The Company That Solved Health Care

BETTER MODEL FOR DESPERATE SMALL COMPANIES

AS SERIGRAPH WORKED ITS WAY through the innovations that allowed it to escape the hyper-inflationary trend in medicine, I tapped the expertise of three Wisconsin insurance brokers: Jon Rauser, Jim Mueller, and David Kracht. They buy health insurance for more than five hundred small businesses. Theirs is a tough assignment in the context of runaway premiums. Their customers are subject to sharp, unpredictable jumps in insurance premiums.

The upward spikes have continued for decades. In 2010, premium hikes ranged from 15-25 percent for their small-business accounts. Jon, Jim, and David just shake their heads in frustration as they bring the bad news to their customers.

Further, many small business people ask me if Serigraph’s success in managing costs can somehow be applied to their shops. The answer is yes, many of the innovations can be brought to bear for insured smaller employers.

Small employers pool together with many other employers in health plans to spread risk, but if just one employee in a small company becomes an expensive liability, premiums can skyrocket for that firm. That holds true in spite of various rate reforms at the state level.

The small firms have virtually no leverage on health care systems or insurers. They are too insignificant in the total marketplace to make a difference, and they are too small to self-insure like Serigraph does.

Without warning, insurance companies will increase rates as much as 50 percent in a single year if the small firm had a tough prior year for health costs. The insurers do it by reclassifying the risk level from preferred to standard or substandard. That move gets them around state limits on increases in a single year.

The end result is that small employers ask their brokers every couple years to move their business around to different insurers that might look at their group as a more attractive risk. The underwriting process is arduous. Each employee is required to fill out a detailed health questionnaire. And, in the end, it is difficult to move a policy.

Health insurance is such a nightmare for small companies that about 40 percent have opted out of coverage. Others have retreated to defined contribution plans, much like they have done with their retirement liabilities with a shift to 401(k) plans.

Going forward, companies with more than fifty employees will be forced under the new law to provide coverage or pay a fine. The fine is low, though, at $2,000 per employee. At $11,000 per employee on average in the country for health care costs, the $2,000 fine may seem like a bargain. The small firms, whether they have offered health care or not, will have a big decision to make on whether to offer a health care benefit.

Some small employers that use a lot of part-time help will structure their operations to keep employees below thirty hours a week, the level at which the fines or required coverage kick in.

Subsidies for small businesses providing coverage under ObamaCare will help, but we can only guess how many will keep or drop coverage when the mandate and fines take effect in 2014.

Because nothing in the new law reduces the underlying costs, premiums will keep rising, and that inflationary pain will weigh heavily on coverage decisions.

If a small business chooses to offer coverage, Rauser, Mueller, and Kracht offer some managerial steps to neutralize at least part of the escalation in premiums. They use some of the lessons learned in Serigraph’s journey to a better business model.

Here is what these brokers recommend to their clients:

• Buy a plan with a high deductible and co-insurance. The premiums can be 20-60 percent lower than traditional plans with low deductibles and co-insurance. Almost all of their recent business has been in consumer-driven plans.

• Facilitate the use of flexible spending accounts by employees. Even though Congress dropped the maximum on the pre-tax accounts from $5,000 to $2,500, this is still a cost-effective approach.

• Offset the high deductibles and co-insurance with a Health Reimbursement Account (HRA). An HRA, an account for each employee that can be used for health expenditures, works better for small employers than an HSA, because no cash is required up front. Further, unlike HSAs, the HRA accounts can only be used for health care.

• Hire a broker.Though self-serving, a broker’s expertise is necessary to wade through the dozens of health plan options offered by the big insurers. One national insurer, for instance, offers sixty-six different options for small businesses. It is almost indecipherable, especially for a small business person trying to do the multiple things every day that it takes to run a small enterprise. “Employers have no clue as to what to select,” said Rauser. Premiums are the same if you use a broker or go directly to the insurance company; the 3 percent to the brokers is paid by the seller. The government exchanges set to go into effect in 2014 will compete with the private brokers, but the private agencies think confusion in choices will persist or even get worse. They expect to still be in business.

• Put your business out for bid every couple of years. There is a lot of variation in the marketplace. In some swings in the business cycle, insurers are looking for new business and will offer a better price.

