In the rapidly changing healthcare landscape, new delivery and reimbursement models are transforming the U.S. health system and redefining the traditional patient-doctor relationship.

Telehealth, which uses technology and mobile devices to connect patients and physicians for real-time consultations, is one of the delivery models adding a new dimension to healthcare. By fostering “virtual” patient-doctor interactions for non-urgent medical issues in lieu of costly in-person visits, telehealth is an alternative, affordable and effective way to access healthcare by phone, internet video and e-mail.

A looming shortage of primary care physicians, costly office visits and constantly escalating health insurance premiums are driving forces that make telehealth an effective way to help meet the needs of a broad range of Americans, particularly students enrolled in higher education. Despite some resistance from state physician groups, telehealth continues to gain popularity as a viable healthcare alternative for today’s college students who rarely are detached from their mobile phones.

While the recently enacted Affordable Care Act (ACA) expands healthcare coverage for dependents, the costs associated with keeping students on the family’s plan will affect many parents who are struggling to meet tuition and living to parent and school insurance plans, telehealth—which is not insurance—provides today’s mobile phone– and computer-connected students with direct, quick access to primary care doctors for basic health information, consultation, diagnosis and prescriptions for non-controlled substances.

Parents gain peace of mind knowing that their student has ready, aroundthe-clock access to quality, physician care away from home; and schools can expand their campus health services to 24/7 without additional infrastructure or personnel costs.

As insurers increasingly reimburse doctors for telehealth services—and as colleges forge collaborative relationships expected to continue its steady growth on America’s campuses.

Major trends are shaping the increasing use of mobile telehealth services within the U.S.’s college and university populations: higher costs for parentand school-sponsored health plans; a critical shortage of primary care doctors; and potential reductions in the availability of school health plans due to budgetary constraints. Parents, students and schools need important information about the benefits and limitations of telehealth, how it works and how it can be used to greatest effect. This paper addresses all of those aspects of telehealth’s growing penetration in American higher education.

Trends Impacting the U.S. Healthcare System and Telehealth

As a new U.S. health system takes shape in the post-ACA world, significant trends are converging to impact the Choices, in large part, are driven by innovative patient care delivery models, provider reimbursement options, advances in technology and new modalities of electronic communication. Against this backdrop, we examine telehealth as a viable healthcare option for the higher-education population, along with some practical considerations affecting
student telehealth use.

High Doctor Office Visit Costs

High-cost doctor office visits is a major contributor to spiraling U.S. healthcare costs. While costs vary based on specialty and geography, according to the federal Agency for Healthcare Research and Quality, in 2011 the average rate for a basic office visit with a U.S. primary care physician was $133.00, with three to six minutes of actual doctor participation.

By comparison, telehealth doctor consultations typically come with either a per-call charge of $35 to $40 or unlimited calls for a monthly fee of $10 to $19, with a typical consultation lasting more than 15 minutes. The average telehealth doctor visit is nearly four times longer than a traditional doctor visit and 10 percent to 25 percent of the actual cost.

Up to 70 percent of doctor office visits and 40 percent of hospital emergency room visits are unnecessary, according to a 2006 national survey.iii While the care was medically necessary, the delivery venue was deemed inappropriate and/or more costly than the level of care required. This suggests that many of the conditions addressed during in-person visits could be handled effectively with a telehealth consultation.

Higher Premiums for Family/Dependent Coverage

An estimated 3 million young adults—including many college and university students—have healthcare coverage under a parent‘s plan, thanks primarily to ACA provisions that extend dependent coverage to age 26. To account for these expanded coverage requirements, major changes to insurance pricing and plan design will make parent plans more expensive.iv The added costs will range from “moderate” to “severe,” according to a national survey by human resource consultancy Mercer LLC.v Some surveyed insurers said they are moving away from comprehensive family plan deductibles, which typically cover dependents for a flat fee, and will implement an individual deductible for each family member, making out-of-pocket costs for family coverage significantly more costly.

Added costs for expanded coverage are causing some employers to drop family coverage or to reduce their subsidy for dependent coverage. Other employers say they will change premium rate tiers for dependents and impose a higher premium share for all dependents. About two-thirds of college students remain on their parents’ health insurance, according to a 2008 General Accountability Office survey.vi This figure may drop dramatically if proposed cost
hikes are implemented.

In 2010, private health plan participants paid on average nearly $4,000 a year toward family coverage, a 14 percent increase from 2009, and implemented before ACA provisions became effective, according to the Kaiser Family Foundation and the Health Research and Education Trust, two non-profit organizations that focus on health policy issues.vii

Higher Premiums for School-Sponsored Plans

Colleges and universities have long offered school-sponsored health plans, with as many as 3 million students enrolled nationwide. These health plans are expected to become more costly as they accommodate ACA’s new requirements. Although there have been coverage gains for young adults ages 19 to 25, compliance with ACA’s new requirements is likely to drive up costs and jeopardize colleges’ ability to offer insurance. From a long-term perspective, the ability of colleges and universities to provide appropriate access to healthcare is a major concern, according to the Lookout Mountain Group (LMG), a non-partisan study group of college health professionals.

Typically, school health plans are limited-benefit, low-cost plans that place strict caps on how much the plan will pay toward medical care. Currently 60 percent of school plans have a benefit cap of $50,000 or less; ACA requires these caps to be phased out by the start of classes in 2014 and for the 2013 to 2014 school years, school plans must cover at least $500,000 in medical expenses. Schools say student premiums for limited-benefit plans will go up roughly tenfold under the new ACA requirements; many are dropping the plans because of this increase. ACA also requires school plans to add prescription drug coverage and offer specified preventive care services at no out-of-pocket cost to enrollees.

As a result of these new mandates, and already impacted by budgetary constraints, many colleges and universities are dropping out of the health insurance business entirely. Many are closing their campus health centers or reducing hours of operation. As premiums continue to escalate, users and providers of insurance/healthcare services need to consider all the options, noted a Georgetown Health Policy Institute researcher in a published interview.

A Growing Shortage of Primary Care Doctors

The rollout of ACA will add 30 million new insured in 2014; they, plus the 3 million young adults who can continue as insured dependents until age 26, will overtax an already-burdened healthcare system. Primarily, this sudden and significant influx of new patients is expected to exacerbate the existing shortage of primary care physicians. The Association of American Medical Colleges projects a shortfall of about 63,000 physicians by 2015 and expects that number to double by 2025. While individuals typically can access healthcare services during physician shortages, doing so is often “slow and difficult,” according to a New York Times report.xi

Driven by an aging population and the looming doctor shortage, the focus on alternative healthcare delivery modes–including telehealth–is expected to intensify, particularly for routine, non-urgent medical services. According to a market research study from InMedica, 1.8 million patients will be treated worldwide through telehealth by 2017.

Hospital Acquisition of Doctor Practices

The recent trend of hospital systems acquiring independent, private physician practices is a structural change that is transforming the traditional doctor-patient relationship and contributing to higher healthcare costs for patients. As independent doctors shift to hospital-based practices, they will be reimbursed for services at higher hospital-system rates for identical procedures and tests. For example, imaging scans, formerly done in a private office or other facility, now may be billed as hospital outpatient procedures, more than doubling the cost.

Higher fees for hospital-based physicians means insured patients will be subject to higher out-of-pocket costs for certain medical services—another factor contributing to the search for alternative healthcare delivery methods.

It is interesting to note that while hospital billing rates can drive up costs for office-based services, they are also early adopters of telehealth. The same InMedica study found that in 2012, 308,000 patients were being monitored remotely for a number of conditions, including congestive heart failure, COPD, diabetes and some mental health conditions, usually following an inpatient stay. The intensive, sustained monitoring reduced readmissions, which in turn, lowered costs system-wide.

Considerations Impacting Increased Interest in Telehealth in the College Market

While it has been common practice for undergraduate students to stay on their parents’ health insurance plan or to purchase a school plan, the changing healthcare landscape and practical, new considerations may affect the healthcare decision-making process for students in their school “home away from home.” These considerations include:

• Availability of reliable information about routine medical conditions/illnesses
• On-demand access to doctor consultations
• Availability of doctors outside normal office hours, including weekends
  and while traveling
• Time lost from class and the inconvenience of travel to in-person doctor visits
• High-costs and long waits in emergency rooms and urgent care facilities
• Access to updated electronic health records for continuity of care
  with at-home physician and other medical providers

Telehealth gives students direct, on-demand access to reliable information and diagnoses from a physician without the high costs and long waits inherent in other care venues. Here are some detailed views of how telehealth addresses each of these considerations:

Routine Doctor Care: Students who need information about routine illnesses or medical questions can use a cost-effective telehealth consult instead of an emergency room visit, which can be as much as seven times more expensive.xv

Dr. Kenneth M. McConnochie, a practicing physician and healthcare author, describes his telemedicine work as follows:

“The less-demanding [patients] that it serves are the many [students] who have relatively minor, common, acute problems and do not need emergency room, after-hours urgent care center or even an in-person office visit…telemedicine is simpler and more convenient…because costs of transportation and time are markedly reduced…it appears that the model should reduce costs from a societal perspective.”

