Author: Renée-Marie Stephano
The Affordable Care Act – or Obamacare as it’s been dubbed – has enabled some Americans to afford health insurance for the first time, but despite its fanfare, provisions and delays, providing fair-priced employee benefits remains a challenging prospect for U.S. employers. Even though the increased cost for insurance has been shifted on the shoulders of working Americans, U.S. employers are identifying self-funding strategies that reconcile healthcare offerings with financial goals of the business – attracting and retaining healthy employees while maintaining the bottom line.
Most employers – even those confused about the legislative overhaul called Obamacare – understand that offering health insurance to their employees still makes good business sense. But, rising costs and evolving regulatory complexities – four years into the President’s signature domestic healthcare policy initiative – have made things perfectly clear to employers: engaging employees and keeping one eye on the bottom line and the other on the challenges of compliance is not an easy job.
Few entrepreneurs start a business to become experts on health insurance. From the outset, most employers understood – and many still do — that health insurance could be used as a tax-deductible form of compensation to attract and retain top employees. For years, that knowledge was good enough.
Then along came unaffordable premiums and, subsequently, healthcare reform. Everything changed.
Now, many employers say they don’t understand the Affordable Care Act and only one in three believe their human resource departments are fully prepared to navigate the often oblique healthcare landscape.1 Obamacare has no doubt altered the way employers look at employee healthcare benefits and feel about their insurance offerings. Employers, for the most part, are dissatisfied with the value they receive in return for the investment they make in the health of their employees.
To many, the healthcare system in its current state is underperforming, expensive and wasteful. Employers feel their needs are not being met. A swell of legal and financial hurdles have overwhelmed and pushed companies of all sizes to search for innovative solutions and meaningful strategies to get the most out of every dollar spent on their employee healthcare benefit plans. Solutions, to these anxious employers, are imperative for balancing a commitment to their employees with the stark realities of keeping their financial investment solvent.
To Cover or Not
The cost of providing employer-sponsored healthcare benefits is expected to increase 4.4 percent from this year, when rate hikes fell to a 15-year low.2 A vast majority of employers who remain committed to providing healthcare benefits to their employees continue to sweat healthcare reform. In fact, while 95 percent of U.S. employers say that subsidizing healthcare coverage for active employees is a very important part of their compensation package, almost as many – 92 percent – expect to seek relief from employee-related health costs by changing insurance plan designs before 2018 to elude newly imposed excise taxes.
Employer costs are expected to reach $9,560 per employee this year alone.4 To control costs and, at the same time, retain healthy and productive employees, an increasing number of these price-conscious employers are opting to meet human resource obligations by self-funding health insurance coverage, an alternative that provides a way for businesses to escape the most egregious parts of the Affordable Care Act.
A self-insured health plan allows an employer to directly fund the company’s employee medical benefits offerings. Rather than pay premiums to an insurance carrier – like Blue Cross Blue Shield, Aetna, or Cigna — to cover employee benefits, a business owner will pay-out-of pocket from company assets to cover claims as they are presented.
Simply put, self-funding empowers employers with the ability to customize a health plan that meets the specific needs of their workforce without compromising access to quality medical care and company profit margins. Employers who chose to self-fund enjoy tremendous flexibility in creating their benefit design plans. In other words, employers can ask themselves what they want to cover — certain vaccinations, chiropractors, obesity or infertility – what they don’t, and by whom they want the service provided.
These are important questions that CEOS and the benefits managers charged with designing coverage plans must debate – not the least of which is whether they should continue to offer health insurance coverage to their employees — when identifying future strategies that reconcile healthcare offerings with financial goals of the business.
Working Americans and health insurance have been linked since the start of World War II, when the federal government capped wages, forcing employers to establish other means to entice and keep employees. Employers began to offer health benefits, and employees demanded them. Business owners have been happy to oblige because the federal tax code exempts employer-sponsored health plans from taxation. Employees, on the other hand, save money by buying health insurance through an employer, rather than in the individual market, where they would have to use after-tax dollars.
Fast forward to present day and passage of the Affordable Care Act, which doubles down on the link between employment and health insurance by mandating that large employers offer benefits or pay a penalty. Critics of Obamacare, which mandates that all insurance plans cover “essential health benefits” and caps just how much employees can contribute to their own coverage, fear, as a result, that 43 million American workers will lose access to employer-based health insurance.
