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The Real Impact of PPOs on American Families

One of the local news channels where I live in Nashville has an ongoing series about American families struggling with medical debt. One in four Tennesseans is burdened with medical debt, and the stories are both heartbreaking and seemingly endless. A wife taking a second job cleaning houses to pay for her dying husband’s chemotherapy. A young single mother watching the bills pile up for her baby’s emergency delivery. A 60-year-old man postponing retirement by driving for Uber to pay more than $50,000 in bills for a life-saving vascular surgery.

Insured but not protected

For so many of these stories, the amazing thing is that these individuals already had insurance. They were being penalized even though they had played the game by the rules. According to a new Kaiser/New York Times study, one in five working-age Americans with health insurance reports problems paying their medical bills. Faced with a major bill, 63% report that they used up most or all of their savings and 42% took on an extra job or worked more hours. Many also find themselves increasing their credit card debt, borrowing money from family or friends, changing their living situation and seeking charity aid.

It’s no wonder that 66% of bankruptcies in America today are related to medical costs. That’s more than 500,000 families impacted each year, even as healthcare and insurance costs continue to rise.

PPOs and the illusion of protection

Today’s healthcare insurance crisis is driven by a multitude of factors, but the failure of the BUCA (Blue Cross Blue Shield, Aetna, UnitedHealthcare and Cigna) insurance carriers and their Preferred Provider Organizations (PPOs) to protect Americans is undeniable. In fact, employees with BUCA PPOs pay the highest deductibles and premium costs in the U.S, according to a recent study. And 1 in 5 employees on PPO plans reports having a balance bill they weren’t expecting.

Almost 70% of employer self-funded plans are traditional BUCA PPOs. You might think that this high level of adoption would give these plans enough leverage to drive down costs. That’s not the case. Despite their wide usage, PPOs offer a number of challenges:

• PPOs are not really structured to lower costs or drive quality. Instead, they are designed to sell services from inside a wide “everyone is in” network.
• PPOs do a bad job at identifying quality care. Most PPO networks include 98% of providers. If your “network” includes nearly every provider, is it really a quality network? It doesn’t take a lot of fancy algorithms to pick everyone, does it? The data clearly shows that 98% of providers in the U.S. are not high-quality providers.
• PPOs often pay a high markup for in-network providers compared to established Medicare rates. That’s because with self-insured plans, the BUCA carriers are paying the providers with the employer’s money, so high rates don’t impact the insurer. (Actually, in this case, carriers should be called an administrator of claims, but that’s a discussion for another day.)

Another PPO challenge: lack of pricing transparency

According to a recent independent study on hospital prices by RAND Health, “Employers generally lack useful information about the prices they are paying and many contracts between large provider systems and insurers actually prohibit sharing detailed pricing information with employers and patients.” Employers with a PPO are essentially buying their healthcare — likely their second- or third-biggest business expense — blind to cost and quality, within a plan arrangement that leaves their employees highly vulnerable to surprise balanced billing and exorbitant charges.

A new way of thinking

That’s why employers with PPOs (even PPOs within a self-funded plan) should ask themselves what their plan is actually purchasing. Yes, there’s a long-held belief that employees want a wide network, but at what price? If your wide network is costing you millions and your employees thousands, is that access worth it?

Not surprisingly, many employers nationwide are shifting the way they think about healthcare insurance and moving to alternate solutions. If you’re an employer or broker who wants to optimize plan performance, you should consider:

• Leveraging direct contracts with top local providers as a way to avoid egregious markups and hidden fees while asserting price controls.
• Incentivizing employees to use higher quality, lower cost facilities through the structure of their plans.
• Implementing innovative drug sourcing strategies and reexamining your pharmacy benefit manager relationship.
• Adding Reference-Based Pricing (RBP) to your plan. This proven strategy involves the payment of medical claims based on a metric or reference point, such as established Medicare payment data, so that you get fair pricing for quality care.

It’s time to take back control

Today, employers spend a significant amount of money to insure employees — let’s not leave them exposed and force them to take a second job, postpone retirement or declare bankruptcy because of a medical emergency. Cost-saving innovations, like direct contracting, can help you drive down spend and provide tools that protect your employees against the burdens of today’s healthcare costs. With these new solutions in place, you can finally take back control of healthcare — and take care of employees in the process.