Time Saved and Patient Satisfaction. Long waits, travel to office appointments and time missed from work or school are among the obstacles associated with face-to-face doctor visits.

• Appointments are hard to get and inconvenient: As many as one in three people has trouble seeing their primary care physician and one in four has problems taking time off to see a doctor.
• Patients overuse emergency rooms: More than one-half of all ER visits are for non– emergency issues because patients cannot get timely office appointments.
• Patients have difficulty getting information during office visits. More than one-third of physicians do not have time to deliver enough useful information about specific medical issues.

A government survey found that one in five people who attempted after-hours contact with their primary care doctor reported it was “very difficult” or “somewhat difficult” to reach a clinician. Those who reported less difficulty reaching a clinician after hours had significantly fewer emergency department visits and lower rates of unmet medical needs than people who experience more difficulty.xviii Documented studies report 90 percent of patients say they were “very satisfied” or “satisfied” with the telehealth service they received based on greater convenience, time and cost savings.

Research shows that patients who use telehealth in a non-urban setting can overcome the barriers of time and travel required for in-person doctor visits. A study of telehealth access in a rural setting reported overall patient satisfaction was “very high” and telehealthcare was rated either “excellent” or “very good.”

Electronic Health Records/Continuity of Care: Electronic health records (EHRs) are invaluable tools that optimize the value of telehealth. Typically, the telehealth physician accesses the patient’s record before the consult and updates it after the call. This helps to maintain the most up-to-date information and fosters seamless continuity of care. With permission, the record is made available immediately to the student’s other medical providers. HIPAA (The Health Information Portability and Accountability Act) requires that telehealth EHRs must be handled and stored in strict compliance with Federal privacy provisions as they would be during face-to-face encounters.

Benefits of Telehealth in the College Space

Approximately 2 million college-age students have no health coverage, and 19– to 29-year-olds visit hospital emergency rooms more than any other group below age 75, according to the Young Invincibles, a national advocacy group that focuses on college costs, health insurance and debt affecting young people.xxii Studies show that students without access to a regular source of care can leave them and their families at risk for higher out-of-pocket costs in the event of even minor illness.

A Commonwealth Fund survey found that almost half of all young adults forgo necessary treatments due to cost considerations.xxiv For routine, non-urgent medical issues, telehealth consultations can help students and physicians shift care away from high-cost settings like hospital emergency rooms or urgent care clinics. Additionally, as a complement to other health services, telehealth can help to bridge gaps for insured, under– and uninsured students by offering consultations by phone, email, text and interactive video chat.

Telehealth is not health insurance. It is a convenient, affordable way for patients to access medical services for common conditions 24/7/365 from any location using the phone or Internet. Services are provided by a network of participating, licensed medical providers. Some telehealth services rely on nurses, some use physicians exclusively, and others combine the two for different levels of service at different price points.

Telehealth physicians can address hundreds of common ailments, including bronchitis, allergies, sinusitis, sore throats, urinary tract and respiratory infections. The benefits of telehealth have been recognized by influential medical groups including the American Heart Association.

New research reported in JAMA Internal Medicine compared the quality of care for physician telehealth and in-person doctor visits for patients with sinus infections and urinary tract infections between January 2010 and May 2011. The study found that for both patient groups—those treated virtually and those treated in-person—7 percent or less of patients returned for another consultation within three weeks, suggesting similar outcomes for both groups. The JAMA researchers found patients treated through a telehealth visit paid 21 percent less than those treated through an office visit.

Telehealth services need not be limited to physical medicine; many providers include behavioral services and wellness programs for a comprehensive, integrated offering. The behavioral services are of particular interest to college administrators because of the growing incidence of mental health issues among students. According to the American College Health Association, 32 percent of surveyed students reported feeling seriously depressed, 51 percent felt significant anxiety, and 87 percent reported feeling overwhelmed by academic and social pressures at least once during the school year. These numbers point to a pressing need for accessible student counseling services; telehealth is a viable option to complement existing campus services or as a stand-alone program at schools that do not offer mental health care.

How Telehealth Works

Typically telehealth services offer different types of consultations:

On-demand, phone-based physician consultations. Telehealth offers students convenient, direct, “virtual” access to doctors in the same state where their college or university is located. State-licensed physicians are available 24/7for diagnosis, treatment, referrals to specialists and prescriptions, if necessary. Students also can use their phones to snap and upload photos for better diagnosis.

On-demand, web-based physician consultations. Platforms that enable doctors to provide real-time, online access to patients are now a reality. Web-based systems include live streaming video, which enables web-cam-equipped students to see and speak to a physician during a “virtual” visit. The video connection allows students to show rashes or sore throats to the doctor for better diagnosis.

Both types of consultations save time and money and eliminate lengthy waits for appointments. Students can get answers to routine questions quickly and easily. Medically unnecessary visits are reduced because students have a “first line of defense” and can see a physician only after medical need is established.

Generally, the telehealth consultation process follows a standard procedure, although there may be variations among providers.

The student must first register with a telehealth firm like CampusMD, a Maryland-based broker of telehealth services for colleges, universities and students that requires payment of a monthly fee. Once the student enrolls in CampusMD, the procedure is as follows:

The student calls toll-free the triage nurse at the Customer Care line.

• The nurse gathers medical information and contacts a network physician to schedule a callback, typically within 20 minutes and guaranteed within three hours.
• The doctor reviews the student’s medical record and calls the studentto begin the consultation via phone or video chat.
• The doctor discusses the student’s symptoms, diagnoses the issues, and prescribes treatment and/or medications as appropriate.
• If a prescription is required, the doctor calls the Rx to the student’s choice of pharmacy.
• The doctor enters the consultation notes into the student’s EHR and forwards a copy to the student and to anyone else the student authorizes.
• A patient satisfaction survey is sent to the student.

Provider Reimbursement

The American Medical Association has taken direct action to support reimbursement for telehealth services. According to a newly adopted AMA policy, as reported in American Medical News, remote electronic visits should be reimbursed adequately.

Additionally, the Telehealth Advancement Act of 2011 adopted in California states “…it is the intent of the Legislature to recognize the practice of telehealth as a legitimate means by which an individual may receive healthcare services from healthcare providers without in-person contact with a healthcare provider.”

A number of states have enacted laws calling for “parity” by requiring insurers to reimburse equally for telehealth services and in-person doctor services. These states include California, Virginia, Kentucky, Hawaii, Georgia and Maryland. A new Michigan law prohibits health insurers from mandating in-person contact between patients and doctors in lieu of a telehealth consultation.xxx

Barriers to Wider Adoption

Despite the recent growth of telehealth, several barriers limit wider adoption:

• Provider liability concerns: To reduce physician liability and costly malpractice suits, many states require that providers establish an in-person relationship before using electronic means to deliver care.
• State-specific licensing: Licensure fees and restrictions differ from state to state. Doctors who want to practice in more than one state must apply for licensure in each state, although new models are emerging under which a doctor licensed in one state can apply to another state via an abbreviated procedure.
• Data interoperability: With some exceptions, providers cite cost as a barrier to adopting electronic medical records. Fewer than half of doctors use all the features of a fully functional EHR system; however, e-prescribing is on the rise, along with use of software-as-a-service solution by many providers.
• Prescribing limitations: Several states have passed laws prohibiting doctors from prescribing during a telehealth visit, except in specified circumstances. The rationale is that doctors should first conduct a physical examination before prescribing medication. Some states limit telehealth prescriptions to certain classes of drugs. Generally, certain types of telemedicine prescriptions are permitted by some states, while other states are concerned about potential prescription drug abuse, particularly for DEA-controlled substances.

While some physician groups have cited specific types of care that should be performed only during in– person visits, the range of medical services deemed suitable for telehealth has expanded significantly.

An Expanded Role for Telehealth on U.S. Campuses

A variety of factors—costs, ACA, changes in reimbursement and physician availability—is spurring the continued growth and wider adoption of telemedicine in general and specifically within the collegiate space. Telehealth offers a convenient, affordable, flexible way for tech-savvy students to access quality healthcare, and in the process, help them maintain better health and achieve their educational goals. As the digital economy continues to grow, so should telehealth, which is poised to leverage technological and medical advances simultaneously. With more studies confirming its efficacy, quality and cost savings, telehealth can serve millions of students, and by extension, the greater U.S. population seeking new solutions for primary care.

The complete HPM Institute report is at www.hpminstitute.org.  Among its key findings are:

• Telehealth, which is not insurance, can complement parent and school insurance plans and provide today’s mobile phone– and computer-connected students with direct, quick access to primary care doctors for basic health information;
• Parents can gain peace of mind know that their student has ready, around-the-clock access to quality, physician care away from home; and
• Institutions of higher education can expand their campus health services to 24/7 without additional infrastructure or personnel costs.