Prudent First Step
Self-funding can be a prudent initial first step toward counteracting Obamacare provisions and integrating cost containment measures and a pay-as-you-play approach to healthcare benefit offerings. Employers who have made the move to self-funded plans are happy with their decision. At least 90 percent say they “don’t plan to move any” of their insured workers to public exchanges, according to a national business coalition.6 But, is it enough? Some employers, not the majority, believe so, but additional steps are needed beyond self-funding to ensure their needs for information transparency, price transparency and greater value are reinforced.
Hard pressed for answers, they are not only asking questions of themselves, but to employees within earshot who might be contemplating serious, but routine elective surgeries like hip or knee replacement, cataract removal, a heart bypass:Would you consider a procedure performed at a local hospital or – for that matter – at one in Asia, Europe or South America?
Employees faced with such a decision might already be aware that employers continue to shift healthcare costs their way. If they do, they know their share of premiums increased nearly 7 percent, to $2,974 this year. What’s more, out-ofpocket costs also increased. The total employee cost share climbed from 34.4 percent in 2011 to 37 percent in 2014.
What’s it mean? In the end, employees now pay more than $100 more each month for health insurance compared to just three years ago.
Given that healthcare costs continue to rise, the good news is that international facilities have made great strides in maintaining what is good about existing healthcare systems while focusing on areas that need improvement.
For that reason alone, the decision to board a plane is that much easier. Instead of reaching for their wallets, American workers are growingly content to pull out their passports and recognize medical tourism – traveling overseas for medical care — as a viable option for achieving care on par or better than procedures and treatments offered in the United States, and at substantial savings for both employer and employee to boot.
Although some employers might promote the allure of travel to bait employee prospects, the name medical tourism should not be misleading. Certainly, Americans with a propensity to travel are likely to jump at the chance to choose a medical procedure at a destination where they can enjoy an exotic experience, but medical tourism is, in large part today, driven by quality and cost savings. So much that medical tourism is reshaping the healthcare conversation at companies across the nation – from employee lounge to the corporate board room.
Healthcare costs continue to outpace inflation and remain a major concern for U.S. employers. Some have adopted a “wait-and-see” approach. Others have come off the fence to take a more proactive path to employee benefits by adopting arrangements like self-funding.
Nonprofit trade resources like the Medical Tourism Association®, which promotes industry awareness and offers education to U.S. employers, government bodies, insurers and related travel and tourism entities, are positioned to offer support that compliments self-funding employer initiatives.
Medical tourism allows for greater transparency of price, quality and lower cost at what may have once been considered unconventional sites overseas to those employers who self-fund their health insurance offerings. Adventurous parties who feel that standing pat is not an option are likely to find medical tourism — a road once less travelled — to be an emerging avenue bustling with affordable choices, positive outcomes and satisfied consumers, both employees and employers alike.
HOW SELF-FUNDING WORKS
A self-insured health plan allows an employer to directly fund the company’s employee medical benefits offerings. Rather than pay premiums to an insurance carrier – like Blue Cross Blue Shield, Aetna, or Cigna — to cover employee benefits, a business owner will pay-out-of pocket from company assets to cover claims as they are presented. Employers will often work through a third party to process claims and payments while taking advantage of the cost control, cash flow improvement and investment, and plan-design flexibility that self-funding offers.
With that said, employers who decide to self-fund also assume the risks involved with acting as their own insurance company. If the plan has a very good year, the employer gets to save that money. On the other hand, if the plan has a terrible year, the employer must be prepared to pay what could potentially amount to exorbitant out-of-pocket expenses.
To prepare for catastrophic losses from unforeseen health plan expenses, self-funded companies buy an additional risk management tool, called “stop-loss,” which indemnifies an employer from the burden of severe or frequent claims.
Stop-loss insurance allows a plan to set a maximum loss level on any specific situation or on the aggregate of the whole group for high-dollar medical claims, such as transplants, leukemia, renal failure and premature births. The employer chooses the specific stop-loss deductible, in other words the amount for which the company is responsible for each individual employee or dependent claim.
Typically, the larger the group of employees covered, the larger the deductible, and vice versa. An employer covering say 500 employees may choose a specific stop-loss deductible ranging from $75,000 to $125,000 per claim; whereas, a group of 300 employees may warrant $50,000 per claim. A reimbursement maximum is stated in the specific stop-loss contract. Premiums can be paid monthly.
Self-funding has become a vital health insurance option for U.S. employers. Not only does self-insurance help control healthcare costs, when managed efficiently and effectively, plans can lead to higher wages for workers and more resources for employers to invest in job creation.
