Recent transparency legislation has completely changed the health care landscape, creating an opportunity for benefits advisors to assist self-funded employers with navigating the plan sponsor’s role as a fiduciary. This new responsibility is explicitly laid out in the 2020 Consolidated Appropriations Act (CAA). Within that legislation, the government mandated that all gag clauses that limit access and utilization to data must be removed. For the first time in history, hospital and payer transparency (HPT) makes it possible for a plan sponsor, working with a knowledgeable consultant, to evaluate their networks, hospitals and providers based on negotiated cost and quality measures.
Cynics in the health care advisory community remain skeptical, saying they have heard that new legislation will turn the industry on its head time and time again. Yet historically, meaningful change has seldom materialized. However, with the passage of CAA and hospital and payer transparency laws, we are seeing swift action based on the newly available data. Hospital and payer transparency has started to produce actionable changes in the health care delivery system and advisors need to ready their plan sponsor clients for what is to come. The advisors who prepare and plan for this new health insurance landscape will set themselves apart and be in the best position to benefit from these changes.
There is a historical precedent for this wide-reaching transformation of the health insurance industry. Two decades ago, this same shift happened in the retirement industry. Extensive regulations governing defined contribution plans like (401k)s, 403(b)s and 457(b)s, mandated transparency. Overhead costs and financial excesses that had previously been part of the package for employers had to be weeded out. This was a whole new world for retirement advisors and their clients. The early adopters, those advisors who leveraged transparency in structuring retirement plans for their clients, were able to grow and fully own the market. Conversely, the advisors who were hesitant to see the advantages of the new laws were unable to catch up and thrive in the changing industry. In fact, the retirement industry precedent shows that as the tides turned towards a fiduciary standard, more than 67% of employers changed their broker over a two-year period.
In the coming months, self-funded employers as fiduciaries are going to be experiencing government audits. These audits will evaluate whether the plan sponsor is using this new authority to work in the best interest of the plan participant. These same types of audits were enacted in retirement, through the Pension Protection Act of 2006. The result, through extensive work done by the plan sponsors and a select group of consultants, was an over 50% reduction in asset management fees in the industry. This reduction in fees meant billions of dollars in Americans retirement accounts. Plan sponsors that were slow to adopt the requirements of the law suffered serious fines from the DOL and were the target of very successful class action lawsuits.
HPT obligations have already resulted in real world benefits for plan sponsors and plan participants. For example, the actions of a New York City multiemployer fund of 200,000 lives (32BJ Health Fund) identified excessive hospital costs at New York-Presbyterian and, through a comparative analysis, determined the hospital’s costs to be unreasonable. Analysis showed that 32BJ was paying 358% more than Medicare for similar services billed through New York-Presbyterian hospitals. Removing the New York-Presbyterian hospital system from the plan’s network allowed for the reallocation of additional funds to support union members and their families.
In Connecticut, two self-insured union health funds sued Anthem companies, as reported by BenefitsPRO. The complaint claims the defendant insurance companies denied access to plan claims, failed to prudently manage claims in compliance with plan documents, and took part in prohibitive transactions related to plan assets. Leveraging publicly sourced hospital transparency data, the fund provided an example where the plan paid a Yale New Haven Hospital over $3,000 more for a medical service than Anthem’s negotiated rate. The consequences of compliance are becoming real. Both cases illustrate how owning plan data and comparing plan costs to the hospital and payer transparency data are driving change.
Today it is the health care advisors’ responsibility to guide their self-insured clients through the data and process towards compliance. Advisors need to work in the best interest of the plan sponsor to ensure they have the necessary information to meet their fiduciary responsibilities. While the mountain of available data can complicate this process, technology exists in the market to clean, aggregate, and benchmark disparate data sets from hospitals and payers across the country. Employers and their advisors must optimize the health care procurement process, save money, and reduce waste by effectively measuring and comparing hospital and payer rates directly against their actual claims data.
This flight to quality and new pressures placed on employers, along with ever-increasing costs, mean that the spotlight will be focused on advisors to lead the way. With all the changes in 2022, 2023 is poised to be the year of opportunity for advisors who are prepared to set themselves apart and embrace change.
Hugh O’Toole is the CEO of Innovu.