A tale of two health plans, one far less costly

Steinhafels

Compare and contrast the performance of Steinhafels Furniture and the State of Wisconsin in managing health costs.

The Steinhafel family and Lynda Malmberg, senior human resources manager at the retail furniture and mattress chain, have applied serious management disciplines to the company’s $2.3 million health plan for 308 covered employees at 19 locations. The company is at the bleeding edge of health care reform in the private sector.

For openers, the company leads the way on self-insurance, which means it assumes most of the risk for health costs. (FYI: Four of five U.S. companies with more than 200 employees have taken the same route. Companies with as few as ten employees have self-insured.)

In contrast, the Employee Trust Fund (ETF), which manages health costs for 84,000 state and local employees at a cost of $1.3 billion, is not self-insured, although it has a big enough pool of lives to be its own insurance company. It lays off the risk to insurance carriers of one stripe or another.

Do the math. Steinhafels spends $7,500 per covered employee for a full health benefit. Under its most popular plan, ETF spends at least $15,000 for a full, but obviously under-managed, plan. If the Steinhafel plan were substituted for the ETF plan, state taxpayers could save several hundred millions of dollars. Per year!

For perspective, that’s more than the proposed $150 million cut to the University of Wisconsin System in Gov. Walker’s budget.

The Walker budget calls for a small ETF of $25 million cut, or 2%, in 2016.

A recent analysis by Segal Consulting for ETF said flat out: “Compared to other states in your region (Illinois, Indiana, Iowa, Michigan and Minnesota), ETF has the richest plan design.” It is platinum level. Segal added: “With the richest plan comes the highest cost.” You think?

First, let’s get something straight. Going to a self-insured plan, in and of itself, doesn’t cut major costs. There are some direct savings, which Segal pegged at $50 million to $70 million per year. Not exactly chump change.

Even more importantly, self-insurance is a platform that allows an organization to keep its savings from innovative management of employee health and the related costs. It provides an escape from insurance pools with inert fellow payers.

Back in the 1980s, ETF briefly flirted with self-insurance, and it didn’t work. But that was in the dark ages before private employers reinvented the delivery and purchasing of care. ETF reverted to an insured plan and has been stuck in that status quo for more than three decades.

In comparison, Steinhafels is using all the new tools and is inventing others. Both Steinhafels and ETF deploy plans with no deductibles for most employees. That is unusual; most companies have high deductibles. So do most policies on the new public health exchanges.

Segal proposes to raise ETF’s to $500 for a family in 2016, still a minimal number that won’t do much to change behaviors.

The out-of-pocket maximum for a single plan at ETF is $500; at Steinhafels, it’s $2000.

That’s just a start on the differences. Here are some other Steinhafels innovations that improve health and lower costs:

• Malmberg contracts with QuadMed for proactive primary care, which works to keep people well and out of the hospital. Essentially, by using QuadMed, her company has brought all-important primary care in-house.

• Malmberg has gone direct where few companies have gone for secondary and tertiary care. She has created the Steinhafels Provider Network, which means she does not use the network of a third party administrator. She gets significant discounts for narrowing her network and passes some of them along to employees in the form of affordable health care.

• Steinhafels has won some bundled prices. It buys MRI scans for $600 vs. regional prices of $3000.

• Malmberg has a health cost dashboard that allows her to personally slice and dice every category of her spend. She is way into the data. It shows, for instance, vaginal births at about $10,000 for the whole episode of care and Caesarian births at $15,000.

• Steinhafels contracts with Alithias, a Milwaukee start-up (I’m an angel investor) for transparency on prices and quality measures, so Malmberg and employees know exactly what they are paying.

The incumbent insurers and providers, especially the Health Management Organizations in the Madison area, will, of course, resist the movement of ETF to self-insurance and the related package of reforms. But their old model for the delivery of care is busted on the economic side.

In its recent report to ETF, Segal cited three major national studies that showed major savings from a consumer-driven health plan (CDHPs in which a high deductible is offset by a Health Savings Account). Those studies show that EFT could save between $147 million and $435 million per year. Yet, Segal is not recommending self-insurance or a CDHP for 2016. Go figure.

One inference could be that Gov. Walker’s team is not interested in rocking the public employee boat more in the aftermath of Act 10 and in the early stages of a presidential run.

But the State Insurance Board should at least get off its rear end and make a benchmarking visit to Steinhafels’ new business model for the delivery of care.

They will learn what “cheaper and better” looks like. In the not too distant future, they pain of ETF’s costs will be so high that reforms along the lines of Steinhafels’ plan will become an imperative.

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  • Ray

    Excellent analysis John — this is a big opportunity and your insight on health cost issues is spot on!

  • Greg

    Great points, John. What I find most interesting is that Steinhafels has reduced their health care costs while maintaining a $0 deductible plan. I believe that high deductible plans, while saving employers money, result in inconsistent and sometimes unhealthy employee behavior. Kudos to Steinhafels!

  • Doug Swanson

    John, not sure where your information on ETF is coming from but the State health plans I’m familiar with, including the one that covers my family does have deductibles. $1000 for the family I believe – could be two we haven’t hit the $1000 mark. I have no objection to changing plans if the coverage remains the same. If someone can squeeze costs out of our current health care system that should be a model. The start up you mentioned that provides transparency is long overdue. But here’s something the Gov could do to ease the transition if he decided to go that route, give people a raise. Gross pay has gone up only a couple of percent in the last 7 years (not counting the furlough reduction), while net pay has actually dropped 7 – 10%. With an additional nothing for the next two years. All while average hourly earnings and CPI have been climbing.

  • Kenny Lippold

    Excellent analysis John. The Steinhafel’s model should be the benchmark for companies with over 200 employees. Why the State Insurance Board has not taken a serious look at this framework puzzles me. See you at WBCC!