April 20, 2020

Selling Self-Funding

Grant Parker

In this post, we break down strategies for moving clients to self-funded plans.

Unbundled: [ənˈbəndl, adjective] A health benefits plan that’s built from a “stack” of independent, specialty vendors, rather than being run by a single carrier. 

In this blog, we’ll explore strategies for bringing fully-insured clients over to self funding. Clients use self-funded plan designs to improve member’s access to quality care, and reduce unnecessary and wasteful spend.

Advisors should know how and when to position a good self-funded strategy. And when they do have a client on the line, the strategy should be multi-year, that methodically moves the group toward their desired state.

The unbundled plan designs most successful with groups of 100 to 2,000 lives are:

  1. Unbundled with a rented PPO network
  2. Unbundled with a rented flexible network
  3. Reference-based pricing

There are other plan arrangements (eg. CIGNA level funded, fully insured), but since we don’t consider them good for employee health or cost containment, we won’t cover them here.

#1 Unbundled with a PPO network

With this plan design, a group separates themselves financially from large carriers while still “renting” one of their provider networks. This feels comfortable to members, who are used to networks and how they work. Since the group is now self-funded, the bills and the data come to them, giving them unprecedented insight into how their healthcare supply chain runs. In later years they can leverage this into better member outcomes and lower costs.

Renting a BUCAH network imposes some limitations. The BUCAHs insist on doing their own precertifications and utilization review, and on receiving claims directly. This means that the TPA doesn’t have an opportunity to provide steerage to members, or to audit claims for fraud, waste, and abuse pre-facto. Often, the claims costs aren’t necessarily lower with a PPO network. The value comes from lower pharmacy costs, potentially lower administrative costs, and more data and insight into plan utilization.

As mentioned, pharmacy is the lowest hanging fruit in this arrangement. You “carve out”, or use independent Pharmacy Benefit Managers to source, classify, and supply drugs to the group. When you do this, the formularies can be written with the group’s interests in mind, putting drugs common to the group in Tier 01 and less common drugs further down the list. The right independent vendors can also find drugs cheaper by leveraging Manufacturer’s Assistance Programs and international sourcing. 

Disruption: low

Ease of implementation: high

Impact to quality: minimal improvement

Impact to cost: improvement (mainly due to pharmacy costs)

The PPO Network Operating Playbook

  1. Build plans to rent the CIGNA Network, with an independent PBM and stop-loss.
  2. Collect plan utilization data from all associated vendors (not only claims).
  3. Begin analyzing as soon as 3 months how members are actually using the plan—where’s the money going, what conditions are recurring, how could members make better choices?
  4. Identify drugs that can be sourced internationally or through Manufacturer’s Assistance Programs, and proactively enroll members in those programs. (Flume provides a unique technology tool to do this.)
  5. Hold review meetings 6 months and 9 months into the plan year, so the client understands where their money is going and how they can update the plan design next year to bring costs down and improve value.

What can go wrong

  • Missed opportunities through low utilization (<5%): When plans use big carriers for network access and utilization review, members typically make their own decisions about when and where to seek care. However, most patients are neither equipped nor qualified to select high-quality options. This plan design usually doesn’t create significant opportunities for member steerage.
  • Unforeseen major expenses: Big carriers usually don’t allow the plan to see precertifications or claims before they come in. So high-cost treatment can’t be avoided through member steerage, can’t be audited up-front, and can’t be planned for.

The role your TPA should play

  • Healthcare reporter: Aggregate and report on everything that’s happening in the back end of the plan. Host regular reviews with the advisor and client to discuss improvements to the plan for next year.
  • Create clear plan designs: This includes best-in-class vendors (“stack entities”), member concierge and educational campaigns, and clear incentives for members to engage with the PBM (reduced out-of-pocket obligations, simplified refills, etc).


#2 Flexible PPO Network

With this plan design, the group uses a non-BUCAH national network such as First Health or PHCS for provider access. This still gives members the comfort of a network, and in many cases there is not a huge drop-off in access compared to the BUCAH networks. The difference here is that a flexible network allows for two key features that BUCAH networks don’t: Medical Management and Direct contracting.

Medical Management is a team of nurses and doctors who, among other things, handles all precertifications. They are trained to find opportunity to steer patients toward higher quality providers and/or less invasive pathways of care. The plan should be written in such a way that when members choose pathways that are better for them, their out-of-pocket obligations are lowered or even waived. Bundled surgical options also create an opportunity for improving outcomes and containing costs.

Direct contracting can be implemented with this plan design to open up pathways to locations that are going to be higher quality or more fairly/transparently priced than a hospital. Mainly this applies to local imaging centers, ambulatory surgical centers- somewhere that charges a deductible. To incentivize members, the plan should include language that waives patient deductibles if they choose these locations over a hospital. 

