Self-insured group medical plans are very prevalent and have served plan sponsors well in many respects. However, plan sponsors have experienced increases in per capita medical costs that greatly exceed the Consumer Price Index for all urban consumers (CPI-U) for many years. The vast majority of self-insured group medical plans in-force in 2013 utilize a network of hospitals and physicians where the providers have contracted to provide services at some effective discount off their standard fee schedule known as “allowed charges.” These allowed charges are often determined in conjunction with a Preferred Provider Organization (PPO).
Another reimbursement approach that is getting attention is known as Medicare Cost Plus (MCP). With this method, the plan does not utilize a PPO network to determine the allowed charges covered, but rather the allowed charges are set to be equal to some multiple of the Medicare allowed charges in a given market. Plans commonly will reimburse at 120% of the Medicare allowed charges, but the multiple can vary upward or downward.
The Medicare Cost Plus approach can result in significant plan savings that accrue to the sponsor of the self-insured plan because 120% of Medicare reimbursement is typically less than what is allowed by the commercial PPO networks. The differences are larger for facility (inpatient and outpatient) claims than professional claims. Administrative costs under a MCP reimbursement should be lower due to the lack of network access fees. In addition, medical stop loss premium rates should be lower under a MCP plan because the lower level of allowed charges reduces the level of the insurance carrier.
Employer plan sponsors retain all the traditional advantages of self-insured group medical plans including the ability to not comply with state insurance mandates, avoidance of state premium taxes, and the ability to offer identical plan designs to employees who reside in different states.
The savings that the MCP method offers could be partially or fully offset by additional costs incurred for member advocacy in a MCP plan. The primary issue that employers will encounter with a MCP reimbursement approach is that without pre-negotiated provider reimbursement rates and/or discounts, some providers will not accept the plan reimbursement as payment in full for their services rendered. This can result in members being balance billed by providers after a claim is adjudicated. It could also result in the member not being welcomed by some physicians or facilities in the provider community.
Employers must prepare for these claim adjudication issues and develop a strategy to help plan members deal with providers who contest reimbursements and “balance bill.” Plan sponsors must also engage a qualified ERISA attorney to draft a new plan document and develop compliance procedures associated with the MCP reimbursement strategy.
We think the Medicare Cost Plus reimbursement approach will provide significant savings for some self-insured group medical plans. What do you think? Is MCP a good alternative to the traditional way of determining allowed charges? Will your group explore MCP as an option? Let us know.