Transparency: The Lynchpin of Effective Cost Management in Health Care
And the Key to Better Informed Health Care Decisions!
by Ed Murphy & Laura TenEyck
Universal Advisor , 2008 Issue No. 2

Would you buy a car without comparing prices at various dealerships? How about a TV or computer? Most of us wouldn’t dream of it, as technology has allowed car, TV, and computer shopping to be transparent. As a result, the cost of consumer goods has stabilized while quality has improved.

But how does this translate to health care? If someone suggested you compare costs and provider quality for a heart bypass surgery, would you research the cost alone? Or, would you research the credentials and success rates of the team of medical providers that will perform the surgery? Which is more important? Would you know where to look?

If you answered “no,” you aren’t alone. As benefit consultants working with employers challenged by the continued, near double-digit inflation of health care, our job is to provide guidance on the best methods to purchase benefits. We’ve found that transparency in every aspect of a benefit plan’s operation is the key to more effective cost management and better informed health care decisions.  

Insurance Carrier or Plan Administrator Transparency

Insurance carriers or medical benefit plan administrators are hired to oversee benefit plans according to the levels you purchase and pay claims on the population of eligible employees. Unfortunately, even the most sophisticated financial and human resources officers are challenged by how plans are priced; the data provided is often limited in scope, and pricing methodologies are often said to be “proprietary.”

As consultants that represent clients of all sizes, we suggest demanding full pricing transparency when selecting a carrier/administrator. While each carrier may have its specific methods, the key elements of plan pricing can be narrowed to a few common denominators. Your job is to understand what those elements are and how a shift affects price. The key transparency elements from a carrier/administrator standpoint include:

• Administrative fees. Administrative fees can include plan administration, billing, underwriting, actuarial services, management reporting, network management, care/case management, and client services — in short, all the day-to-day support activities needed to operate your plan.

• Renewal rate development methodology. Carriers regularly use your historical premium, claims, and enrollment data to establish future prices. Some carriers place more credibility on past history than others. You should know the method by which future rates are determined in advance. You should challenge your carrier to fully describe all the pricing components so that you have a way to measure value.

• Commissions. Most clients are under the common misconception that all plans have built-in, “standard” commissions. In actuality, the commission scales in the carrier market are as varied as the number of employers. Demand that all forms of agent/broker commissions are fully disclosed. Only then can you determine if you’re receiving value for the services provided.

• Network discounts. In the past, some carriers attempted to demonstrate administrative fees that were much lower than peer competitors. This was typically in response to carriers/administrators being viewed as the highest priced administrator. In an attempt to change that perspective, some carriers decided to offset their administrative fees by retaining a portion of the normal discount provided for using network providers. This practice is known as retention reallocation or retention recharacterization and generally costs clients more in the long run. Demand fixed fees that are fully disclosed!

Provider Transparency

Health care providers, including physicians and hospitals, must embrace transparency by participating in efforts to share information about quality and cost. In today’s marketplace, each provider might have its own internal structure for gathering and sharing information; however, nothing ties those isolated structures into a national database that allows information to be easily accessed and compared at the participant level.

Unlike purchasing other big ticket or even low cost items, health care purchasing can be daunting. Depending on the type of plan(s) an employer offers its employees, the employer educational burden may be very high; therefore, it’s crucial to provide employees with transparent, actionable decision support information, such as a provider’s practice, rates, and quality scores.

In order to move toward a more transparent health care environment, all parties, from the federal government and plan administrators to health plans and employers, must commit to (a) sharing information on pricing and quality in health care and (b) establishing acceptable quality standards developed within the medical community. In addition, plans and plan sponsors must commit to standards for health information technology and offer plans that reward consumers who make choices based on high quality of care and competitive pricing for health care services. 

Transparency Is the Lynchpin

Transparency is the lynchpin of effective health care cost management. When consumers, employees, and employers are armed with price and quality information, they’re able to make better informed decisions, which drive better clinical and cost outcomes. For more information about transparency in health care, feel free to give us a call.