Empowering Employees to Be Better Consumers of Healthcare

Raffa Financial ServicesRaffa Financial Services on 02/04/2021

The Admiral’s idea

Almost 25 years ago, I had to deliver a rather large (20% plus) health plan increase, to one of my most interesting clients. The owner of the company was a retired admiral from the US Navy, who built our 600-ship navy during his illustrious career. In retirement and as a private citizen and government contractor, he was now helping others build ships. Obviously, he was a “can do” type of individual.

As he looked over the premium increase, which he could have easily passed on to our federal government under his contract, he was confounded by the problem of the increasing cost of health insurance and the cost of healthcare itself. Invariably, he considered potential solutions. After a brief reflective moment, he said, “The fundamental problem with healthcare is that the buyer of the service, (his employees) have no idea what they are buying or what they are paying for it.” He continued, “There are no market forces affecting healthcare costs.”

He went on to explain that as an employer, he could only negotiate with insurance companies on behalf of his employees. He felt that there was no way he could affect change in the system that would lower the costs for his employees as he was not in between the employee and their healthcare providers.

I simply agreed and filed away his novel assessment of the problem and the admiral did, in fact, pass through his healthcare increase to the federal government as allowed by his contract at the time.

High Deductible Health Plans (HDHPs)

Insurance companies also recognized the “fundamental problem” and, as health insurance continued to evolve, insurers came up with a consumer-driven insurance model that we recognize today as the high-deductible health plan (HDHP). The company actuaries responded with aggressive behavioral assumptions that allowed insurers to develop plans with incredibly low rates for these newest versions of high-deductible health plans.

Initially, the new lower rates purported to save employers between 25% to 30% on health insurance premiums because the deductibles and “having skin in the game” would encourage employees to become better consumers of healthcare. Congress helped by memorializing Health Reimbursement Accounts (HRAs) and later Health Savings Accounts (HSAs) thus providing the necessary tax incentives so that employees or employers could contribute funding toward the deductibles with pre-tax dollars.

It was a great plan and today these plans, mostly the HSAs, make up a large portion of the marketplace. However, health insurance costs have continued to escalate at rates well above inflation. Why is this?

The actuaries may have overestimated the effects on employee behavior in health plans with higher deductibles and employers may have affected behavior by reimbursing employees or funding employee deductibles. This combination of factors significantly reduced the projected difference between the cost of first-dollar coverage and high deductible health plans. In fact, the cost difference is nowhere near 25%-30%. The fundamental reason still exists as employees still do not know what they are paying until after receiving a bill for the service.

Who knows what healthcare costs


There are plenty of organizations who do know what healthcare services cost. Your insurance company knows, as they pay billions in claims each year. The Centers for Medicare and Medicaid Services (CMS) know because they also pay billions in claims. In fact, both know what providers charge for all types of services.

This became abundantly apparent when I attended a meeting this past year with one of the nation’s leading insurance carriers. The company chose to share some of the data that they have collected over the past few years to illustrate the variance in provider costs.

As an example, the company explained that, in Northern Virginia, a routine MRI can cost as much as $2,800. This surprises none of us who have looked at the Explanation of Benefits we receive from our insurance companies. What was surprising was that an MRI in Northern Virginia, could also cost $1,900, or it could cost $1,200 or $600 or even as low as $300! It all depends on which testing center the employee chooses to obtain the service.

Today, if the insurer has advance notice that you need an MRI, you may receive a surprise 800 call from your insurer who can bring this to your attention and help you select a provider that will save you some hard-earned money out of your pocket. This is a step in the right direction, but is it enough?

There is much more that needs to be done

If employees are to become better consumers of healthcare, they must be educated on exactly how and what to do, and they need access to valuable provider information. Healthcare transparency is happening quickly and the data is available, but it will not be advertised—it needs to be discovered.

With that said, it is well worth the effort. Employers (and their advisors) need to help employees find the information they need so that they can make good buying decisions on healthcare services. More importantly, healthcare transparency not only impacts decisions that could lower cost, but it can also improve quality!

Raffa uses a healthcare data tool that draws on information available from CMS (Centers for Medicare & Medicaid Services). The information includes the costs of hospitals, physicians, specific surgeries or procedures, and testing facilities. Like the information from the insurers, the variance in cost is sometimes staggering and these cost differences are not what you might ordinarily assume.

More importantly, the data also includes quality measures based on a wide variety of metrics, including the total number of procedures (very important), outcome-based ratings, or hospital readmittance. Interestingly, there does not appear to be any direct correlation between higher cost and better quality.

This is type of information absolutely needs to get into the hands of employee healthcare consumers before they select a provider and before they utilize the services. What to do and where to obtain the information can be communicated at the annual employee benefits meetings, through video instructions, on healthcare consumer ID Cards, and through repeated emails or mobile-enabled communications. An employer can even offer cash incentives for employees who follow outreach protocols. After getting the message out to the employee population, a quick call to the right client advocate, one who can provide the necessary data search in minutes, can be very enlightening. With this information, employees can make a great choice based on provider experience, cost, and quality.

In summary

To have an impact on health insurance premiums, there is a lot more to do. Health plan designs that reward lower claims costs, wellness programs, and attention to prescription drugs and chronic illness all need to be addressed. However, as the admiral might say, fundamentally, if you empower employees to make better buying decisions, you can lower the cost of the services they need, the out-of-pocket costs they incur, and the cost of the health insurance that protects them.


Written by Steve Heger
President of Raffa Financial Services
Connect with him on LinkedIn


There’s so much more to employee benefits than policies and premiums. A great benefits broker will make sure you, your employees, and your business are protected. Is your agent looking out for you? 

Photo by kantver


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