A recent Gallup survey found employees highly focused on the cost and availability of healthcare benefits. This isn’t surprising. As healthcare costs continue to rise, employees are becoming more concerned about losing their benefits than about losing their jobs. This trend makes health plan benefits a valuable retention and recruitment tool.
Unfortunately, it is all too easy for companies to realize less than the full value of the benefits they offer by failing to provide the necessary information, guidance and vocabulary that employees need to make smart choices, manage their healthcare expenses and avoid costly surprises. As employers continue to look for ways to rein in healthcare costs and better serve employees, a critical need emerges for workplace education that enables employees to understand the features of their healthcare coverage and the factors that increase their out-of-pocket expenses.
Outlined below are several variables that impact plan coverage and reimbursement. The more familiar employers are with these factors, the easier it will be to choose health plans that optimally serve their needs, and to communicate more effectively about these plans with employees.
Variable No. 1: UCR vs. Medicare
One of the most important factors in deciding out-of-pocket costs is the formula used by a health plan to calculate reimbursement when employees seek care outside their plans’ networks. Generally, the calculation for out-of-network reimbursement is based on one of two standards: UCR (usual, customary and reasonable) charges or a multiple of the Medicare fee schedule. To avoid costly surprises, it is important that employers consider the differences between UCR and Medicare-based reimbursement. And, it is essential that employees understand which formula their health plan applies and its impact on their out-of-pocket expenses.
UCR has been the traditional out-of-network reimbursement standard. Plans using UCR determine the usual, customary and reasonable charge for a service, often called the “allowed” charge, and then treat the allowed or UCR charge (or the actual charge, if lower), as the maximum amount to which they apply the percentage of the charge that they reimburse. An allowed or UCR charge is intended to reflect the fees that providers actually charge for a particular service in a given geographic area. Health plans usually pay only a portion of the UCR charge (typically 60–80 percent) for a specific procedure performed out-of-network. Patients generally must pay as an out-of-pocket expense the difference between the reimbursement from the insurer and the total bill charged by the physician. For example, assume an out-of-network physician charges $100 for a service, but the insurance company determines that the UCR charge for the service is $80. If the plan reimburses at a rate of 70 percent, the reimbursement will be 70 percent of $80, or $56. The patient would then have to pay the balance of the bill, i.e., $44 ($100 – $56), out-of-pocket.
Recently, some insurers have adopted reimbursement formulas based on a percentage of the Medicare fee schedule. These plans typically reimburse the cost of a procedure at 120 percent to 180 percent of the Medicare fee for the procedure. At first glance, 140 percent of a Medicare rate seems highly favorable compared to a rate of 70 percent of UCR. Many employees and even some employers are unaware that there may be a material difference between the allowed UCR charge and the Medicare fee. Often, the Medicare-based formula results in a smaller reimbursement and larger out-of-pocket cost even though the percentage applied to the Medicare charge is substantially higher. This is because the fee paid for a service under the Medicare-based fee schedule is often much lower than a physician’s regular or “market” charge for the service.
For example, assume that a patient obtained a colonoscopy (together with anesthesia and a biopsy) in Hartford, Connecticut from an out-of-network provider. Such professional services would collectively cost an employee $663.92 out-of-pocket under a reimbursement formula using 70 percent of UCR; those same services would leave the employee with an out-of-pocket charge of $1,660.25 under a formula that is based upon 140 percent of the Medicare fee schedule. Given these material differences in values, employers selecting a healthcare plan for employees need to understand the implications of adopting various reimbursement formulas.
Variable No. 2: Cost-sharing
As deductibles, co-payments and co-insurance shift greater financial responsibility for healthcare to employees, employers need to clearly explain the economic responsibilities imposed on employees by their particular plans. Employee distress and frustration over unexpected out-of-pocket costs can often be prevented with appropriate education.
In addition to providing clear information about cost-sharing responsibilities, employers should present valuable information about plan benefits that entail no cash outlay by employees. For example, many plans offer important preventive services without the cost of a deductible, co-pay or co-insurance. Both the health and financial position of employers and employees are expected to benefit in time from the free preventive services required by recent federal healthcare legislation. These requirements are intended to help employees stay healthy, thereby reducing long-term costs.
Variable No. 3: Unexpected costs
Even when services are provided at an in-network hospital, certain specialists required for a procedure might be out-of-network. Specialties that are often represented by out-of-network practitioners include anesthesiology, pathology and radiology. While the surgeon performing a colonoscopy might belong to a patient’s plan network, the assisting anesthesiologist might be out-of-network. Patients should inquire in advance about the network status of any physicians who might be involved in their treatment so that they are not surprised when they receive their bills.
How advisors can help employers
Unless employers and employees are informed about the ways their insurance plans allocate the costs of covered services, both will fail to realize the true benefits of health insurance. Employees will under-estimate the full value of employers’ contributions and may make costly healthcare choices. Employers will not be equipped to make smart decisions about plan design, optional benefits and wellness screenings, which have the potential to drive down costs and boost employee loyalty.
Advisors are well-positioned to help employers and employees make smart, cost-effective healthcare decisions. To maximize the benefits of insurance coverage and to avoid unnecessary expenses, both employers and employees need easy-to-understand information about what treatment options actually cost. Education and supporting tools can help them evaluate how different options may impact their finances and health. These resources — which are readily available from government and non-profit groups — can help employers and employees better evaluate plan benefits, manage healthcare costs, boost employee satisfaction and help all parties make informed, smart choices. Sound advice, education and practical tools can provide health and financial benefits that are too valuable to ignore.