These findings, according to report author Pantos, are now becoming clear as the dust settles in a new U.S. healthcare world, shaken up by the 2010 passage of the Affordable Care Act (ACA), the resultant Supreme Court battle over its constitutionality, and the 2012 decisions by the Court and the American people to keep the ACA in place and President Barack Obama in office.

“In this post-ACA environment, significant trends are converging to impact the healthcare choices of college and university students,” said Pantos.  “These choices, in large part, are driven by innovative patient care delivery models, provider reimbursement options, advances in technology and new modalities of electronic communication.”

“When you include other broader healthcare factors, such as the looming primary doctor shortage, costly office visits and rapidly escalating health insurance premiums, the focus on alternative healthcare delivery models – including telehealth – is expected to intensify,” added Pantos.  The HPM Institute executive director noted this is particularly true for routine, non-urgent medical services, which form the core of what is provided through campus health centers.

About the HPM Institute
Headquartered in Bethesda, MD, The Healthcare Performance Management Institute is a research and education organization dedicated to promoting the use of business technology and management principles that deliver better, more cost-effective healthcare benefits for employers who cover their employees.

California S.B. 1431, a highly controversial bill that mandates staggering, new individual stop-loss attachment points, represents the opening shot in a political battle emerging at the state level that could deter– mine the future of self-insurance, particularly for small business owners.

We may be 20 months away from 2014, but the California legislature is already in full political mode setting the stage for the California Health Benefit Ex– change for small firms under the federal health reform law. Across the state an estimated 1 million small businesses with fewer than 50 employees will be eligible to opt into the exchange once it is up and running on Jan. 1, 2014.

So it’s no wonder that small business owners struggling in these tough economic times are taking a closer look at whether they will have a choice to continue their present health plans or whether the state exchange will be their principal option.

Small firms are the backbone of the California economy and health care is one of the most important issues impacting small business owners today. Everyone agrees that skyrocketing health care costs for small firms are a problem. Studies show that small firms pay 18 percent more for health coverage than large firms. But by targeting self-insurance, S.B. 1431, a bill introduced in the state Senate on behalf of the California Department of Insurance, would worsen this situation by effectively eliminating the increasingly popular self-insurance option for small firms.

A recent poll of 700 small business owners in nine California cities found that the state’s small businesses overwhelmingly believe that health costs are rising too fast and that the health care system needs to be re– formed. However, the majority of owners professed very little knowledge about how the health reform law and the exchange would impact their bottom line — or even whether they would have a choice to remain outside the exchange if S.B. 1431 is adopted.

Bill Would Triple Attachment Points

S.B. 1431 would require small business owners with fewer than 50 employees that choose self-insured health coverage to assume the unprecedented financial risk of $95,000 per participant annually before they could purchase stop-loss insurance, which protects plan sponsors from unexpected, catastrophic health costs.

This astronomical figure represents more than four times the financial risk now required in California for self-insured plans and is more than three times higher than required by some states. Requiring small owners to take on an arbitrary $95,000 of financial risk per person would force small firms either to pay higher health care costs or drop coverage altogether. Adopted on strictly partisan lines by the Senate Health Committee, the bill now goes to the Appropriations Committee before being sent to the Senate floor and then to the Assembly for a final vote.

Business Opposes Assembly Plan

Strongly opposing S.B. 1431, the California Chamber of Commerce, the California National Federation of Independent Business and the Self-Insurance Institute of America testified that the bill will severely limit the options of small business owners to select the most appropriate, affordable health coverage for their employees. SIIA testified that qualified employers with positive cash flow should have the freedom to self-insure regardless of size, and that stop-loss insurance is a critical component of this process.

It is customary for the optimum attachment points for stop-loss to be determined actuarially by analyzing the historical experience of the employer’s program, the experience of other members of the employer’s industry, market forces, internal employer financial constraints and the dynamics of benefit utilization. Contrasted with an arbitrary political determination, all of these factors have a critical part in shaping the decision on attachment points.

Commissioner: Post-reform Market Requires it

CDI Commissioner David Jones says the bill is necessary to protect the California exchange in the post– reform insurance market. Jones and his supporters (Blue Shield of California, Consumer Federation of America and the Service Employees Union of California) contend the bill is necessary to protect against higher premiums and adverse selection when the exchange starts up in 2014. In restricting the freedom of small employers to purchase essential stop-loss coverage, Jones backs a bill that instead proposes to vastly expand the regulatory role of the CDI over ERISA self-insured plans — even though previous exchanges have not worked well in the past — in spite of longstanding federal law and controlling federal court decisions that reject this anti-self-insurance stance.

According to a CDI “fact sheet,” very high attachment points in stop-loss policies sold to small business owners that self-insure are necessary in order to “prevent insurance premiums in the small group market from rising to unsustainable levels.” No studies are cited to show any correlation between extremely high stop-loss attachment points and lower health insurance premiums.

The CDI then detours under the health reform umbrella to state “there will be incentives for some small employers to self-insure and to purchase stop-loss coverage [and] this situation could lead to a significant exodus of small employers from the small group insurance market.” This “fact” is not embellished further with reference to any studies or empirical evidence.

Self-insured Plan Terms Impacted

As the state insurance department does not have oversight over ERISA-regulated self-insurance, S.B. 1431 drafters focus instead on regulating stop-loss insurance. They contend it falls under the ERISA “savings clause,” which exempts the business of insurance from ERISA preemption. However, in seeking to extend the state’s insurance regulatory reach beyond what is known as the “business of insurance” — such as solvency, consumer rights, claims appeals and market conduct matters — the bill unaccountably impacts the core “terms and conditions” of a self-insured plan — its very risk structure. The intent of S.B. 1431, thus, is to force small employers to take on significantly increased financial risk — “risk that is not actuarially supported,” according to testimony of the California Association of Health Underwriters.

This transparent attempt to circumvent ERISA by focusing on stop-loss insurance rather than self-insured plans runs afoul of ERISA’s preemption provisions. A state law that “relates to” an ERISA plan is a critical prerequisite to a federal preemption challenge. By impacting the fundamental risk structure of self-insured plans, the bill’s purpose unquestionably “relates to” an ERISA plan because it impermissibly impacts the terms and conditions of self-insured plans. Previous state attempts to mandate minimum stop-loss attachment points have been challenged successfully in Maryland and Missouri decisions. The Maryland decision was upheld by the 4th U.S. Circuit Court of Appeals, with the U.S. Supreme Court declining to review a finding of ERISA preemption.

Even where states have asserted an expanded role over stop-loss within its insurance oversight role, such attempts have been rejected when they relate to ERISA plans. Clearly, S.B. 1431 is highly likely to trigger an– other ERISA federal preemption challenge. Opposing the bill, SIIA’s Chief Operating Officer Michael Ferguson testified: “If S.B. 1431 is enacted into California law, SIIA would consider a legal preemption challenge.”

Legislative Rationale Lacking

Is there a valid legislative rationale for this legislation? Grounded on political considerations rather than on objective analysis, the real purpose of this bill is transparent. The stated basis for S.B. 1431 — as well as an emerging NAIC stop-loss “model code” — is built on the faulty premise that “self-insured plans are not assuming enough financial risk.” While self-insurance may not be for everyone, qualified employers of all sizes with good cash flow — based on actuarially determined financial constraints — have long demonstrated they are capable of assuming financial risk by self-insuring health benefits. Nationally, more than 77 million workers and their dependents covered by private plans receive benefits from self-insured plans. According to a 2012 U.S. Department of Labor report, 57 percent of covered workers in private plans who filed Form 5500 reports for 2009 were in self-insured plans.

By creating a virtually insurmountable barrier to vi– able stop-loss coverage, S.B. 1431 makes it difficult — if not impossible — for most small employers to self-insure in California once the exchanges are operational. As justification, the bill’s drafters and their supporters speculate that stop-loss insurers will “cherry pick” employers with healthier workforces. They contend self-insured small employers with “lower risk” will skim younger and healthier individuals out of exchange pools, causing so-called adverse selection. They further speculate that once catastrophic costs are incurred, such firms will then dump their plans into the exchange thus causing adverse selection.

This is a total “red herring” not supported by objective studies or historical evidence. Debunking this speculative notion, an extensive August 2011 RAND study concludes that self-insured plans will not pose a threat of adverse risk selection in the small group market once the reform law is implemented. Instead, RAND concludes that “limiting small employers’ ability to self– insure is associated with a decline in the total number of individuals enrolled in health insurance coverage.” The Rand model predicts that allowing self-insurance in the small market mitigates the effect so that total enrollment in health coverage is higher in scenarios where self-insurance is allowed.

Facts Refute Proposed Law

Moreover, federal laws prohibit plan sponsors — whether insured or self-insured — from selecting only the most favorable health risks among individuals in plans they sponsor. Not only does the health reform law bar coverage based on pre-existing conditions, but coverage practices based on health status have been prohibited for more than 20 years since HIPAA’s passage.

