Health Insurance Industry Explained--Health Insurance from Job (Employer-Sponsored)

Summary

Dr. Eric Bricker's video script delves into employer-sponsored health plans, detailing their structure involving employers, employees, insurance carriers, and providers. It explains the flow of payments, including premiums, out-of-pocket costs, and claims processing. The script further distinguishes between fully insured and self-insured plans, discusses network discounts and repricing, and highlights the role of Administrative Services Only (ASO) and Third Party Administrators (TPA) in self-funding. It also touches on captives for small employers to negotiate better rates through group purchasing power.

Takeaways

• 🏥 Employer-sponsored health plans involve four main parties: the employer, employees, the insurance carrier/PBM, and healthcare providers.
• 💼 Employers pay premiums to insurance companies, which then reimburse providers for employee healthcare services, with employees contributing a portion of the premiums through payroll deductions.
• 🔄 There's a dual flow of money in health plans: from employer to insurance company and then to providers, and from employees to providers for out-of-pocket costs.
• 📄 The difference between being fully insured and self-insured is crucial, with self-insured employers bearing the risk and paying providers directly, while fully insured employers pay premiums to insurance companies.
• 💰 Self-insured employers often have more than 200 employees, while smaller employers tend to be fully insured, although there are exceptions to this trend.
• 📈 The medical loss ratio (MLR) is a key factor for self-insured employers, as insurance companies charge an extra 15% for bearing the risk and processing claims.
• 🛑 Network discounts, or repricing, are used to reduce billed charges from providers to insurance companies, with various methods like percent of charge, fixed case rate, per diem, and carve-outs.
• 📑 Billing involves specific codes, such as ICD-10 for diagnoses, CPT for procedures, and HCPCS for specific items or services not covered by other codes.
• 🔑 The terms 'community rated', 'partially credible', and 'fully credible' define how premiums are determined based on the health risks and claims experience of the employer group.
• 🔐 Reinsurance, in the form of specific stop-loss and aggregate stop-loss, is used by self-funded employers to mitigate the risk of high-cost claims.
• 🏢 ASO (Administrative Services Only) and TPA (Third Party Administrator) are alternatives for employers to manage claims adjudication and network access, with TPAs often being more flexible and cost-effective.

Q & A

What are the four main constituents of an employer-sponsored health plan?

The four main constituents of an employer-sponsored health plan are the employer, the employees, the insurance carrier/pharmacy benefit manager (PBM), and the healthcare provider/pharmacy.

How does the flow of money work in an employer-sponsored health plan?

The employer pays a premium to the insurance company, which then pays the healthcare provider/pharmacy when an employee receives medical care. The employee also pays out-of-pocket costs to the provider and contributes to the premium through payroll deductions.

What is the difference between a fully insured and a self-insured employer-sponsored health plan?

In a fully insured plan, the insurance company takes on the financial risk and receives a premium from the employer. In a self-insured plan, the employer bears the risk and pays the healthcare provider/pharmacy directly or through an insurance company acting as an intermediary.

What is the purpose of reinsurance in self-funded employer-sponsored health plans?

Reinsurance, also known as stop-loss insurance, is used by self-funded employers to cap their liability for high-cost claims. It protects the employer from financial ruin due to extremely high medical costs incurred by employees.

What are the three components of an insurance policy according to the script?

The three components of an insurance policy are risk, adjudication, and network. Risk is the financial risk taken by the insurer, adjudication is the process of receiving and paying out claims, and the network refers to the healthcare providers that have negotiated rates with the insurance company.

What is the medical loss ratio (MLR) and why is it significant in the context of insurance companies?

The medical loss ratio (MLR) is the percentage of premium dollars that insurance companies expect to pay out in medical claims and quality improvement activities. It's significant because it represents the share of the premium that the insurance company keeps as profit or operational costs, typically around 15%.

What are the different types of network discounts or repricing methodologies mentioned in the script?

The script mentions percent of charge, fixed case rate, per diem, and carve-outs as different types of network discounts or repricing methodologies used by insurance companies to manage costs.

What is the role of an Administrative Services Only (ASO) in self-funded employer-sponsored health plans?

An ASO provides administrative services for self-funded plans, such as claims processing and network access, without taking on the financial risk of the plan. The employer bears the risk, but the ASO helps manage the plan's operations.

What is the difference between a Captive and a Third-Party Administrator (TPA) in the context of self-funded health plans?

A Captive is a pooled group of employers that self-funds the health plan, while a TPA is an organization that provides administrative services for self-funded plans but does not take on the risk. TPAs can be more flexible and often less expensive than ASOs.

Why might a fully insured captive experience a 'death spiral'?

A fully insured captive might experience a 'death spiral' when healthier employers leave the captive due to increased rates caused by adverse selection, which in turn makes the remaining pool riskier and more expensive, causing further departures.

What are some examples of self-funded captives mentioned in the script?

The script mentions Roundstone and Pareto as examples of self-funded captives that allow employers to group purchase stop-loss insurance, potentially reducing costs.