Most self-funded plans have stop-loss coverage while maintaining their “self-funded” legal status. Almost three in five covered workers in self-funded plans are in plans with stop-loss protection.
The number of U.S. companies that partially or completely self-fund their healthcare plans has increased from 44 percent in 1999 to almost two-thirds in 2012.9 Today, self-funding plans provide health insurance to more than 100 million Americans.
Once limited to only large companies – 200 or more employees– self-funding is growing to include even more companies of all sizes. The percentage of covered works in selffunded plans increases as the number of employees in a firm increases. Part of the attraction to self-funding for small and mid-sized firms is that these plans are not subject to certain provisions of the Affordable Care Act including community rating requirements – that is, their rates are now based on their own specific claims and not those of other companies in their geographic region. Community ratings are a major driver behind increased premiums because, under the ACA, insurers are barred from considering health history and current health status of employees.
Self-funding has become a vital health insurance option for U.S. employers. Not only does self-insurance help control healthcare costs, when managed efficiently and effectively, plans can lead to higher wages for workers and more resources for employers to invest in job creation.
However, not everyone is sold on the path toward selffunding.
Some – including the Obama administration – believe more government oversight and regulation is needed to ensure the stability of stop-loss markets, especially in the protection of small employers and their employees.
That would be an unsettling blow to those self-funding companies like Sheffield Pharmaceuticals, a small manufacturer in Connecticut which cut its healthcare costs by $400,000 in four years; SpearUSA, an Ohio labeling company which slashed benefit costs by 29 percent in the same period; or Columbia Power and Water Systems, a local utility in Tennessee which lowered claim costs by $500,000 in seven years. All pointed to how self-funding served as an alternative to increasing healthcare costs earlier this year before a panel of the House Education and Workforce Committee, which held hearings on Obama administration proposals to regulate stop-loss insurance.
Proponents of self-funding plans believe it this very same regulatory grip that is plaguing the American healthcare system by disarming employers with options to reign in soaring expenditures. Regulations to reel in self-funding would limit an employer’s flexibility to sidestep barriers to true reform and the ability to think not only outside the box, but overseas as well to deploy medical tourism initiatives of their own that integrate their healthcare needs directly with those of international hospitals and doctors.
CASES IN POINT
Stories like that of HSM Solutions, a North Carolinabased manufacturer of components to the transportation, furniture, and bedding markets – and similar approaches taken both internationally and domestically — bear witness to what employers can accomplish when unleashed from the trappings of a system frail with perverse incentives toward reducing the cost, quality and accessibility of medical care.
When she boarded a flight to Costa Rica for weight-loss surgery, Joy Guion, a native of North Carolina and employeeat HSM, wasn’t accustomed to traveling overseas, let alone for medical care and certainly not to a sun-soaked destination where she would stay at a four-star hotel with a personal concierge and a local driver.
HSM even sent Gary Harwell, a retired manager and former colleague who needed knee replacement surgery, along with her. Here’s the kicker: both employees didn’t have to pay a dime for their surgeries – not even travel expenses or postop recovery. HSM, a self-funded employer of 2,500 U.S.-based employees and member of the Medical Tourism Association®, picked up the tab.
Do the Math
What’s more, Tim Isenhower, director of benefits at HSM, says as an incentive for employees to get onboard with medical tourism, his company even waives copays and deductibles, and covers travel expenses for both the employee and a companion. To employers like HSM, the math makes perfect sense. In the United States, the same knee replacement would have cost more than $59,000. In Costa Rica, the procedure costs half that amount, at $23,531. In North Carolina, Guion’s gastric sleeve surgery would have cost about $30,000, but in Costa Rica, the procedure comes to $17,386. So, when the bandages came off, both Guion and Harwell received a bonus check for at least $2,500 from HSM, or up to 20 percent of the savings the company enjoyed in insurance costs — healthy and happy employees indeed.
What’s the catch? There isn’t one. HSM saves money, about $10 million in healthcare costs in the past five years. Close to 250 of HSM’s employees have traveled abroad for medical tourism procedures, and Isenhower, who conceded there was fear in the eyes of those he first approached with traveling to other areas of the world for medical care some six years ago, says more are scheduled to go. (Their case study was featured on segments of “ABC’s World News Tonight with Diane Sawyer,” and later on “Nightline” following a consolidated effort of the Medical Tourism Association® and the employer and healthcare provider, both MTA members, to bring the story to international recognition.
Closer to Home
Phil Dominquez didn’t need much prodding. He wasn’t the least bit scared of travel.
“I would have gone anyplace,” he said.
