Are you being overcharged for your employees' healthcare? Here's how to find out

With skyrocketing healthcare costs continuing to drive benefit decisions, many employers are searching for a way to take control of their health plans. Given what employers are being charged for care, there's no better time than now.

According to the Congressional Budget Office, commercial insurance prices are anywhere from 182-240% more than Medicare's pricing for the same services. But understanding just how much they're being overcharged by hospitals and insurers is especially difficult for employers who are not self-funded, says Eric Bricker, medical director at SimplePay Health.  

"It is incredibly hard to do anything constructive as a fully insured plan," Bricker says. "When an employer is self-funded, they are able to access more detail on their claims data. They can see on a per-member or on a per-service basis what amount was paid by their plan." 

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While Bricker encourages employers to become self-funded, if a fully insured employer can get access to substantial claims data, then they may be able to audit the cost of care for their plans, too. Bricker points out that the Medicare rate, which is publicly available, is supposed to cover the actual cost of the test or treatment as well as ensure the hospital sees a degree of profit. The Medicare benchmark is theoretically a fair one, and employers should know which hospitals and providers are overshooting it, Bricker says.

As for why hospitals get away with this, it comes down to negotiations between the hospitals and insurers. While insurers take some blame for typically prioritizing maximum profit over consistent coverage, Bricker notes that hospitals are far from innocent.

"When hospitals negotiate a contract with Aetna, Cigna or UnitedHealth, they obviously want the in-network price to be as high as possible," says Bricker. "And hospitals have a lot of leverage because there's actually very low levels of competition among hospitals; there's not a lot of choices. And when employers demand large broad networks, that puts the insurance carrier in an especially weak negotiating position."

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Ideally, if an employer is self-funded, they can steer their employees toward hospitals and providers that fall closer to Medicare pricing. For example, an endoscopy procedure could be $1,000 at one hospital and $10,000 in another hospital in the same local area — employers can make it so the more affordable facility has the lowest co-pay on the plan. Bricker advises self-funded employers to consider a tier system for their plans: While it would provide less freedom than the broad networks that come with a preferred provider organization plan,  it would be less restrictive than a health maintenance organization plan, which doesn't allow access to out-of-network providers. 

"High-quality, low-cost providers have the lowest co-pays and low-quality, high-cost providers have the highest co-pays," Bricker says of a tiered plan structure. "This way, employers can financially incentivize plan members to use the better provider in-network without being very restrictive."

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But in order for this kind of structural change to happen, Bricker understands that it will take buy-in from company executives. He advises HR and benefit professionals to begin analyzing their current plans and making a case for abandoning the status quo. 

"Through multiple meetings, educate the CFO, the CEO and other leaders about the dynamics of hospital overcharging and the impact on the company and employees," says Bricker. "The biggest barrier to change is just inertia."