This plan design also allows the auditing of claims before and after they are paid. This way the plan can catch errors and adjudicate incorrect or fraudulent charges on behalf of the plan sponsor and the member. This also allows member advocacy programs such as support for balance billing, which is a huge deal for members who are usually left to handle balance bills on their own.  

Disruption: low to medium (steerage can feel awkward at first)

Ease of implementation: medium (employee engagement and education is important)

Impact to quality: big improvement

Impact to cost: improvement

The Flexible PPO Operating Playbook

All the steps from #1 plus:

  1. Build and integrate the stack partners so that all member experience flows through a central CRM (the TPA). This provides a single source of truth and member engagement.
  2. Build plan language that rewards members for choosing higher value pathways suggested to them by the TPA, Medical Manager, or PBM.
  3. Proactively engage members whenever there’s an opportunity for steerage, and give them information and options to make an informed decision.

What can go wrong

  • Missed opportunities through low utilization (<5%): Most health plans wait for members to inquire about bundled surgery programs themselves. The problem is that most patients forget what they heard during Open Enrollment, and don’t know to ask.
  • Inconsistent messaging to members: Even the most discerning members lose patience when benefits structures are unclear or if approvals get stalled. Make sure you remove roadblocks to accessing high-value programs.

The role your TPA should play

  • Route members to high-value opportunities: Identify procedures before they happen and engage members as early as possible. This is usually done in partnership with Medical Management.
  • Engage members as early as possible in their care journeys, so they understand if they have any incentives to choose one pathway or another, and how to get there. 
  • Contract with providers directly: Proactively and/or reactively build a local community of contracted providers where the plan can steer patients. 
  • Provide balance bill support: While balance bills are not necessarily more common on RBP plans, they are more visible. The TPA needs to provide multi-level support to negotiate, diminish, and pay balance bills, while protecting the member legally and making them feel supported.

#3 Reference Based Pricing

Reference-based pricing (RBP) plans do away with any kind of network at all. This gives members no limitations as to where they can choose to seek care. 

From the plan’s perspective, RBP is the best way of lowering the cost of claims. RBP plans pay claims and bills based on a percentage above Medicare rates (typically 140-180% of Medicare), as opposed to networks who negotiate discounts off a billed charge from the hospital, and can often pay 300-800% of Medicare. RBP plans see savings immediately and over the long term as they begin repricing claims at this lower rate of reimbursement. 

This plan design includes the same cost containment tactics of the previous self-funded plan designs. The Medical Management team handles precertifications and watches for opportunities to steer patients toward higher quality, lower cost providers and/or less invasive pathways of care. Bundled surgical options are very commonly employed to improve outcomes and contain costs. PBMs proactively bring down the cost of drugs.

Direct contracting is very important for this plan design. This is mainly because RBP is still somewhat revolutionary, and many doctor’s offices and hospitals are not set up to immediately bill for RBP. Direct contracts make access seamless for both parties. Hospitals are harder to access on an RBP plan and not likely to quickly sign direct contracts. However, they will still see patients and bill as usual. The plan should include language that waives patient deductibles if they choose contracted providers over a hospital, as an incentive for members to choose providers that are better for them and the plan. 

Disruption: high

Ease of implementation: hard 

Impact to quality: big improvement

Impact to cost: big improvement

The RBP Operating Playbook

All the steps from #2 plus:

  1. Educate and equip company leadership and HR so they’re prepared for member questions and complaints.
  2. Educate members early and often about how to use their plan and why this is beneficial for them.
  3. Provide a concierge to help members book RBP appointments with their current doctors, or search for new ones (in place of a Network list). 
  4. Proactively build direct contracts with frequently visited providers to smooth the way for future visits.

What can go wrong

  • Lower provider access: Providers may push back on members trying to set appointments if they’re unfamiliar with RBP, or simply don’t like it. 
  • Inconsistent messaging to members: Even the most discerning members lose patience when benefits structures are unclear or they can’t figure out how to see their doctors. The lack of a familiar network environment causes some people to panic.

The role your TPA should play

  • Route members to high-value opportunities: Identify procedures before they happen and engage members as early as possible.
  • Create clear plan designs around this clinical pathway. Reduce member out-of-pocket obligations for following the Plan’s or medical management’s suggested pathways
  • Contract with providers directly: Proactively and/or reactively build a local community of contracted providers where the plan can steer patients. 
  • Educate members and company leadership on pros and cons, how to use the plan, and “WHY” it is important. This should happen early and often, not just Open Enrollment.
  • Provide balance bill support: While balance bills are not necessarily more common on RBP plans, they are more visible. The TPA needs to provide multi-level support to negotiate, diminish, and pay balance bills, while protecting the member legally and making them feel supported.

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