The Self-Insured Employee Benefit Plan as a Foundation for Risk/Population Health Management

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Hospitals and health care systems have always been in a unique position when it comes to health insurance benefits for their own workforce. Often, hospitals self-insure their plans with the idea of driving expenditures within their own health system and reducing expense as it relates to premium dollars and/or claims paid to their competitors.

Through plan design and/or cost shifting, health care employ­ers provide incentives to stay "domestic" and the plan experiences only the incre­mental costs of providing these benefits. The underlying concept is that the health care employer is managing the "risk" of their employee population in a way that the future vision of health reform would have the health of the nation managed. However, health management of the hospital’s employees and dependents typically stopped there.


Health systems have not – to a very large degree – sought to leverage the expertise under their own roof to improve the overall health and well being of their work­force. Often times, the hospital campus fails to "advertise" health – food choices are not healthy, staff smoke at the hospital entrances and more than half the work­force is overweight or obese.

The Business Case

The business case for managing health has an unprecedented sense of urgency.
As a nation, we cannot sustain the cost increases in our entitlement programs. According to a recently published article in the journal Health Affairs, in 2011 spending on government programs will account for more than half of all U.S. health-care spending, for the first time – some of which is the result of the weak economy and job loss pushing more people into Medicaid and slowing the growth of private insurance.

According to the Centers for Medicare & Medicaid Services, National health spending for 2008 was $2.33 trillion and represented 47 percent of the public share. That percentage is expected to grow to more than 50 percent in 2011, a figure that ex­ceeds government estimates that predicted the 50 percent share would not be reached until around 2016.

New projections estimate that one out of every five dollars spent in the United States will be spent on health care – an amount that far exceeds any industrial­ized nation. The Centers for Medicare & Medicaid Services predicts that spend­ing for 2009 will reach $2.5 trillion which is 5.7 percent over 2008. This represents 17.3 percent of gross domestic product (GDP), up from 16.2 percent in 2008, primarily due to the shrinking economy. By 2019, health spending is expected to reach $4.5 trillion or 19 percent of GDP.

Irrespective of what happens with challenges to health reform and all the pos­sible iterations of change models – ACOs, patient centered medical homes, etc. – it is obvious that no matter what form it takes, change is inevitable. Com­mercially insured plans provided through private employers cannot continue to absorb the increases hospitals seek in order to offset the losses from government payers on their balance sheets.

There is a very real risk that corporate employ­ers will react as they did to the changes to employer sponsored defined benefit pension plans under ERISA, when they responded by getting out of the defined benefit business and offering a defined contribution instead. As health reform creates both a mandate and an avenue for purchasing insurance, large corporate employers could opt out of providing a benefit and instead elect to offer a con­tribution to offset the individual’s purchase cost. The end result would not help us to improve the health of the American population or the communities each of the hospitals serve.

We also see continued consolidation of physician practices and shifts in physi­cian and hospital alignment. Tiered networks are being implemented as a cost control mechanism to narrow provider selection and the prevalence of Consum­er-Driven Health Plan options is also growing. One area of attention and focus is utilization management – especially in preference sensitive, prescription and imaging services.

All that said, now what? Health care reform has focused new attention on the tension between being a health provider and a provider of health benefits; the emphasis on the objective of health insurance changes from paying for health care to managing health.

No Down Side

The health care employer’s self-insured health plan is a ready-made platform upon which to experiment, if there ever was one. In essence, it is a pilot project for creating and testing out how to create a health management infrastructure. There is no down side. On the one hand, if it succeeds, the organization will be far ahead of its competitors, who will still struggle with what it means to be an ACO or to have a patient-centered medical home. On the other hand, if it fails, the only loss is to the self insured plan – which, in all likelihood would have suf­fered the same losses under the old regime of health care delivery.

This platform is not a "wellness program" with return on investment (ROI) metrics that measure participation in HRAs and health related programs. It is a profound change the way business is conducted.

These goals call for organization-wide re-engineering. The old way of doing business must give way to a new method of integrating service delivery and managing health outcomes. This transformation will require a commitment from the most senior levels of the organization to a new way of doing business, and will evolve over time. Return on the investment is typically generated incre­mentally over a three-to-five year period, while sustainability of health manage­ment and improvement is a critical challenge.