William M. Satterwhite, JD, MD, CPE and Barry S. Herrin, JD, FACHEâ€
Everyone in business understands the term “ERISA”. Yet few people, even those in the benefits industry, actually really understand the incredible power to improve health and save money that is contained within the provisions of the Employment Retirement Income Security Act of 1974, as amended. Though originally ERISA only addressed pension plans and individual retirement plans, the Act has been amended several times and now covers employment-based medical and hospitalization benefits plans, called “welfare benefit plans†(WBP) in ERISA parlance.
Most companies offer traditional health benefits plans that have the usual monthly premiums, copays and deductibles, and some companies even offer a choice of plans each year. These plans are almost always a very “one-size-fits-all†approach, much the same as if the company said it was going to give every employee a free pair of socks — all of the same size! Who would do such a preposterous thing, you ask? Answer: almost every company in the US with more than 50 employees!
Welfare benefit plans (WBPs) as defined by ERISA, however, let a private employer create extra health benefits that are tailored to specific people or conditions, and these can be provided in addition to the company’s traditional health insurance benefit plans. Moreover, ERISA allows an employer to determine who gets this benefit, what it is they actually get, and how it is given and paid for.
For example, in addition to a major medical plan, an employer can provide any or all of the following WBPs:
- A plan for employees or beneficiaries who have been diagnosed with depression, anxiety, or other mental health disorders. This WBP can cover all visits to the psychiatrist and counselor at 100% without deductibles or copayments, along with all generic medications.
- A plan for employees or beneficiaries with the diagnoses of diabetes and high blood pressure. This WBP covers all visits to the doctor at 100% without deductibles or copayments when the purpose is addressing these diagnoses. Under this plan, insulin and all generic medications can be covered at 100% without deductibles or copayments.
- A plan establishing an onsite clinic for all employees, regardless of whether they are on the company’s health benefit plan or not, where all visits can be free and may be done “on the clock†(that is, without the need for the employee to “clock out†of work hours). Onsite visit-related generic medications can be free as well.[1]
- Each WBP can have a designated “Nurse-Health Coach†who is available onsite in person at certain intervals and available by phone at other times. These Nurse-Health Coaches are the “go-to†people for these WBP participants and a key operational component to decreasing the cost of care, triaging those with acute needs, and coaching them regarding relevant lifestyle changes.
WHY THIS WORKS
Insurance companies generally price coverage for employers on a year-to-year basis, which means that the insurer builds in its risk of loss to both known and unknown health conditions. This is why, for example, dental insurance benefits punish insureds that have to have a crown replaced with a bridge within 5 years of the placement of the crown. The insurer would rather have paid for a bridge that creates a risk of bone loss and damages two healthy teeth instead of trying (albeit unsuccessfully) to save a damaged tooth before resorting to a bridge. This kind of pricing and payment strategy makes no sense to most employers, because the average tenure for employed professionals is five years, with 23 percent of professional workers having tenure greater than 10 years.[2] Indeed, one of the authors notes in a prior article[3] that, with this information, it might be better for an employer to pay for LASIK (at an average cost of $2500) rather than years and years of eyeglasses (at an average cost of $200 per year) because the total cost to the employer over time might well be less.
Similarly, delivering more care up front – as these models suggest – would in many cases save the employer money over time for long-term employees. It has been known for decades (at least) that the administration of a six-month course of beta blockers (available as a generic at low cost) following an acute heart attack lowers the rather substantial likelihood of a typical second heart attack occurring within the next 12 months – and its attendant costs.[4] Recent studies[5] show that the use of statins combined with cardiac rehabilitation also proves cost-effective over the lifespan of the patient, and perhaps even a shorter period of time. However, insurers looking only at a yearly expense might not choose to pay for therapy that only has benefits to the patient over a multi-year period, whereas an employer – who knows he will have that employee as an insured for several years if not decades – might want to make that early expense in order to save overall dollars.
Additionally, early and persistent intervention in diabetes care and chronic obesity can prevent increases in care costs and progression of disease that could lead to short-term disability, long-term disability, and perhaps death. Such intervention can be in-person with or without the addition of drug therapy, but such interventions are a long-term commitment to decreasing long-term costs of care.[6] The attendant weight loss from such therapy also can improve cardiac health as well as reduce stress on the musculoskeletal system caused by excess weight.
Finally, for many employees with diabetes, for example, the dual barriers of high cost and inconvenient care result in poor care and poor outcomes, incurring average health care spending of $16,572 to remediate these issues.[7] With the right kind of WBP, many employers could see a drop in Year 1 costs of care for their diabetic employees. It is also not uncommon to see reductions in emergency department costs from 35% of the care spend on these employees to the single digits.
Only a payor that knows it has “bought†the risk of an insured for a longer period of time would engage in these strategies; however, most employers – on the short-term financial advice of their insurers – don’t do these things. The result? Less long-term improvement in employee health and higher overall health care costs to the employer.