Newly issued DOL reports also confirm self-insured plan membership mirrors a cross-section of workforce risk. Self-insured and insured plans have similar membership demographics, so there is no rational basis for the highly speculative assertion that self-insured plans will “cherry pick” by enrolling healthier employees. In fact, studies confirm there is no evidence that self-insured plans are at greater risk than insured plans.

So we are left with the inescapable conclusion that S.B. 1431 is politically motivated legislation intended to clear the path for state operated exchanges. In short, by eliminating a viable stop-loss market for small employers, S.B. 1431 will create an impossible hurdle for small employers to self fund their health plans. And more, if not all, small employers in California will have to get Blue Cross or other private insurance on exchanges.

S.B. 1431 also will serve as a dangerous precedent in other states. It is inconsistent with national polls that show businesses of all sizes are concerned about a more “efficient” health care system, rather than a larger government system.

Small Business and Self-insurance

California small business owners looking ahead to 2014 will need to decide what they want: to continue current health coverage or scrap their plans and opt into the exchange. As SIIA points out, self-insurance may not be a viable option for everyone, but an increasing number of small employers are operating successful self– insured plans with attractive cost-containment features. While some firms may decide to enter the exchange, those that do not should have freedom to weigh the most appropriate funding method — insurance or self-insurance — that does the most to lower health costs and improve health quality.

Self-insured plans are appealing to more small employers because of their greater flexibility under ERISA to tailor plans to specific plan participant needs and align uniform benefits across state lines. In California alone, more than 3 million employees and dependents are covered by self-insured plans. Nationally, the number of small employers that self-insure have doubled in the last decade from 6 percent to 12 percent.

Why Self-insuring Is Popular

Small employers that self-insure are able to take greater control quickly over costs associated with employee health benefits. With greater access to plan data, self-insured employers can use analytics and predictive modeling to help employees make healthier lifestyle choices and reduce health costs. They also can more easily access plan data to gain greater insight into potential costly workforce health conditions so that effective employee educational wellness programs can be launched. Recent studies confirm that self-insured firms are using innovative technology to achieve health plan savings as high as 19 percent annually.

In the post-health reform world, escalating costs will represent a predictable outcome of health reform. Depending on the Supreme Court’s decision (about the constitutionality of the individual mandate and whether the rest of the statute cannot be separated in the event that provision is stricken), states such as California, which has received $40 million in federal grants, will plow ahead with the political and policy work of establishing exchanges. As employers face higher costs and expanded requirements, many will continue to turn to alternative risk transfer methods, such as self-insurance. Unless constrained by politically partisan legislation such as S.B. 1431, many smaller employers are likely to continue to view self-insurance as a viable solution to rising health insurance costs and better plan management. The record is persuasive: Self-insurance is a proven method for controlling costs, protecting the bottom line and improving employee health outcomes.

This article originally appeared in the Employer’s Guide to Self-Insuring Health Benefits. © 2012 Thompson Publishing Group, Washington, D.C.

Go to http://www.thompson.com for more information.

By George Pantos

Since passage of the Affordable Care Act, public sector organizations have encountered various technological barriers that will impact their ability to meet the act’s deadlines. Federal, state, and local officials are working to overcome these hurdles by transitioning current legacy systems to more efficient cloud-based platforms for delivering health benefits.

Extensive regulatory demands for increased transparency, connectivity, and security are challenging public sector organizations to move from unconnected IT systems into a new cloud-based environment that allows processes to be integrated seamlessly at all levels of health service delivery.

In cloud computing models, third parties host applications, data storage, and access to computing power via the web. This provides economies of scale and offers cost advantages over other computing models that otherwise require users to host servers on-premise or hire in-house technical support.

“From the state perspective, health reform is best described as overwhelming in its size and breadth,” said Alice Burton of Maryland-based Burton Policy Consulting, which helps state-level public and private sector clients navigate health reform implementation. “I think the biggest challenge is integrating health insurance exchanges into a competitive marketplace.”

To cope with these impending challenges, all level of governments can leverage cloud-based applications in a modern computing environment in which data is rapidly collected and dispersed with marginal management effort or service provider interaction. It’s a way to address new regulatory and market trends, and can help organizations reduce their healthcare costs while improving outcomes.

Gene Walker, president of Healthcare Interactive Federal, a provider of cloud-based healthcare solutions to the public sector, explains that federal agencies must simplify their processes for handling data if they want to effectively implement reform. One of the biggest challenges is how to transfer existing systems and applications to a more robust infrastructure.

“A number of those agencies have systems and software that have been in place for a long time. These systems have been cobbled together to meet legislative changes and business drivers that go back 30 to 40 years,” Walker says. “Changing or implementing new services within a legacy environment is problematic at best, and legislative timelines make implementation of these new services almost impossible without a serious approach to meeting those business drivers.”

Cloud-based healthcare management systems can have a positive effect on lowering healthcare costs while providing a timely solution to the issue.

The cloud combines management of knowledge, activities, and resource allocation and makes these business processes more efficient. “Workflows that are designed to leverage cloud services do not have the limitations of traditional client/server applications or mainframes,” Walker notes. “Cloud computing enables collaboration not only between doctors and patients, but also among those who manage health plans. If public-sector officials can capitalize on the promise of cloud-based technology, they’ll be able to reduce costs and improve the health of their workforces.”

Liddy Garcia-Bunuel, executive director of Healthy Howard, a community health plan for the uninsured in Howard County, Maryland, believes cloud computing will help state and local officials set up health reform’s new insurance exchanges.
The Healthy Howard program, which provides doctor and emergency room visits, low-cost prescriptions and personal health coaching, uses cloud technology to manage its county-wide initiative. From online eligibility and enrollment to managing patient risk and gaining access to primary care providers, Healthy Howard has created a plan that allows for a seamless flow of information through the cloud.

“Given today’s challenging fiscal environment, states can’t afford any hiccups as they set up their exchanges,” notes Garcia-Bunuel. “In Howard County, we’ve used cloud technology to deliver benefits more efficiently and to support robust wellness initiatives that both save money and improve beneficiaries’ health. Officials elsewhere should consider what they can learn from our experience.”

“Going forward, there’ll be implementations via cloud services and point-to-point cloud services that will facilitate security challenges,” Walker says. “It won’t be impossible, but it will certainly be a challenge to get everyone to agree on the same set of principles and standards as it relates to security and data interchange. We believe that our customers understand their business objectives and are looking for solutions and strategies that will help them achieve those objectives. The result will be a migration strategy that’s able to leverage the existing data and more selectively move some of those complex business processes to the cloud.”

The end goal is to move existing systems and applications to hosting environments that are flexible and agile, which will have an overall positive impact on business operations.

In 2009, The SCOOTER Store management was facing increasingly high costs for its employees’ health coverage. If left unabated, these expenses could have forced the firm to cut its operations costs, such as scaling back on new hires or reducing wages and compensation.

The SCOOTER Store, a supplier of power mobility devices, including wheelchairs, scooters and ramps, has some 2,800 employees and serves more than 550,000 customers in 48 states. “Our claims were skyrocketing like everyone else’s, and we just decided we’ve had the wrong approach,” said Deanna Scott, vice president of human resources and corporate operations at The SCOOTER Store. So, in September 2009, the company decided to tackle its high health care costs in a new way.

Leveraging Technology to Lower Costs

The SCOOTER Store needed a way to bring disparate health care information together into usable dashboards. Scott hired WellNet Healthcare Group, a national health care management company, to implement health care performance management (HPM) technology. The goal was to manage and lower health care costs by analyzing employee medical claims data and identifying workers who are at a high risk of developing costly medical conditions. Armed with this information, the organization’s leaders would be better able to develop campaigns that encourage members to improve their health and help the company reduce costs.

The organization used the HPM software to consolidate its insurance management in a single system. Instead of having a separate vendor for each component of a health plan such as medical and prescription data or member management and clinical services, HPM puts control of coverage in one location.

The data collected then serves as the basis for a performance management system with preventative health care measures — such as wellness programs, opportunities for workers to take advantage of health coaching from registered nurses, outreach campaigns to improve employee adherence to prescription drug regimens or to encourage use of low-cost generic alternatives — targeted to specific workforce health risks.

Before implementing the technology, The SCOOTER Store’s main way of cutting costs was regularly shopping for an insurance plan from various third-party vendors — essentially comparing different options to find the lowest price for the greatest value.

According to Scott, while this generated some modest improvements, the company never got to the root of the problem, which is having employees realize they need to take ownership of their own health.

‘Live, Work, Be Well’

To address that concern, management at The SCOOTER Store combined HPM with action-oriented workflows, predictive analytics, simulations and a variety of member engagement campaigns. With support from the CEO and other executives, The SCOOTER Store’s branded wellness program, “Live, Work, Be Well,” encourages improvement of both physical and fiscal health.

