Industry Trends

A Fox in the Hen House

By Brad O'Neill, Benefits Strategies

Taking the Insurance Companies out of the Hospital Negotiations Reduces Insurance Rates by 41.5% in Colorado Ski Town

Hospital charges are a puzzle that nobody seems to understand. Adding to the difficulty of this ongoing issue, we allow the health insurance companies to lead these negotiations. That’s the fox guarding the hen house. This has been the root cause of a dramatic impact on health insurance premiums for many years. But we really have not cleaned out the coop until now.

It started several years ago in Aspen Colorado, where a group of concerned local stakeholders were fed up with having the highest cost of health care in the country. Insurance companies were fleeing the market since the hospitals were not providing the discounts to hospitals in the metro areas. They banded together for a solution and invited insurance companies to compete locally. They identified that hospitals near the pricey ski areas lacked competition and, in turn, could charge higher prices -- that resulted in the highest cost for health insurance in the nation. For example, to have knee surgery in Aspen could cost 100 percent more out-of-pocket than getting surgery in Denver. The community effort resulted in a savings of $23M annually combined for the participating small businesses. The community was able to aggregate data to determine key cost drivers in the area.

Fast forward to today, where small towns in Summit County started to band together and meet locally with the key stakeholders to find a solution. The idea was novel to take the insurance companies out of the negotiations. The goal was to collectively find a common understanding of the key cost elements and invite insurance companies to participate. The data collection showed the insurance carriers were bankrupting the community. According to the Rand Survey (2018), relative prices varied two-fold among states (Colorado, Montana, Wisconsin, Maine, Wyoming, and Indiana) with relative prices in the range of 250 to 300-plus percent of Medicare rates. Individual insurance rates had doubled since 2015!

The solution was simple for this community. Take the negotiations into their own hands and shop the fee schedule to the insurance companies. This novel idea allowed The Peak Health Alliance to market the fee schedule to carriers and the results were astounding. The community alliance just reduced health insurance costs for small businesses (2-99 employees) and individual premiums for 2020 by over 41.5 percent. That all due to a community getting together to find a solution. That’s what happens when you quit letting the fox guard the hen house.

Model             Plan
Image source: July 21, 2019, Bloomberg  

What you can do in your rural community to help solve these issues?

  • Coordinate a local health group of key stakeholders to review the situation
  • Employers can exert pressure on their health plans and hospitals to shift from discounted charge contracts to contracts based on a multiple of Medicare or some other prospective case rates.
  • Employers can use networks and benefit designs to move patient volume away from high-priced, low-value hospitals and hospital systems.
  • Employers can encourage expanded price transparency by participating in existing state-based all-payer claims databases and promoting development of new ones.

Each year you don’t do something for your community, will be another year you pay more than you should. As they say, “If not now, when? If not you, who?”

Learn more about the author, Brad O'Neill.

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