The overall share of the U.S. economy devoted to healthcare spending reached almost 18% in 2015. As a result, methods for cost reduction are getting increased attention. The new administration under President Trump identified provider price transparency as one of its key healthcare reform goals. Until now, disclosure of provider rates has been very limited, which is due to the confidential nature of this information and concerns with provider collusion. However, rising trends, coupled with the demand for increased consumerism by employer plan sponsors, have started to move the transparency needle a bit. The following provides an overview of price transparency, including the primary drivers in the self-insured market and a short list of employer considerations.
What does price transparency means?
In terms of the self-insured market, price transparency means making information more readily available to consumers. This will allow them to make better-informed decisions based on current health status. Several carriers and independent companies have created tools to assist employees with “demystifying” medical rates in a consumer-centric manner. These tools allow employees to price-shop for a given service by provider, as well as factor in current benefits to estimate their out-of-pocket costs.
What factors are driving the need for transparency in the self-insured market?
The proliferation of high-deductible health plans (HDHPs), reference-based pricing, and narrow or custom networks all place a greater burden of cost sharing and decision-making on the employee and employer.
A 2016 Kaiser Survey found that 29% of covered workers are enrolled in HDHP plans. As this percentage continues to rise, so will the demand for meaningful data about the costs of their medical treatments. Employees enrolled in HDHP plans are generally very price-sensitive because they are paying first dollar until they meet their sizable deductibles. This cost information is generally difficult to obtain given the proprietary nature of provider rates, but is becoming more readily available in the marketplace. In fact, approximately half the states have enacted some form of price transparency legislation.
Reference-based pricing is another tool in an employer’s arsenal for combating rising healthcare costs. This option caps employers’ costs for services at a “reference rate,” and it applies mostly to services where prices fluctuate considerably but quality remains relatively flat (e.g., high-tech radiology and orthopedic services). Employees are incentivized to comparison shop to avoid getting billed for the difference between the provider’s rate and the reference rate. Price transparency is paramount to making this option successful. Employees will look for rates below the reference point, which will lower out-of-pocket spend.
Narrow or custom networks provide employers with another way to reduce healthcare expenses. These networks limit the providers in the highest tier to those who provide services at a lower cost and/or are more efficient. Lower out-of-pocket costs encourage employees to use these in-network Tier 1 providers. Various organizations are creating these narrow networks as an additional product option for purchase by employers. Price transparency is necessary in a narrow network arrangement, as this information is used by employees to make educated decisions concerning their healthcare.
What are the considerations for employers interested in implementing price transparency?
The success of the programs described above is contingent on many factors. The following provides some considerations when implementing these programs:
• Clear and concise communication is a key component for success, as employers and employees are financially impacted by the decisions they make.
• Transparency tools must be easy to use as employees need to acquire new skills, including identifying network access, comparing provider rates, and calculating their out-of-pocket costs.
• Identification of required services may require additional support so employees can be sure they’re looking at prices for the actual services they need.
• Incentives encourage participation, such as offering a health savings account (HSA) along with the HDHP plan, employer seeding, and/or higher contributions to help lower member premiums.
• Phased-in reference services limit the number of services in the first year in order to acclimate employees to how the program works.
• Cost-sharing differentials need to be carefully calibrated to encourage greater utilization of top-tier providers to drive down costs.
In conclusion, price transparency offers multiple ways for lowering the overall cost of medical benefits programs. By providing price-transparent programs, employers empower participants to make better-informed decisions about the services they choose.
This article first appeared in the May 2017 issue of Health and Group Benefits News and Developments.
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