (PPOs)

Provider networks are structured to profit on volume, not value. They negotiate “discounts” on paper, but these discounts are often inflated from the starting prices, so you end up massively overpaying even after the “discount.” There’s also little to no auditing of outcomes or pricing, so the networks can continue raising prices with impunity.

Pharmacy Benefit Managers (PBMs)

PBMs may tout big savings, but many of them actually make more money when you purchase higher-cost brand-name drugs. They profit from the rebates they receive from drug manufacturers, as well as the hidden spreads between what they bill you and what they pay the pharmacy.

Third-Party Administrators (TPAs)

TPAs are often owned by or financially tied to the same provider networks and health systems they’re supposed to be keeping in check. When claims go up, who’s going to fight it? They’re on the same team, so the TPA has little incentive to aggressively manage costs.

Stop-Loss Carriers

Stop-loss vendors often price aggressively upfront, but then quietly profit when your claims go unmanaged and you hit the attachment points. Instead of being aligned with your cost containment goals, they win when you lose.

Brokers

Even your broker can play a role in misaligned incentives. As we covered in last week’s video, brokers may receive hidden commissions or bonuses from carriers that incentivize them to push certain plans, regardless of whether they’re the best fit for your business.

The common thread here is that these vendors have built-in financial incentives to drive up utilization and spending, rather than truly aligning their interests with your goal of delivering high-quality, cost-effective healthcare.

Imagine a Health Plan That Works for You

Now, let’s flip the script and imagine what a health plan with properly aligned incentives would look like:

• PBM with zero spread and shared savings on generic conversions – Instead of profiting from the spread between what they bill you and what they pay the pharmacy, the PBM’s compensation is tied to driving down drug costs through generic utilization and other cost-saving measures.
• TPA that proactively reviews claims and is rewarded when they reduce waste – The TPA’s financial interests are aligned with yours, as they’re incentivized to aggressively manage claims and identify opportunities to cut unnecessary spending.
• Stop-loss that shares risk and reward like in a captive health insurance model – The stop-loss carrier is a true partner in your cost containment efforts, sharing in both the upside and downside of your plan’s performance.
• Transparent, bundled pricing from providers – You know exactly what you’re paying for each service, with no hidden fees or inflated starting prices that mask the true cost of care.

These types of aligned incentive structures do exist, but they’re often only accessible to larger, self-funded organizations or those who have implemented more advanced health insurance strategies like self-funding, level funding, or captive models.

A Better Future Is Possible

When you take control of your cost drivers, eliminate misaligned incentives, and structure your plan for true cost containment, the results can be transformative:

• Eliminate waste and overspending – By aligning your vendors’ financial interests with your own, you can cut out unnecessary utilization and spending that’s been quietly inflating your costs.
• Improve budget predictability – With a plan designed for cost control, you’ll enjoy more stable and predictable healthcare expenses year-over-year.
• Enhance your bottom line – Reducing waste and improving your plan’s financial performance directly boosts your EBITDA and overall business profitability.

This isn’t just a better benefits strategy – it’s a smarter business strategy. While your competitors are still playing defense, you could be playing a whole different game.

The 9-Step Benefit Cost Containment Blueprint

To help mid-sized businesses like yours take back control of their health plans, we’ve developed the Benefit Cost Containment Blueprint – a comprehensive, 9-step process that transforms your health insurance strategy.

Here’s a high-level overview of the blueprint:

1. Conduct a full health insurance review – Uncover every hidden misalignment in your vendor stack, from your provider network and PBM to your TPA and stop-loss carrier.
2. Evaluate your funding model – Determine if a self-funded, level-funded, or captive approach could better align incentives and give you more control.
3. Restructure vendor contracts – Renegotiate agreements to eliminate hidden fees, spreads, and other profit centers that incentivize overspending.
4. Implement cost-saving strategies – Deploy tactics like reference-based pricing, direct contracting, and specialty drug management to drive down costs.
5. Enhance employee engagement – Educate your team on the true cost of care and empower them to be savvier healthcare consumers.
6. Leverage data and analytics – Use claims data and other metrics to identify opportunities for improvement and track your progress.
7. Optimize plan design – Ensure your benefits package aligns with your cost containment goals and employee needs.
8. Establish a governance framework – Put the right processes, policies, and oversight in place to sustain your cost-saving efforts.
9. Continuously monitor and adjust – Regularly review your plan performance and make adjustments to keep your costs under control.

By following this blueprint, you can transform your health insurance strategy from a cost center into a strategic business advantage. It’s not magic – it’s just good business strategy applied to healthcare, which is long overdue.

Get Your Free Vendor Evaluation Worksheets

Ready to see if your current health plan vendors are aligned with your success or just riding along as your budget is forced to increase? DM or email us the word “Vendors” and we’ll send you our free Vendor Evaluation Worksheets – no strings attached.

These worksheets will help you uncover the hidden misalignments in your current vendor relationships, so you can start taking back control of your health plan costs.

Conclusion

Misaligned vendor incentives are quietly inflating your health plan costs, even if your renewal looks flat on the surface. By understanding how these hidden forces are driving up your expenses, and implementing a strategic plan to address them, you can transform your benefits strategy into a true business advantage.

Whether you’re a CFO, HR leader, or business owner, the Benefit Cost Containment Blueprint can help you eliminate waste, restructure vendor contracts, and finally gain control over your healthcare spending. Schedule a call with us today to see how we can help you take back control of your group health plan – without cutting quality.