Using anonymous prescription and medical claims data to identify employees who were at a high, medium or low risk of developing catastrophic health conditions, in 2009 the company determined its high-risk employees — 2.6 percent of the participating population — would cost the company $4.6 million in health expenses during the next two years. The 606 medium-risk employees — making up 18 percent of the member population — would cost $3.8 million in undetected claims costs during the next two years.

The company now offers health screenings and a free, on-site gym. “We needed to focus on illness prevention, as opposed to just paying for what’s already happened,” Scott said.
Senior management was able to see the value of this initiative through cost savings and demonstrated concern for employees.

“If we prevent one or two events, that’s more than going to pay for this program,” Scott said. “It’s all about continuous process improvement. We reviewed the data of the outreaches and the successful conclusions of the activities — of course redacted because we don’t [want to] know who the individuals are — it works very well.”

The SCOOTER Store also contracted with Health by Design, an on-site health care company, to operate a full-time clinic at its headquarters, where employees can be seen with no office visit charge or co-payment. The clinic has saved personnel hours and cut down on travel time for medical visits, while maximizing worker profitability.

“Forty to 50 percent of employees live here in New Braunfels,” Scott said. “But the rest live elsewhere — San Antonio or Austin. So, if they’re going to go to their primary-care physician, it’s going to be a good two to two and a half hours for them to leave work.”

Health Watch Benefits

Savings for The SCOOTER Store have been visible. In 2004, its total health care costs were 129 percent of expected claims. In 2010, actual costs were nearly 10 percent below expected claims.

About half of the employees participate in the HPM program. Health care costs have dropped from $6,600 per employee in 2009 to $5,400 in 2010 — an 18 percent reduction. So far, the $1,200 savings per employee has generated a total savings of $2.3 million. The per employee cost is 50 percent lower than the national employer average of $10,700 for health insurance (Figure 1). Overall, the company has seen a 10 to 1 return on its original technology investment.

Scott said if she could do it again she would have started using the technology sooner and done a better job of marketing it to employees.

“We were a little fearful of employees reacting from a big brother standpoint — ‘You’re invading my life. You’re going to know everything about my medical condition, and that’s way too personal,’” she said. “I think it would have been accepted better by our employees if they had known a little more about it. We needed to communicate more often and in different ways and do a better job of promoting it at health fairs and things like that, which we’re now doing.”

During the economic downturn, most businesses have embraced technology to streamline virtually every part of their operations. Those same firms often pay little attention to benefits programs. If health care expenditures grow too fast, they can impact the level of benefits employees receive, forcing workers to contribute more or switch to a different provider. These types of strategies yield only marginal savings.

Managers would be taken to task if they treated their sales or supply-chain operations so cavalierly. Health benefits are an ever-greater share of company expenses, and this level of inattention is no longer an option.

George J. Pantos is executive director of the Healthcare Performance Management Institute. He can be reached at editor@talentmgt.com.

However, as many small employers declare independence from health insurance companies, some critics observe that self-insurance (also referred to as “self-funding”) is too risky for small firms and only large firms should be allowed to self-insure.

Now, in two newly released white papers, the Self Insurance Institute of America (SIIA) responds, “While it is generally true that larger employers self-insure at higher proportions, there is no valid reason why smaller employers should be restricted from this often advantageous financing option.”

Smaller Firms Pay Higher Premiums

Recent surveys confirm that premiums paid by small firms in 2009 alone were 18 percent greater than those paid by large companies. During the 10 years from 1999 to 2009, overall premiums increased 120 percent, or four times faster than prices, according to the Kaiser Family Foundation.

With employers absorbing a greater share of the overall health care cost bill, small employers are bearing an increasingly larger share of premium costs, according to the Commonwealth Fund.

Higher premiums are driven by increased medical costs and administrative loads, including insurer profits, according to a 2009 Kaiser/HRET Report. A 2010 study by the American Medical Association reporting on the two-thirds of U.S. cities states that “when insurers dominate a market, people pay higher health insurance premiums than they should.” So it is not surprising that smaller employers are exploring alternatives to commercial insurance to help bend the cost curve downward.

Self-Insurance Is Not for Everyone

Over the 30-plus years since passage of ERISA, financially qualified employers of all sizes have shown they are capable of self-funding, with more than 77 million workers and their dependents covered by self-insured group health plans in 2009.

Clearly, however, self-funding is not a viable option for everyone. While larger firms — up to 90 percent by some estimates — self-insure group health benefits, small business owners typically cover employees with fully insured plans. In small firms with 3 to 199 employees, 88 percent were in fully insured plans in 2008, according to the non-profit Employee Benefit Research Institute (EBRI).

However, mid-size and small firms increasingly are turning to self-insurance as a cost-effective alternative to ever rising commercial health insurance premiums. While only a small fraction of the nation’s 28 million small firms self-insure, the trend to self-funding has gained momentum. Between 2008 and 2010, the trend to self funding by small employers increased by as much as 20 percent, according to Price Waterhouse Coopers.

Though self-insurance is not widespread in the small group market, it has grown steadily, with some 12 percent of small company health plan sponsors (3 to 199 employees) in self-insured plans in 2009 — up from 6 percent earlier in the decade. An important contributing factor is employer reliance on professional consultants who are able to objectively evaluate whether an employer is capable of retaining the financial risk of self-insuring.

What Constitutes a ‘Small Employer’?

Unfortunately, Congress did not use a consistent definition of a “small employer” in the Patient Protection and Affordable Care Act (PPACA) and figures vary widely as to what constitutes a “small employer,” depending on the specific provision. While many changes are mandated without regard to employer size, PPACA provisions specifically applicable to “small employers” range from fewer than 26 employees for tax credit eligibility to 100 employees or less to qualify for exchanges.

Starting 2014, companies with 50 or more employees must either offer health coverage (employer mandate) or pay a $2,000 annual fee for every employee (after the first 30) if any employee receives a health care tax credit.

“The conventional wisdom that you need at least 250 employees to self-insure is proving wrong,” says Curtis Donley, president of Indianapolis-based Donley Consulting Inc. and former president of a third-party administrator (TPA) firm. “My experience shows that self insurance is a viable alternative for financially qualified small employers. Over the past quarter century, we’ve routinely set up and administered self-funded health plans for financially qualified groups as low as 25 employees and up.”

As the economy struggles to revive itself, small employers in greater numbers view the self-insurance option as a favorable way to save money without sacrificing health care quality. Self-insurance lets companies take control of their plans and offer benefits uniquely suited to their workers’ needs, free of many of the costliest state government mandates.

Nevertheless, critics suggest that small employers are not able to bear the financial risk of self-insurance. This echoes a refrain from the mid-’90s debate when the Clinton administration unsuccessfully advanced proposals initially to restrict self-insurance to very large firms with 5,000 employees, then to 1,000 employees and up. Opposed by industry, these attempts and a later drive to limit self-funding to firms with 500 employees and up were defeated on Capitol Hill.

The same issue has surfaced once again in connection with the government operated insurance exchanges to be set up under PPACA where small employers will be able to elect coverage starting Jan. 1, 2014.

A new paper published by the National Health Policy Forum (NHPF) once again advances old, misguided assumptions saying that small employers that self-insure are likely to cover healthier workers and then elect coverage in the insurance exchanges. The paper observes this could have an adverse selection impact that will trigger higher premiums in exchange pools and that only larger employers should be allowed to self-fund health benefits.

This rankled the industry, which fired back that these conclusions are without foundation. “We are working to head off a DOL report that concludes smaller employers should not self-insure due to solvency concerns and a separate HHS report suggesting that self-insured health plans will negatively impact health insurance exchanges due to adverse selection,” says Mike Ferguson, SIIA’s chief operating officer.

These conclusions are incorrect for the following reasons:

Dispelling the Myths

• Myth 1: Self-insured plans cover healthy employees. Not true. Federal laws prohibit plan sponsors — whether insured or self-insured — from selecting only the most favorable risks among individuals in plans they sponsor. PPACA bars coverage denial based on pre-existing conditions and prohibits discrimination based on employee health status, including such factors as claims experience, medical history, genetic data, evidence of insurability and disability. Moreover, these practices have been prohibited for more than 20 years since the passage of HIPAA.
• Myth 2: Self-insurance will result in adverse selection. Employer sponsored self-insured plan membership includes a broad cross-section of workforce risk, covering low, medium and high employee health risks Since insured and self-insured plans have similar membership demographics, there is no basis for the highly speculative assumption that self-insured plans enroll a more favorable selection of health risks. There is no historical basis for the speculation that small employers that self-insure under PPACA will skim healthier and better risk out of exchange pools. This observation is inconsistent with empirical evidence and published research studies.
• Myth 3: Small employers can’t bear the financial risk of self-insurance. Not true. Employers must meet sound actuarially determined financial requirements (good cash flow) in order to demonstrate they are capable of selffunding. To protect against year-to-year variations and the expenses of complex illnesses, small employers purchase stoploss insurance to indemnify them for potential high costs of large or catastrophic claims. Self-insured employers with stop-loss are reimbursed for individual employees’ medical costs above a certain predetermined amount. Following the passage of the PPACA, most stoploss insurers amended policies and now cover unlimited annual and lifetime benefit costs.

