Comparing Contract Fees — Behind the Numbers

Creeping inflation, rising healthcare costs, and a tough labor market are contributing to an economy in flux. Everything costs more. Across the board, households and businesses are taking a closer look at their budgets, searching for trade-offs, better rates, discounts, sales, and line items to cut out completely. Overall, there’s a heightened sense of fiduciary responsibility — and this extends to employee health benefits.

More organizations with the help of their consultants are examining their health plans and evaluating their costs.

It’s not enough to look at the sticker price and shiny offers. True savings and value come from transparency, and this requires a consultant with a well-defined evaluation process and up-to-date tools for analyzing cost and value.

Discount or Miscount?

Let’s start by addressing administrative fees. Does something ever truly cost nothing? If you are being told there is no cost, or there is a ‘fee holiday’ or a fee is unrealistically low, expenses are most likely being redistributed behind-the-scenes.

Compare it to shopping for a car. Do you consider the sticker price a done deal? No, you plan, research, and negotiate. You evaluate wants and needs. Then you take into consideration, sales tax, registration, documentation and destination fees, and financing interest. You may also look at future costs including fuel, repair, and insurance costs.

At the grocery store, if a box of cereal is on sale for an incredible discount — say an attention-grabbing $2.99 — does this mean the store must be a cheaper place to shop? Not exactly. Maybe you didn’t notice the seafood is $2 more per pound or prepared foods priced at a premium to make up for flashy sales.

The bottom line: When evaluating a health benefits contract, consider all the expenses and the savings you may be leaving on the table. Not just the administrative fees.

Partially driven by price transparency and lower incremental discounts for provider steerage, unit costs for health benefits continue to align more closely. One employer may appear to have better discounts amounting to 42% and the other seems to be achieving a 37% provider discount. But dig deeper. What’s the denominator? Are you paying 42% of $1,000 and 37% of $500 for the same service? Learn about the actual number not the percentage. In fact, our data shows that as the market has evolved there is little correlation between discounts and costs.

When you have established an understanding of the unit price, you still are not done as there are many variables that affect the total cost of care. Now look at value-based care contracting fees, provider integrity programs, network fees/capitations, shared savings, rebate values, and member engagement. These elements influence how effectively resources are managed to reduce waste, capture savings, and improve employee health outcomes over time.

Other ways benefits costs are layered into plan utilization include value-based care contracting fees. Although these contracts incentivize cost-effective, high-quality care, the aggregate cost of the program sits outside the administrative fee and is a separate variable fee to a self-insured employer. While the plan appears to have low administrative fees, the insurer is making up the “discount” elsewhere.

Pharmacy rebates are also easily misinterpreted during contract evaluations. A contract may not pass along the full value of a rebate to the plan sponsor. A portion of it may be kept to decrease administrative fees or to provide plan credits. The cost reduction plan sponsors might receive can be all, a fraction, or none of the true rebate value. As they say, there’s no such thing as a free ride.

Reconcile the Contract

At the end of the day, the cost of healthcare is increasing, and the dollars aren’t disappearing from contracts. There is no such thing as free. Ask for transparency on your total spend. Employers must ensure the evaluating party is qualified, prepared and fully transparent with findings.

Understand what aspects of the contract are being evaluated, and how. What metrics and benchmarking data are in use, and when was the information last updated? Know where savings are coming from by entering into an apples-to-apples comparison of the entire contract.

Our advice is to reconcile your benefits contract like you would a checkbook. Does your claims bank account balance after adding your monthly administrative fees and claims paid or are there additional funds withdrawn? If your healthcare spend is more, dig deeper into the contract to find missing, undisclosed, and redistributed fees.

Equally important, find out what valuable services are being left on the table and not included in your plan. What services are not part of the conversation, and why? Today, is it worth buying down benefits or taking administrative fee holidays and sacrifice risk mitigation. After all, the easiest way to control costs is to mitigate a claim.

Ask these questions. Your organization — and your employees — deserve more than surface-level discounts. By digging deeper into contracts, you can uncover the full story and ensure your benefits dollars are working for you and your employees.

About Health Action Council 
Health Action Council is a not-for-profit 501(c)(6) organization representing mid-and large-size employers that enhance human and economic health through thought leadership, innovative services, and collaboration. It provides value to its members by facilitating projects that improve the quality and moderate the cost of healthcare purchased by its members for their employees, dependents, and retirees. Health Action Council also collaborates with key stakeholders – health plans, physicians, hospitals, and the pharmaceutical industry – to improve the quality and efficiency of healthcare in the community.