Despite healthcare reform debate, rising medical plan costs continue to pummel U.S. employers. Corporate health plan costs are projected to increase again this year by more than 6%*. Since 1999, costs have increased by 134%**, nearly five times the cumulative rate of inflation.Ironically, during this same 10-year period, private health insurers posted record profits, while holding their employer-clients as hostages, feeding them only soaring costs, poor service, and lots of excuses.
But one major east coast company escaped the hostage situation and just celebrated its 8th straight year without a medical cost increase. In fact, while other companies reduced benefits to lessen crippling rate increases, this employer, whose medical plan covers 45,000 lives, actually enriched its benefits program. Today, its annual health plan costs per employee are 60% below the national average.These astonishing results were achieved without a major insurance company’s help. The employer simply eliminated the managed care middleman entirely and contracted directly with doctors and hospitals.Cutting out the middleman is an age-old idea, but when it comes to employer health plans, insurance carriers still hold employers hostage. Large managed care networks, controlled by profit-bloated and increasingly monopolistic private insurers, have emerged as the only means of coverage for employers. They’re also the dominant source of patient revenue for doctors and hospitals, so medical providers are held hostage, too. Consequently, the middleman controls both sides of the healthcare equation and effectively prevents buyer and seller from doing business directly with each other.Though highly effective, direct contracting is still largely unknown to CEOs whose companies are held hostage. Whipsawed by relentless cost increases, their benefit departments still rely on profit-centric insurance companies for cost-containment strategies, most of which are based on conventional managed care networks and cost-shifting onto employees. As true hostages of the big carriers, employers have been effectively brainwashed into believing there’s no viable alternative to the carrier’s approach. They’re convinced that if the big insurers like Blue Cross, United Healthcare, Cigna, and Aetna don’t have the answers, no one does. But direct contracting proves otherwise.Direct contracting creates a “win-win” business relationship between employer and medical provider, the true “buyer” and “seller” in the managed care equation. By cutting out the managed care middleman, the employer and provider eliminate the inherent disadvantages and financial shortcomings found in commercial managed care contracts. The direct agreement saves the employer money without shortchanging the medical provider. It creates a strong, stable, long-term, and mutually beneficial business relationship.Employer-owned networks are comprised of doctors and hospitals that provide medical care according to the employer’s health plan. For instance, the east-coast employer mentioned earlier has direct contracts in place with more than 10,000 physicians and 80 hospitals across 15 states. Direct agreements give employees and dependents easy access to medical care, while paying those providers quickly, fairly, and without administrative hassle.Direct contracting bears no resemblance to the complex, adversarial, and financially disadvantageous network agreements forced upon medical providers by insurance companies. Direct networks truly unite physicians and employers in the goal of providing accessible and affordable medical care to employees, without the obstacles and costs found in commercial PPO networks.As an alternative to HMOs, PPOs, and other commercial managed care approaches, direct contracting is a proven solution for employers who are desperate for relief from soaring costs. For employers held hostage by insurance carriers, direct contracting is a bold plan of escape. However, for such a plan to work, it requires strong executive-level leadership and a willingness to take risks along the way. But for those companies that do, the rewards of freedom from the carriers can mean huge savings, happier employees, and better control over future health plan costs.* According to Towers Perrin’s 2009 Health Care Cost Survey, the average corporate health benefit expenditure in 2009 will be $9,660 per employee–an increase of 6% over 2008 figures.** Kaiser Family Foundation Employer Health Benefits 2009 Annual Survey.