Moreover, as the white papers note, PPACA contains antiadverse selection reforms that will keep coverage rates in check regardless of pool risk exposure. The tax credit subsidy available to eligible small employers is only available for employers who purchase insurance in the exchanges. Employers now have a guaranteed right of renewability regardless of plan risk profile changes. Also, the new premium review process will help combat against excessive increases for small groups.

The white papers are titled “Why Self-Insured Health Care Plans Will Not Contribute to Adverse Selection Under PPACA” and “Companies of All Sizes Can Operate Viable Self-Insured Group Health Plans” can be accessed via email at mstrickfadden@siia.org, or by calling 202–463-8161.

PPACA Reports to Congress On Self-funding

The Patient Protection and Affordable Care Act (PPACA) requires the U.S. Departments of Labor (DOL) and Health and Human Services (HHS) to prepare and submit an annual report to Congress on self-insured plans, with both reports due March 23, 2011. Based on Form 5500 data, the DOL report will include general information on self-insured group health plans (including plan type, number of participants, benefits offered, funding arrangements and benefit arrangements). Using data from financial filings, the report will also include information on assets, liabilities, contributions, investments and
expenses.

The HHS report will cover insured and self-insured employer characteristics (including financial solvency, capital reserve levels, the risks of becoming insolvent), and the extent to which new insurance market reforms are likely to cause adverse selection in the large group market.

SIIA reported recently on a series of meetings with DOL and HHS officials to discuss PPACA-mandated studies on self-insurance. “Our assumption is that there at a minimum there is ignorance among regulators, but more likely a negative bias pervades,” said SIIA Chief Operating Officer Mike Ferguson.

The Options Under PPACA

Under PPACA, small business owners with fewer than 26 employees and average annual wages of less than $50,000 can now claim a tax credit of up to 35 percent of the premium cost — increasing to 50 percent in 2014. If they choose to offer insurance coverage, an estimated 4 million small companies will be eligible for the tax credit on 2010 tax returns, according to a Families USA report. Though some insurers already saw a dramatic increase in plan enrollments in 2010, millions of small employers in this size range that exceed the average annual wage limit will not be eligible for the tax credit.

Small employers (up to 100 employees) looking ahead to 2014 when the well-publicized exchanges will be in place need to decide whether to continue health insurance coverage or scrap their plans and pay the $2000-per-employer penalty. They will need to weigh not only the impact on their bottom line, but also “what is the right thing to do for employees.” There is no clear answer; this will be a business-by business decision.

Employers in this size range that decide to continue health plan coverage will need to choose the funding method — insurance or self-insurance — that does the most to lower health costs and improve employee health care quality. The other option, coverage in state health insurance exchanges, is expected to benefit from negotiated prices with insurers, but will be subject to new HHS-regulated “essential benefits” mandates and other requirements.

Some insurers have announced they will not participate in the exchanges but will offer their products only outside the exchanges. Many employers not eligible for coverage in exchanges (mainly due to size) can be expected to continue funding health benefits outside the exchanges through commercially insured plans. However, these plans will be subject to the same mandated state benefits, premium taxes, rating restrictions and other costly requirements that have resulted in soaring premiums.

The Self-insurance Advantage

“Increasing medical costs and willingness to assume more risk are driving many employers, even small employers, to shift to self-insured health plans,” according to Sheri Sellmeyer, vice president of analysis for Health Leader InterStudy, a leading provider of health care market intelligence. From January to July 2008, self-insured health plan enrollment grew by 1.6 million lives, or 2.2 percent nationwide, according to a 2009 HealthLeaders study.

Self-funded plans are appealing to small employers because of the greater flexibility that comes with freedom under ERISA to tailor plans to specific workforce needs (including medical, dental, vision and prescription drug benefits) without being impacted by costly state mandated benefits and premium taxes. “We’ve just finished our first year on a self-funded plan backed by stop-loss insurance and we’ve saved over $600,000 in the first year by being

self-funded,” said Tad Roane, CFO of Crescent Directional Drilling, a small employer in Houston, Texas. Unlike employers that purchase insurance from a commercial insurer licensed by a state, employers that selffund health benefits can offer the same uniform health plan in multiple states, as permitted by the federal ERISA provisions. This is a significant advantage for the many small employers that do business across state lines and operate in multiple states.

The PPACA sets forth new federal standards and mandates applicable to fully insured as well as self-insured plans. However, self– insured plans are exempted from some PPACA reforms that apply specifically to insurers such as medical loss ratio (MLR) standards, rating restriction rules and insurer fees.

Starting July 1, 2011, any planned rate hike of 10 percent or more in the small-group insurance market must undergo extensive review by the state involved or by the U.S. Department of Health and Human Services (HHS), according to new PPACA rules issued by HHS — another reason to consider the self-funding alternative.

Taking Control

Under PPACA, a small employer that self-funds is able to gain more control quickly over costs associated with employee health benefits. Working with their TPA, employers that don’t know much about the health of their workforce — and what is driving costs — now can use innovative technology (analytics, metrics, predictive modeling) to help employees make healthy lifestyle choices and reduce health care costs.

Insurers have worked hard to keep employers — the payers — in the dark about what’s going on in their health plans. Lacking detailed plan data, employers have been forced to swallow premium increases year after year. But self-funded plan sponsors have direct access to historical plan claims data and can use new technology to see where their benefit dollars are going.

Self-funded employers can access their own plan clinical and prescription-drug claims data, without an insurance company standing in the way. Working with their TPA, employers can use innovative technology to leverage HIPAA-compliant claims data that unveil a real-time snapshot of plan health risk. They are able to gain insight into potential costly catastrophic conditions in the workforce before high-cost claims are filed. With this information, employers can adopt actionable plan design and employee outreach prevention campaigns to mitigate risk.

Proactive employers can launch educational activities that engage employees in programs such as care management, disease management and nurse coaching. By offering employee incentives, some self-funded employers report better than 50-percent voluntary employee participation rates in targeted outreach programs — far in excess of the 30-percent national benchmark on voluntary participation. Implementing this strategy has already saved many companies money. For example, a self-insured South Carolina-based long-term care company used innovative software programs to reduce its health care costs by 19 percent. An Atlanta-based selfinsured radio station company employed technology and saw a four-fold increase in employee enrollment in wellness programs.

Conclusion

In the post-PPACA world, escalating costs will represent one of the most predictable outcomes of health reform for employers. As employers face higher costs and expanded requirements, many will turn to alternative risk transfer funding methods such as self-insurance to better manage their health plans and control costs. While embraced by larger firms for years, self-insurance is becoming an increasingly popular option for mid-size and small employers as well. In the new health care marketplace, self-insurance is a viable solution to rising health care costs — whether for financially qualified employers considering self-funding as an alternative to fully insured coverage, or for employers with self-funded plans already in place.

George J. Pantos, Esq. is a member of Thompson’s Editorial Advisory Board and senior advisor, WellNet Healthcare, Bethesda, Md.

Mr. Pantos discussed how healthcare performance management technology can improve C-level decision making to give employer plan sponsors control of soaring healthcare costs and provide high quality care for employees.

“A growing number of employers are embracing the same type of performance analysis used in other critical business processes–such as customer relationship  management (CRM) and supply chain management–to the provision of health benefits,” said Pantos. As an example, he pointed out that Cumulus Media, a media firm with 1,300 employees headquartered in Atlanta, has used the HPM  business strategy successfully to project $4.1 million in healthcare savings in 2010.

Mr. Pantos was interviewed by Dr. David Rearick and Stephen Cherniak of  Strategic Benefit Solutions, an Atlanta-based firm that broadcasts weekly on the Benefit Advisors Network (BAN) (www.healthybusinessradio.com). BAN is a network of 30 national brokers with a client membership of over 8,000,000 lives.

As a research and education organization, the Institute has completed a series of white papers and research reports that describe how employers can harness the power of enterprise technology to improve the performance of their health plans. He noted that these white papers are available at www.hpminstitute.org.

Click here to listen to the interview.

With a growing national focus on finding ways to control ever-increasing health costs, greater transparency of claims data in the U.S. health care system might be a key to bending the cost curve downward. Yet in the national dialog on health reform, the importance of claims data transparency as an emerging solution in controlling health care costs largely has been overlooked.

Texas is the first state in the nation to pass a law requiring transparency of health plan claims data by insurance carriers that provide health coverage to employers. The law (HB 2015), enacted in June 2007, amended the Texas Insurance Code by establishing new claims information disclosure requirements for health insurance carriers that operate in and contract with employers in the state. By giving employers legal access to their health plan claims data, the statute recognizes that employers have a right to know how they spend their money on health care benefits for their employees.