Unemployed, but equipped with health insurance through his wife who works at Pacific Seafood, Dominguez didn’t have to travel very far, no more than a 1 ½-hour trip by car from his home in San Antonio to Arise Austin Medical Center, in Austin, Texas, where he was greeted with a preset price for a knee replacement procedure that boasted no out-of-pocket expenses.
Arise Austin Medical Center is one of hundreds of hospitals that take advantage of bundled-payment arrangements with Pacific Seafood and large companies in the United States like Walmart and Lowe’s, which have contracted with very narrow “private” networks strategically located across the country that offer treatments to their employees who need a pre-planned surgery.
Thomas Johnston, CEO of EmployerDirect Healthcare, which points large self-funded employers like Pacific Seafoodto hospitals and health systems within a 30-60-mile radius, says bundled case rates reduce the cost of quality care, a benefit to the employer’s bottom line that can be passed down to employees – some of whom may not be able to travel great distances for one reason or another for a major procedure.
EmployerDirect administers bundled case rates for planned medical procedures by pre-negotiating and consolidating all costs including fees for surgeons, anesthesiologists, all medical care up until a patient is discharged, and associated travel. Because surgery costs can vary widely by provider and geographic location, employers who self-fund their health insurance plans, in particular, can get a better handle on their benefit offerings based on the number of employees they cover and the hospitals they have contracted with to bundle care costs.
Total knee replacements can cost from $36,000-$48,000. Through his coverage with EmployerDirect, Dominguez saved Pacific Seafood 41 percent of what the company would have paid through his health plan including all bundled medical and travel costs as well as the EmployerDirect fee.
Johnston says companies like Pacific Seafood, which steer those employees and their eligible dependents who need the most specialized and costly care to a health system that provides proven outcomes, can expect in return 30-50 percent in savings and a reduction in total plan expenditures by 6-10 percent. Brian Cramer, CEO of Orthopaedic Hospital of Wisconsin, says bundled payment contracts through EmployerDirect help to keep his Milwaukee facility “operating” more efficiently while justifying appropriate staffing levels.
“Because we’re a small specialty hospital, we can be like an aircraft carrier in the middle of the ocean,” said Cramer.
“Without our patients, we don’t have anything. Bundled care arrangements are important to us. We get volume we wouldn’t ordinarily see — that’s why we can charge less.”
At a time when many hospitals are struggling to fill beds and cutting jobs to soften a tough economy, healthcare providers are looking to extend their market shares – some, further than others.
The Medical Tourism Association®, which supports awareness initiatives through educational and certification programs and partnership and networking opportunities, has been urging employers interested in controlling healthcare costs
and improving outcomes to consider like-minded domestic travel initiatives.
Employers, realizing they can reduce costs by 20 percent to 40 percent – more than enough to cover travel expenses – are catching on and persuading their employees to think twice about traveling to locations that may be no more than a fivehour drive away.
Centers of Excellence
Lowe’s, the second largest home improvement chain in the United States, was one of the first large companies to send employees across state lines to Centers of Excellence for domestic medical tourism procedures. An alliance with the Cleveland Clinic in Cleveland, Ohio, provides its full-time employees and their covered dependent’s enrolled in Lowe’s self-funded medical plans enhanced coverage for qualifying heart surgery procedures.
Walmart expanded on its long-standing Centers of Excellence program covering transplants at Mayo Clinic sites in Rochester, Minn., Scottsdale/Phoenix, Ariz., and Jacksonville, Fla., last year to include treatment for heart and spine surgeries at Virginia Mason Medical Center, in Seattle; the Cleveland Clinic, in Cleveland, Ohio; Geisinger Medical Center, in Danville, Pa.; Mercy Hospital Springfield, in Springfield, Mo.; and Scott & White Memorial Hospital, in Temple, Texas.
The Employers Centers of Excellence Network extends high-quality healthcare with transparent and predictable costs to some 1.5 million eligible employees and dependents of Lowe’s, Walmart and other large self-funded companies who can access no-cost knee and hip replacement surgeries at Virginia Mason Medical Center; Kaiser Permanente Orange County Irvine Medical Center, in Irvine, Calif.; Johns Hopkins Bayview Medical Center in Baltimore, Md.; and Mercy Hospital.
These programs, which comply with the Affordable Care Act and meet specifications of state insurance regulators, have given employees the confidence to purchase healthcare on their own and opened others to the cost-effective potential that selffunded benefits assign.