• Be serious about prevention, wellness, and chronic disease management for your employees and their families. Even if the plans offered by insurers and local health providers are mostly passive on programs to keep people healthy, make them active at your company. Keeping one person out of the hospital can greatly affect your premium levels in future years. Insurers look at claims data from previous years when they do their pricing. They adjust sharply upward for previous or ongoing large claims.

• Pay for an annual mini-physical for your covered adults. These exams allow employees to catch problems early, and medical problems are less costly when treated early. They can be done by nurse practitioners at a convenience clinic for not much money.

• Look for an insurance plan that makes prevention tests free. These include exams for breast, colon, cervical, and prostate cancers.

• Encourage fitness for all employees. The boss should set the example.

• Look for a well-run primary care clinic to set up a medical home for each family. Ideally, it would be one that has electronic medical records and can offer a personal health record for each person covered in your plan. Create incentives for your people to go there; it will reduce premiums over the long run, since large claims will be reduced.

• Even if your premiums are set for the year, encourage your people to seek value. If they go to a convenience clinic, for instance, their co-insurance and deductibles will be lower. The same is true if they go to a clinic during regular hours versus going to an emergency room. Your plan should include an out-of-pocket penalty for unnecessary ER use.

• Encourage your people to look at the transparency Web site put out by your insurer to find the best values for price and quality. Again, it will help them to drive down out-of-pocket costs, and it will help employees and companies earn better prices from insurers in future years. A high-quality provider will prevent medical errors and the costly aftermath of redos. Health providers charge to fix their own mistakes, but they shouldn’t.

• If you have a drug plan, use a three-tier or four-tier system that encourages the use of less expensive drugs. These include generics and over-the-counter drugs. The plan should also discourage the use of expensive branded drugs, unless the doctor believes them necessary. Encourage plan members to use the loss leaders for generics at Costco, Walgreen’s, Walmart and Target. At $1 a week, everyone wins.

The national health care debate at the turn of the decade paid some attention to small business. Beginning with the 2010 health care bill’s passage, employers with fewer than ten employees can file for a tax credit of up to 35 percent of premium costs through 2013. Those interim credits phase out as an employer gets to fifty people or an average wage of $50,000. In 2014, credits for small firms that buy through government health exchanges will rise to 50 percent.

But if premiums continue to soar, and some economists think the new law pours fuel on the inflationary fire, small businesses may still choose to drop coverage.

What’s really needed is a new business model. The standard insurance plans for small business just aren’t working.

A convergence of the innovations and learnings in the private sector for the delivery of health care could accomplish a new business model. Insurance broker Rauser has introduced the package as “Ultimate Care.”

In this new model, coverage at the base of the care spectrum is covered by a concierge or retainer-based primary care physician. A company can contract for one, ten, or twenty slots.

The top end of the care spectrum can be covered by a high deductible, say at $7,000 per person in a family. That would take care of the catastrophic events.

The uncovered middle between primary care and catastrophic could then be covered by a health account, either an HSA or HRA. The employee could be asked to share in any or all parts of this layered coverage.

Early quotes for this exquisite combination of care have been very promising—sharply lower, or at least low enough to offset the price of the primary care retainer for employees.

What’s not to like? The business gets a reduction in health costs in year one. And it gets a robust delivery model in the years going forward. The model should help to keep people out of the hospital, the real way to reduce fundamental costs.

As for the employee, he or she gets lower, or at least stable, premiums, along with intimate primary care. The primary care portion can be offered free to employees. The plan member will benefit from a complete physical each year, integrated care in a medical home, serious chronic disease management, early detection of medical issues, and next day, unhurried appointments. The retainer doctor oversees treatments during hospitalizations.

You can even call or e-mail your doctor—what a novel idea!

The employees will have personal dollars in the game through ownership of their health accounts; it’s their money, so the all-important consumer engagement will be at work on behaviors.

Finally, the retained doctor will help to steer or guide his/her patients to Centers of Value, where the most effective care is offered. Employees retain the right to choose.

It should be an effective model.

These kinds of innovations are needed to tame the hyper-inflation that plagues small businesses as they navigate the turbulence of health care economics. Federal subsidies are not enough.