The legislative history of the Texas statute acknowledges the problems encountered by employers in obtaining this data: “Despite the importance of this issue to a competitive health care market, most employers across the state are routinely unable to obtain timely and meaningful claims or loss experience information pertaining to their health plans.” (H.B. 2015, Section 1215.002–03.)

The legislation, which became effective Jan. 1, 2008, calls for greater transparency through standardized disclosure of claims data, including protected data, by requiring group health insurers operating in Texas to release on request claims data to the employer or group policyholder.

Texas Law Requirements

Setting a new state standard, the Texas law requires an insurer to respond within 30 days after the date a written request for a report of claim information is received from a plan, plan sponsor or plan administrator. The claims information report is required to contain all information available to the insurer that is responsive to the request, such as:

• Aggregate paid claims experience by month.
• Employee census data.
• Total monthly premiums.
• Total dollar amount of pendant claims.

Insurers must provide a separate description and individual claims report when total paid claims exceed $15,000 in a 12-month period. Specific claims over $15,000 include a unique identifying number, characteristic or code for:

• The individual.
• The amounts paid.
• Dates of service.
• Applicable procedure codes and diagnosis codes.

Barrier to Claims Data Transparency

Employers seeking plan claims data can expect resistance from many insurers who raise concerns about possible exposure to liability for violation of privacy laws in connection with the release of claims and loss data. Insurance carriers—particularly insurers with bundled prescription and medical claims benefits—have been reluctant to carve out plan claims data from integrated benefit programs that typically are controlled by insurers. This common industry pushback has emerged as a barrier to transparency, depriving many employers access to valuable information from their health plans that can help them achieve significant cost control. The Texas legislation was enacted as an effort to overcome this barrier to transparency.

The Texas law requires an employer to provide the proper certification that appropriate plan amendments have been made by an authorized plan representative. This is required to ensure that proper privacy safeguards are in place in compliance with federal regulations and state insurance provisions.

On receipt of the report from the insurer, the employer may make a written request for additional information within 10 days for specified individuals. With respect to this request, the insurer is required to provide additional information relating to the prognosis or recovery if available for individuals in active case management. The most recent case management information, including any expected costs and treatment plans that relate to the claims of that individual. must be provided.

Caveat: An insurer is prohibited from disclosing protected health information (PHI) if disclosure of the information is prohibited under a state or federal law that imposes more stringent privacy restrictions than those imposed under the federal Health Insurance Portability and Accountability Act.

Because claims data are readily available from self-funded plans—55 percent of all U.S. private health plans are self-insured, according to the Kaiser Family Foundation—self-insured employers have an important advantage in controlling health costs.

Federal Efforts

While recent language in a U.S. House bill (H.R. 3200)—introduced during the 2010 health reform debate but not enacted—called for health plans to meet transparency standards established by the U.S. Health Choices Commission, the focus of this provision was on the need for greater transparency in how health care is delivered to patients as a solution to help contain health care spending. As Congress prepares its post-health reform oversight—with a focus on health cost control—claims data transparency might be added to the legislative agenda.

As the value of claims data becomes better known, the importance of transparency will attract greater attention. The competitive business edge will go to employers who use claims data and technology to manage their health plans just as they use technology in other operational aspects of their business. As Congress addresses the problem of health care costs, the Texas example might attract increased attention as a possible model for federal claims data transparency legislation.

Why Claims Data Are Important

Recent public discourse on the critical need for better control of escalating health care costs has begun to examine the valuable role that health plan claims data—especially prescription drug claims data—can play in promoting lower costs and better health. In a recent white paper, Rx Data Analysis Provides Critical Insight for Effective Healthcare, the Healthcare Performance Management Institute states that the ability of health plan managers to control costs is related directly to their access to prescription drug claims data in targeted workforce populations.

Employers concerned about escalating health plan costs need timely access to claims information in order to assess plan performance, pinpoint plan medical expense trends, identify workforce health risks and evaluate how they are spending employee health care dollars, according to the white paper.

Employers with access to health plan claims data are able to make better business decisions not only about the more efficient management of their health plans but also in evaluating options for funding and coverage—whether insured or self-insured—that are beneficial to plans and covered participants.

George Pantos, Esq. is executive director of the Healthcare Performance Management Institute, a research and education organization dedicated to promoting the use of business technology and management principles that deliver better and more cost-effective health care benefits for employers, and was former general counsel to the Self-Insurance Institute of America (SIIA). He served as deputy undersecretary of commerce, U.S. Department of Commerce, and as a partner with the law firm of Vedder Price. He was a co-founder of The ERISA Industry Committee (ERIC).

Responding to the scenario, a growing number of employers are looking to technology to help manage plan performance, improve health care outcomes and reduce health care costs. By applying tested business-management strategies directly to their health plans, business leaders are making a shift in plan management that is resulting in lower health care costs and improved workforce outcomes.

Health Performance Management

The new model starts with an executive-level vision that engaging in work-force health promotion and plan management is critical to the success of the enterprise and a productive workforce. Referred to as health care performance management (HPM), the business discipline addresses health care challenges in the same way that business leaders tackle issues such as supply chain management, inventory control, customer relations and resource management.

In response to ever-increasing costs, plan sponsors are under enormous pressure to find out where their benefits dollars are going. They are focusing on how both they and their workforce can get the best value for money spent on health care. Employers seek answers to questions such as:

• What are health plan medical expense trends?
• What areas are showing the highest potential for costly future medical risks?
• What proactive steps can be taken to improve employee health behavior and control costs?

Relying on high-speed analytic and predictive software tools, HPM addresses these issues through a comprehensive overview of the workforce health risk profile. Plan sponsors can use a computer desktop dashboard, more fully described below, to monitor and manage health plan performance. With the dashboard, employers are able directly to leverage health plan claims data to unveil areal-time snapshot of plan health risk. They may be able to predict catastrophic conditions before they occur.

Cumulus Media, a Blackstone portfolio company headquartered in Atlanta, Georgia, is seeing favorable results through the use of innovative software tools. A media firm with more than 1,300 employees, the company recently transformed its health plan strategy by changing group coverage from an insured to a self-funded plan. In switching to a more cost-efficient self-insured plan, Cumulus gained direct access to real-time pharmacy, medical, disease management (DM) and predictive modeling data (using Johns Hopkins University’s Adjusted Clinical Groups (ACG) program). Plan data is compared with health risk statistics. Relying on HPM’s integrated technology approach, the company is able to synthesize typically disjointed data from pharmacy benefits managers, third-party administrators and DM and to display enhanced “de-identified” data and patient profiles before they are aggregated. This has provided greater insight into how money is being spent and how to avoid future expenses. By pinpointing potential serious and costly medical threats, Cumulus is working to identify $4.1 million in projected savings.

How the Dashboard Works

The computer dashboard identifies opportunities for savings by simulating plan design changes and incentives that show how employees can consume health benefits and services. A dashboard review of a company’s pharmacy claim data, for example, may indicate that 78 out of 3,500 plan enrollees are at high risk for future costly medical problems. The dashboard may show that these anonymous 78 members have nine unique medical conditions.

A simulator then projects that if costly medical claims are generated for this group, there’s a 54% chance the employer plan will have, say, $4.4 million in cost exposure in year X. The software compares the data against the Johns Hopkins University Bloomberg School of Public Health database. Plan sponsors then can use a simulator to examine what savings might be achieved. For example, as illustrated below, savings can be projected if more enrollees use less costly mail-order drugs or less expensive generic alternatives.

The HPM dashboard typically is hosted on a secure server server maintained by an outside vendor and is compliant with the Health Insurance Portability and Accountability Act and other relevant privacy rules.

With the dashboard, employers can easily mine pharmacy and medical claims data as well as health risk data that helps guide plan design adjustments such as, for example, changes to less expensive alternative drugs, tiered drug copayments, telemedicine and preventive health screenings.

Such data also can lead to targeted outreach and employee engagement wellness programs initiated in response to patient health risks. As an example, HMR Advantage, one of the Southeast’s largest providers of skilled nursing homes, has significantly slowed the rapid rise in its employee health costs by employing sophisticated data analytics. The firm provides self-funded health benefits to over 1,200 employees who work in its assisted living facilities in South Carolina, North Carolina, Georgia, Maryland and Virginia.

HMR implemented group risk-specific assessments using HPM technology developed by a Maryland-based vendor that stratifies the workforce population into low-, medium– and high-risk areas. Based on an analysis of prescription claims data, probabilities for future expense from serious medical conditions were identified by risk level.

Benchmarked against the Johns Hopkins University database, the proprietary HPM data analytics program enabled the company to pinpoint future risk from costly catastrophic conditions such as diabetes, hypertension and cancer. HMR Advantage then could implement outreach and strategic employee health education campaigns and wellness programs as well as nurse coaching.