Vive la France
Blue Lake Rancheria has not nearly the number of employees as retail giants Lowe’s and Walmart’s, but the hotel and casino operated by the Native American tribe can identify with a similar corporate culture that optimizes wellness, coordinated care, and cost-reducing coverage options. The casino’s bundled benefit plan includes medical, dental, vision, pharmaceutical and wellness coverage. A few years ago, Blue Lake added a medical tourism component to its plan for some 370 employees and their dependents.
Nestled in the heart of California’s redwood region along the northern Pacific coast, the last thing a Blue Lake employee would presumably need was a medical tourism vacation that removed them from the superlative sense of adventure that living among the tallest trees in the world offered.
Not one employee, except for the few who wandered down the coast and across the border into Mexico for dental procedures, had been willing to take a chance on a procedure overseas and bite on the medical tourism benefit option. All bets were off, until now.
Bruce Ryan, a 59-year-old construction manager at Blue Lake Rancheria, is recuperating back home in Fieldbrook, Calif., following successful surgery to repair his torn rotator cuff at Clinique de l’Union, in Toulouse, France, where the 531- bed surgical and obstetric facility is considered to be among the leading private hospitals in Europe.
The 21-day trip to France included successful surgery, postop recovery, aftercare, sight-seeing excursions with his wife, Joyce, to the Pyrenees mountain range in southwest Europe – and 50 percent off the $32,000 cost his employer would have had to pay for the procedure in the United States.
Jack Norton, the human resources manager who introduced medical tourism to Blue Lake coverage plans, says the trifecta – elevated quality and outcomes, price value, and travel experience – is a tremendous payoff and opportunity that stacks the odds in favor of both self-funded employer and employee.
Providing health-insurance benefits remains integral to employee retention, but rising costs have made this incentive a challenge. For many U.S. employers, the healthcare landscape has never been more difficult to navigate. Processing claims and making payments is “old-school.” Self-funding offers a new chapter worth studying. Companies of all sizes that choose to self-fund can stay ahead of the curve by presenting those who craft benefit design plans a way to achieve employee retention goals, but with far more financial control and flexibility.
The number of U.S. companies that partially or completely self-fund their healthcare plans has increased from 44 percent in 1999 to almost two thirds in 2012. Today, self-funding plans provide health insurance to more than 100 million Americans.
Employer premiums have risen 80 percent during the past decade, nearly three times as fast as wages and inflation.15 Useful, readily available data to explain “why” has gone uncontested for far too long. Self-funding gives small business owners and human resources professionals at corporate conglomerates access to the information they need to manage trends that are working and those that are not. That’s what making informed decisions that make employee benefit offerings work should be all about.
The path to transparent healthcare benefits, once through a funnel, doesn’t have to seem like a maze to millions of employers. True, healthcare has never been immune to confusion, but the idea to make medical tourism – both domestic and international – an integral part of an employer’s self-funded benefits package continues to run parallel with strategies and objectives that emphasize price-savings, quality care, and sustainable cost control.
About the Author
Renée-Marie Stephano is the President and Co-founder of the Medical Tourism Association® and editor-in-chief of Medical Tourism Magazine® and the Health and Wellness Destination Guide series of books. Ms. Stephano has authored several books from “Developing International Patient Centers, Best Practices in Facilitation,” to “Medical Tourism for Insurers and Employers,” and the most recent, “Engaging Wellness.”
Ms. Stephano is a former attorney and specializes in working with governments and hospitals to develop sustainable medical tourism/international patient programs and strategies including the development of healthcare clusters, and international patient departments on long-term plans. Ms. Stephano works with ministers of health, tourism and economic development in developing public-private partnerships to support medical tourism and, at the same time, to provide a benefit and return to the local community. She organizes one of the only summits that brings together ministers of health, tourism and economic development every year.
She has helped assess the feasibility and opportunities of international programs for both the United States and international hospitals, cities and countries to foster international expansion, clinical development and affiliations and partnerships. She also consults governments in the development of sustainable medical tourism zones and free healthcare zones.
Ms. Stephano is a keynote speaker at international conferences and has spoken at hundreds of events and has been featured and mentioned in media publications around the world.
Ms. Stephano serves on the Board of Directors for the International Healthcare Research Center, a 501c3, nonprofit medical tourism research center, the Corporate Health & Wellness Association, and two Washington, D.C.-based groups focused on lobbying the U.S. Congress for the benefits of Medicare reimbursement overseas and the support of U.S. hospitals in their overseas initiatives. Ms. Stephano donates her time as president of the Medical Tourism Association® and editor-in-chief of the Medical Tourism Magazine®.