Meanwhile, since 2010, the cost of family premiums has increased by 55 percent — double the growth rate for wages (27 percent) and inflation (19 percent). But there’s good news: a new crop of health insurance options is surfacing that can improve both the quality and affordability of health care.
The question is: can employers overcome their own apprehension to take advantage of them?
Consider how we got here. For decades, health insurance companies competed fiercely to offer the broadest networks with the deepest price discounts. But while a broad network (like a preferred provider organization (PPO)) includes health care providers with fantastic quality and low prices, it also includes the expensive and inferior ones. It’s the same value conundrum as cable companies: you pay x dollars per month for access to 200+ channels, of which 195 you’d never watch.
Sensing the opportunity, new vendors entered the marketplace, offering curated networks of high-quality, lower-cost providers called high performance networks. The savings from these networks comes partly from providers who are better at treating diabetes, more skilled at joint replacement surgery, or at keeping patients out of the ER. But mostly, it’s because these vendors negotiate lower prices. This flies in the face of basic economics, which tells us that buying in bulk leads to greater savings. How then, can scrappy upstarts negotiate lower prices than national insurance carriers?
There are a few reasons. First, don’t underestimate just how bad the blood is between health care providers and insurance companies– many providers will take a haircut just because the vendor is not a national insurance company. Providers also benefit because patients in the HPN can’t access their competitors. But most importantly, many health insurers can’t offer uncompromised high-performance networks: over the years, insurers negotiated agreements guaranteeing that powerful, high-priced providers would be included in every network option.
With offerings of double-digit savings on the table, why haven’t high performance networks caught on? The answer is uncomfortable: it’s mostly due to employer hesitation. Recent research from my workplace, Catalyst for Payment Reform, highlights employers’ resistance to constraining employees’ choice of provider. Research from the Kaiser Family Foundation shows that only 4 percent of U.S. firms offer narrow networks; this apprehension persists despite evidence that only about 1 percent of employees leave jobs because of dissatisfaction with benefits.
Still, network vendors believe the tides are turning, as employers confront the trade-offs of raising premiums and deductibles, lowering compensation, or reducing their workforce. Ultimately for employers to adopt these networks, they must reject the “discount off of mystery price” paradigm. A willingness to weed out low-value providers may be the difference between employers who optimize their benefits, and those doomed forever to pay for C-SPAN.