Pretend that you own a business with 40 employees. You provide them health insurance. You have figured out that self-insuring makes sense for you and you have saved loads of money by doing this and your employees love it. The company you used to buy your insurance from still acts as your “third party administrator.” In other words, even though it is your money being spent, they have the checkbook and are authorized to pay and negotiate medical claims on your behalf.
Every year your “insurance guy” shows up about a month prior to renewal of your contract with him and his company to provide you with this “third party administrator (TPA)” service. He shows you how much money his TPA has “saved” you and your company by comparing what you were initially billed and what, ultimately, you wound up paying. This “huge savings” is due, of course, cough..ahem…to his company’s powerful presence in the market and their tough negotiating stance and the desirability of their “network.”
Ok. Now the fun part. You are not an idiot like this insurance guy thinks you are. You quickly realize that he is full of crap. Your employees go “out of network” most of the time because either the physician they want to see or the facility to which they want to go is infrequently “in network.” The “network” tries to force your employees to big expensive hospitals with penalties and extra deductibles and other tricks. You and your employees have figured out that for all of this coercion, it still makes sense to go “out of network” almost every time as the prices away from the big hospitals are so low and competitive, the employees are usually out of pocket less money if they avoid the network.
But here’s the part the broker really doesn’t want you to know. You actually pay the TPA “ PPO repricing fees” based on how much they “saved” you. Whoa, wait a minute! That means that the TPA actually makes more money if the difference between the original bill and the final bill is huge. The TPA is actually incentivized to find the most expensive place in town for your employees. (WHAT?!) They really don’t care ultimately how much you pay, just the difference between the giant original bill and the final bill. And this guy has the gall to tell me how much he “saved” me? The higher the bill is the more the broker makes on these repricing fees.
One insurance broker recently told me that these “repricing fees” make up 40-50% of the net profit of big health insurance companies. He is concerned that once this gets out that he is out of a job and that the days of this sweet deal are over. This particular broker told me that if our transparent pricing model catches on the big insurance companies will once again have to play by the “rules of the market.”
Let’s hope he’s right.
G. Keith Smith, M.D.
