Companies hold health inflation to 2%

Tom Doney, an old hand in the health plan and network discount business, has 421 self-insured employer clients in 50 states that are proving health costs can be held to 2% annual increases.

That track record for his Cypress health plan clients contrasts to average annual increases of 7% across the country in the eight years from 2007 to 2014.

Thomas J. Doney, President of Cypress Benefit Administrators

Thomas J. Doney, President of Cypress Benefit Administrators

The clients of Appleton-based spent $9,186 per employee in 2014, including drugs and dental, compared to an U.S. average of $14,357 per year (derived from three national consultants).

That’s a staggering 34% saving — more than $5000 per year.

For a company with 200 workers, that brings a cost reduction of more than $1 million.

How can that be?

For starters, Doney, who has been running his entrepreneurial health plan since 2000, is a skeptic on the subject of network discounts. He says they vary only slightly from Anthem to United Health Care to Humana to small health plans like his.

Nonetheless, in today’s broken business model for the delivery of care, networks and their discounts, which vary wildly at the procedure level, are still necessary for companies buying care.

Cypress uses a combination of the Trilogy and HPS networks, both Wisconsin entrepreneurial ventures. (HPS offers prompt payment to hospital corporations in return for a few more points of discount.)

But the world of the health plans is changing. Employers who underwrite their own risks for health costs are doing what the big health plans used to do.
Further, many private employers are moving to on-site primary care, meaning they are paying a flat fee per employee. That eliminates the networks and their discounts on that part of the medical care spectrum.

Similarly, self-insured employers are moving to direct contracts and bundled payments for expensive elective procedures. They are jumping right over the discount networks to a flat fee — $28,000 in the Milwaukee region for a joint replacement. Average cost via the networks is about $45,000.

Of note, the providers that offer low bundled prices often offer warranties on their surgeries. Any re-do is on them, as it should be.

Cypress sets itself apart by its flexibility on all those innovations. Its customers, like Menasha Corp., Boldt Co. and Keller, can mix and match modules for the best results. Those include other modules like price and quality transparency, chronic disease management and drug management. They help employees buy smart, they promote health and they keep people out of hospitals.

The Cypress numbers should be cause for optimism for employers, private and public, some of whom are looking aghast at per employee costs that top the Cadillac level of $27,500 per year. That’s double what Cypress clients pay, and arguably, the Cypress plans offer better care. Cheaper is undeniably better.

Doney voices one pessimistic note. He said drugs now account for 22% of the total medical bill for his customers. New drugs have driven up that part of the health expense from 10% – 12% a few years back.

He said some projections put drug costs at 35% within five years, inflamed by new drug patents. Even innovative payers have not found workable solutions to control the hyperinflation for novel pharmaceuticals.

That conundrum – drug costs that offset deflation on the main body of medical costs – explains why price controls on pharmaceuticals has become a national political issue.

I prefer innovative management and market disciplines to government price controls, but drugs at $100,000 or more per year may necessitate the latter.

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