Explore creative health plan design options that can reduce healthcare costs while still delivering a great benefit for employees.
Although healthcare utilization decreased across the board in 2020 and 2021 during the COVID-19 pandemic, health plan costs continue to rise for many employers. According to research from Willis Towers Watson, employers expect their healthcare costs to increase 5.2% in 2022, prompting them to consider healthcare cost containment strategies.
Instead of shifting costs to employees through high-deductible health plans (HDHPs) or cutting benefits altogether, many self-insured employers are implementing alternative plan designs. While these plans involve a more nuanced approach to contracting, benefits, and cost structure than typical PPO or HMO plans, they can drive cost efficiencies while still providing employees and dependents access to high-quality care options.
What alternative health plan options are available to self-insured employers?
If your benefits program is willing to get creative, you can experiment with several types of plan design options. Let’s explore a few alternatives that are gaining traction among large, self-insured employers.
Centers of excellence
A center of excellence (CoE) is a specialized program that provides concentrated clinical expertise and resources focused on a specific condition or care type. Unlike traditional hospital or specialty care settings, CoEs deliver comprehensive patient care in an interdisciplinary fashion. For example, the University of Tennessee Medical Center in Knoxville has six CoEs covering a broad spectrum of specialties: women and infants, brain and spine, cancer, emergency and trauma, heart/lung/vascular, and orthopedics.
To become a certified CoE, a healthcare institution must apply through the National Association for Continence. Once the institution is certified, it’s inspected every three years to maintain CoE status.
Pros:
- Programs provide advanced, specialized care for conditions that are often costly to treat and challenging to coordinate.
- Employers can contract directly with CoEs, which provides additional flexibility on terms and costs.
Cons:
- CoEs aren’t available in every geographic region and may not be easily accessible to plan members who live outside a major city or suburb.
- CoEs supplement rather than replace a traditional health plan, as they typically focus on a single clinical discipline instead of a broad suite of services.
Direct contracting
Direct contracting is an agreement between an employer and a provider group or hospital system to provide care for plan members in a specific geographic area. Unlike a traditional payer arrangement, where the carrier handles all the negotiations, your benefits team (and likely your broker/consultant as well) will determine reimbursement rates for specific services, prescriptions, and medical equipment.
Direct contracts can follow a traditional fee-for-service structure or employ alternative payment models such as pay-for-performance, shared savings, bundled payments, or global capitation.
Pros
- By eliminating carrier overhead, you can negotiate contracts with lower prices for you and reduced cost-sharing amounts for your plan members.
- Your organization has full visibility into the cost of care, which helps you more effectively predict annual claims spending.
- You can align payments and incentives around care quality and outcomes in ways that aren’t possible with standard plan designs.
Cons
- HealthGram reports that company size and location are important factors in provider negotiations. Unless your organization can offer enough patient volume and exclusivity, direct contracting may not be an option.
- Direct contracting requires more legal and administrative oversight than a typical carrier agreement.
Narrow networks
Narrow networks aren’t strictly defined, but these plans often have 25% or fewer participating local physicians compared to the approximately 70% found in broader PPO networks.
Pros
- According to a study in Health Affairs, narrow networks can be significantly cheaper. Healthcare premiums are, on average, 16% lower than broad networks, and service costs can be less expensive as well because the carrier has more negotiating power based on patient volume.
Cons
- Narrow networks may not offer the broad access to doctors and facilities your employees are accustomed to seeing. If your employee base has specialty health needs or an existing care team they don’t want to give up, a narrow network may not be the best option for them.
- Access to care may be more of a challenge for employees in a narrow network, especially for high-demand specialties like behavioral health or maternity care.
Reference-based pricing
If you’re looking for a plan design that will give you highly predictable costs, you may want to consider a reference-based pricing (RBP) strategy. RBP closely ties your payment rates to Medicare reimbursement rates—usually as a percentage of Medicare—so your costs stay consistent across providers.
Pros
- RBP can substantially reduce healthcare claims costs by setting a maximum payment amount your plan will pay for every service.
- Members have unlimited choice of providers and facilities instead of having to choose from within a network.
- RBP eliminates price variation, which can significantly impact plan costs.
Cons:
- Employees must determine which providers will accept RBP before they book care. While there are intermediary services that can help employees identify which doctors and facilities are RBP-friendly, the burden still falls on the employee to get pricing approved by each provider and hold the provider accountable for that pricing.
- If balance billing is allowed in your state, employees can be charged the balance of a physician or facility bill that’s more than the price you agreed to pay, which can put employees at financial risk.
- The complexity of navigating RBP negotiations may discourage employees from seeking preventive care, potentially leading to absenteeism, reduced productivity, and long-term health complications.
Tiered network
Tiered networks are like typical PPO networks, but divide providers into tiers based on the cost and quality of the care they provide:
Tier 1 offers providers who deliver high-value care (low cost, high quality). Employees will have the lowest cost-sharing amounts with this smaller pool of preferred providers.
Tier 2 offers a larger network of providers and facilities. With this PPO option, employees may pay a higher cost-sharing amount.
Tier 3 provides the most options when it comes to providers, services, and facilities, and includes out-of-network providers. Employees have the highest cost-sharing amounts with these providers.
Pros
- Plan members have clear guidance and incentive to choose lower-cost, high quality providers within a broader network.
- Unlike a narrow network, tiered networks still cover a broad pool of providers for people who don’t mind paying extra to stick with existing doctors or facilities.
Cons
- Employees must pay close attention to which tier a provider is in when searching for care, complicating the healthcare selection process.
- Some geographic regions may not have enough providers or sufficient competitive dynamics to support tiered networks.
How to choose the right plan designs for your benefits program
The bottom line is: You want to make the best plan design decisions for your benefits program. To do that, you must first understand your employees’ current health trends and utilization patterns. It helps to work with a consultant or third-party administrator who has the tools available to track those trends. Once you understand the trends, it’ll be easier to educate your employees on how to shop for care, avoid out-of-network penalties, and increase their satisfaction with your plan offerings.
After you’ve decided which alternative plans to offer, investing in a healthcare navigation platform to support employees in their search for new providers and staying in-network can help you and your plan members get the most out of your plan offerings.