GETTING PROVIDER BUY-IN
To be honest, the average health care provider doesn’t have any interest in lowering the health care costs its customers pay unless there is something in it for them. The alternative WBPs listed here offer the employer and a narrow network of providers the opportunity to share the rewards of a successful health care payment strategy. For example, Wake Forest Baptist Health as an integrated service provider (meaning a health care provider that owns and controls hospitals and ambulatory surgery centers and employs physicians) can offer a direct contract to self-insured employers in its service area, using only its owned and controlled resources, that could include an agreement to share any savings that these WBPs achieve each plan year with the employers. Because of the pre-emption of certain state insurance laws afforded by ERISA, such plans cannot be characterized as insurance under North Carolina law, thereby removing the necessity that an insurer (with its cost structure) be involved in the plan’s administration. In summary, a well-articulated strategic deployment of WBPs with select employers can provide a health system with steady cash flows, upside gain, and highly satisfied physicians who are not compensated by the ‘volume wheel.’
WHAT ARE THE POTENTIAL DOWNSIDES?
Most employers will not have the internal capacity to monitor and administer these programs and will therefore rely on their third-party administrators (TPAs) to do it for them. However, if the TPA is a subsidiary or affiliate of a major health insurer, it will be virtually impossible to get the TPA to agree to “load†these providers as “in network†and administer their claims, especially if the narrow networks compete with their other in-network providers. This is one of the “dirty little secrets†of health care insurers: even though ERISA permits the self-insured employer to direct the makeup of network providers, insurer-based TPAs rebel at this because it breaks the leverage that the insurer has to exclude providers who do not agree to their (usually very low) payment rates from the networks of self-insured employer plans.
One other important point needs to be mentioned and that is the “other†big federal law controlling employer health plans: the Consolidated Omnibus Budget Reconciliation Act of 1986, known to every human resources professional as simply “COBRA.†COBRA is what requires employers with 20 or more employees to allow former employees to extend their health care benefits post-employment. That means that, even though the employer has lost the potential future savings these WBPs offer, it must continue to allow former employees (and others qualified under COBRA) to continue to access these benefits.
CONCLUSION
As with many great ideas that can transform modern industry, nothing in this article is really new, as the laws have been on the books for decades and the evidence of what we’re advocating has been around for many years. However, employers find it easier simply to follow their broker’s advice and pay an insurance company or an insurer-controlled TPA to make decisions about the health and wellbeing of the employer’s most valuable resource, chalking up the ever-increasing cost of care as an expense of doing business. Employers owe it to themselves to explore every avenue to increase worker health and productivity and decrease costs. Happily, the strategies suggested here can in many cases do both. If you’d like to explore these ideas for your company, or begin a direct-to-employer offering as a healthcare provider, let us know.
Barry S. Herrin, JD, FAHIMA, FACHE, is the founder of Herrin Health Law, P.C., in Atlanta, Ga. Herrin offers more than 30 years of experience practicing law in the areas of healthcare and hospital law and policy, privacy law and health information management, among other healthcare-specific practice areas. He is a Fellow of the American College of Healthcare Executives and a Fellow of the American Health Information Management Association. He also holds a Certificate in Cyber Security from the Georgia Institute of Technology. Reach him at 404-459-2526 or barry.herrin@herrinhealthlaw.com.
ENDNOTES
†Dr. Satterwhite is admitted to the Bar of North Carolina and is Chief Wellness Officer of Wake Forest Baptist Medical Center. Mr. Herrin is also admitted to the Bar of North Carolina and is outside counsel to Wake Forest Baptist Medical Center. © 2020 William Satterwhite and Herrin Health Law, P.C. All rights reserved.
[1] This might not be truly a welfare benefit plan in the ERISA sense but another nonmonetary benefit of employment. The distinction, although at first seemingly unimportant, affects how the employee’s health information is used and disclosed under HIPAA. Additionally, such benefits cannot, for example, be extended to dependents of employees under the employer’s health plans.
[2] U.S. Bureau of Labor Statistics. (2018, Sept. 20). Employee Tenure Summary. Retrieved from https://www.bls.gov/news.release/tenure.nr0.htm
[3] https://herrinhealthlaw.com/disrupting-the-talk-about-disruption/
[4] https://herrinhealthlaw.com/wp-content/uploads/2018/12/AHLA-2004-Feb-Herrin-Health-Law-Analysis-Pay-Performance.pdf
[5] https://heart.bmj.com/content/104/17/1403
[6] https://care.diabetesjournals.org/content/39/Supplement_1/S47
[7] https://www.diabetes.org/resources/statistics/cost-diabetes#:~:text=People%20with%20diagnosed%20diabetes%20incur,in%20the%20absence%20of%20diabetes