Plan design changes included a shift to lower cost generic alternatives and mail-order drug programs and a three-tier copay program—actions that produced savings of $1.4 million before the end of the first year, according to D. Abe Emery, vice president of human resources. The firm also began providing incentives to members to change lifestyle habits.

Plan Data Is Key

Executives who are proactive in developing and implementing strategies to manage health costs under the HPM model rely heavily on plan claims data. For example, prescription drug claims data processed in cutting-edge data warehouses can quickly be analyzed and turned into company-specific business intelligence.

Prescription drug claims data, accessible immediately in real time after a script is filled, have been shown to be equally as effective as medical claims data in predicting risk. Hospital claims data, by comparison, typically have a ten– to 30-day submission window, followed by a 90-day adjudication period in which payment decisions can be challenged. Clearly, if real-time risk prediction is valuable, reliance on prescription claims data rather than medical/hospital data may be preferable.¹

This process has proven extremely accurate in predicting future population health risk and developing effective, targeted risk mitigation programs before catastrophic health costs are incurred. Plan sponsors that take control of their health plans this way find that it is better to manage their health plans than to manage the explosive costs of illness.

Self-funded plan sponsors, in particular, have been more proactive in adopting the 11PM model because they have direct access to their own plan claims data. Generally employers that fund their health plans through traditional insurance are less likely to take control of their plans because they do not have direct access to claims data controlled by the insurer.

Once a plan sponsor opts to implement an HPM strategy, at least modest cost reductions can be expected right away. Initial analysis of plan data takes two or three working days and can start yielding decision-support data almost immediately.

For example, if a significant number of participants in a company health plan take a brand-name prescription drug that has a less expensive generic substitute, 11PM data tools can alert managers so that they can initiate information and education programs promoting the benefits of generic drugs and cash-back incentives.

Berry College, an independent, liberal arts college in Rome, Georgia, has seen significant savings in its self-funded health plan covering 500 enrollees employed by the college. Using HPM analytic technology, Berry College identified high cost areas leading to plan design changes that provide incentives for greater use of generic drugs in lieu of more expensive brand prescription drugs.

“The switch from brand prescription drugs to generics alone has produced a 6% to 8% return on every prescription drug covered,” said Cindy Merchant, Berry College’s human resources manager. “The use of generics overall has increased by 10%—a projected savings of $238,000 annually.”

How Online Social Network Works

As an integral component of HPM, member outreach programs can be implemented on a single, secure platform that allows key constituents to interact on employee health issues. Just as iTunes links users in a network for online music, HPM social network” users can be linked on an interactive platform to their providers, pharmacies, labs and health plan that allows them to do more than just view claims and order ID cards.

HPM software can bring together stakeholders in an easy-to-use online portal that enhances an enrollee’s ability to manage his or her health conditions by interacting directly with other members, providers and others. Members can exchange real-life information about health treatments with each other and interact with caregivers and providers in one secure location administered and maintained by a third party. For example, from an employer’s perspective, Healthcare Interactive is a third party conducting a pilot of this member engagement software tool. Online sites such as the free site www.patientslikeme.com provide a similar interactive vehicle for consumer exchange of treatment and health information.

The member engagement screen can connect each employee with his or her doctor, nurse, care manager and retail pharmacist. Providers can connect with their patients on a secure messaging portal to alert them to gaps in care. On the desktop screen, employees can engage in their own health decision-making process through an exchange of information with other members as well as unparalleled access to information about their health and care. They can see their claims history, research a medical condition, chat with the care manager or plan specialist and access their electronic medical records. as well as communicate privately with doctors. They can use a special telemedicine feature to consult with local area providers while traveling in other cities. A unique feature even allows for use on Web-enabled mobile devices.

Upper Merion Township in suburban Philadelphia. Pennsylvania, has a population of 27,000 and 200-plus township employees. With health costs draining the township’s general fund, several years ago the community decided to conduct an overview of its past, present and future health care cost scenarios, including individuals who posed the highest heath risks and potentially the best health care costs for its self-funded health plan. Pharmacy claims data were used to conduct the overview of health patterns and warning signs.

Using that information, with an online portal administered by a vendor, the township began to work with employees to improve their health. Employees were given incentives (points) for completing a smoking-cessation program and enrolling in weight-loss or exercise programs. The points were used as deductions from employee financial contributions to the health care plan.

Employees also began using the online portal to communicate with care managers, claims specialists and providers to review medications and claims, track spending and manage incentives.

By the end of 2009, 26% of high– and moderate-risk employees were working with care managers, up from 5% before the incentive program was in place. “Part of the strategy was to get employees more involved in cost containment,” said Fred Santoro, director of human resources for the township. “We expect to avoid $300,000 in health costs and risks to the total health plan annually.”

As the need for claims data transparency attracts more attention, the competitive edge may go to plan sponsors that have an insight into their health plan performance and use technology and data analytic skills to manage their health plans more effectively.

While employers increasingly are turning to available software solutions, some barriers persist. Because of the current economic conditions, many employers haven’t been willing to invest in health performance management technology. Also, not all companies have adopted wellness programs that encourage employees to adopt healthier lifestyles.

However, by learning more about the innovative host tools that are surfacing, business managers will have the capability to utilize critical data to measure health plan performance in real time and look for new ways to proactively improve health and manage costs.

@2010 International Foundation of Employee Benefit Plans.

Health care performance management (HPM) is a business strategy that uses technology to help achieve the dual goals of reducing costs while improving health care outcomes. This article provides examples of how some companies and nonprofit organizations are using HPM in efforts to take control of employee health care costs.

Endnote

A suggestion. Why not focus on streamlining health costs by harnessing technology that allows companies to take control of their healthcare expenses?

Businesses generally lack the data necessary to measure and manage their health costs, even though health care often represents their second– or third-biggest expense. Indeed, executives have a better sense of how much money they spend on office supplies than they do of where their health-plan dollars are going. But with the cost of health benefits projected to increase 7 percent in 2010 — and to double over the next seven years — businesses can no longer afford such willful ignorance.

Some firms have a stake in preserving the costly status quo. Look no further than the insurance industry, whose top five companies recently announced record profits that were 56 percent higher than last year’s. Insurers’ business models are largely based on keeping American firms in the dark – that is, preventing them from analyzing their own health care data and using the results to find alternative benefit structures that may offer better outcomes at lower cost.

Companies have tackled customer relations and supply-chain management with technology-driven strategies. So why not do the same for health benefits?

Such “health care performance management” business strategies can alert companies to expensive problems within their benefits programs — and then help them find ways to implement money-saving fixes. The innovative technology for doing so exists. It just needs to be adopted on a grand scale – and doesn’t require an act of Congress.

Although benefits are growing ever-more expensive, most firms employ a limited number of tactics for trimming their health costs. They may tweak their plan design by adjusting the level of benefits employees receive, forcing workers to pony up a bit more, or switching to a different provider. But these primitive approaches yield only marginal savings – at best.

Health care performance management offers employers an alternative. With HPM data, managers can see what is happening in their benefits plans – insight that used to be the exclusive property of insurance companies.

For instance, on an aggregate basis, businesses could find out how many times the employee population has visited the doctor in the past year and correlate this information to ensure their employees are following the right treatment plans. What areas are showing the highest potential for future medical risks? Using that information, management could use tested software tools to implement high-impact, low-cost measures in response to patient risks — and achieve real savings in the process.

Imagine if a segment of a company’s workforce suffered from serious but treatable conditions like a combination of high blood pressure and high cholesterol with a family history of diabetes. Many of these patients don’t take their medications appropriately or follow the courses of treatment prescribed by their doctors. Companies can use real-time dashboard features to manage these risk factors preemptively – to the benefit of both workers and the company bottom line.

For instance, employers can link their workers up with specialized “coaches” to help them pursue personalized treatment regimes. These mentors can inform patients about lower-cost medicines or even prepare them to ask the right questions at the doctor’s office.

Critically, technology-driven HPM strategies also allow for strict protection of employee privacy. Employers simply aggregate data and lean on third-party health care providers to engage their employees. In other words, companies pay the bills – but private medical decisions are handled exclusively by doctors and patients. Executives don’t need to know who’s at risk – they just need to know that a risk exists.

HPM-driven cost transparency has already allowed many firms to save money on their health bills. One South Carolina-based long-term-care firm, for instance, saved 18 percent on its health care costs thanks in large part to insights gained from HPM data.

When health care becomes a cooperative effort, workers benefit, too. A large Georgia-based radio station operator reported that enrollment rates in its wellness program nearly quadrupled thanks to initiatives driven by HPM data.

President Obama came into office promising the most technologically savvy administration in history. Yet his health care plan virtually ignores common-sense money-saving technologies that we use in all other aspects of our lives. It’s about time that changed.

George J. Pantos, Esq., is Executive Director of the Healthcare Performance Management Institute. He is former Deputy Undersecretary of Commerce as well as former General Counsel to the Self-Insurance Institute of America.