Disruptive healthcare purchasing by self-insured employers

Nearly two-thirds of the 153 million non-elderly Americans who obtain health insurance through their employers do so through self-insured plans. Employers offering self-insured plans collect premiums from enrollees and pay for the medical costs of those employees and their dependents.

These plans give organizations more control over benefits than fully insured plans, which involve employers paying insurance companies a set premium per enrollee. But most companies lack the expertise and leverage to negotiate prices as effectively as healthcare payers can. The result? A recent study by HealthAffairs¹ found that prices for common services were higher in self-insured plans than in fully insured plans.

The challenges and opportunities of the self-insured employer market were the focus of a panel at the 11th Annual Cain Brothers Private Company Healthcare Conference in New York. Dave Johnson, Founder & CEO at 4sight Health, moderated the discussion with Don Trigg, CEO at apree health, and Glen Tullman, CEO at Transcarent.

Johnson began the session by asking Trigg and Tullman to describe the problems their organizations are trying to solve in the healthcare sector.

Value in health care remains elusive

Gallup² reports that the percentage of Americans who have a favorable view of the U.S. healthcare system fell from 62% in 2012 to 48% in 2022. That’s despite the fact that the U.S. spends far more on health care per capita than other comparable countries.³ Narrowing this gap between spending and perception of value, Trigg said, is where the focus of healthcare investors and stakeholders needs to be.

“Employers see healthcare costs trending well above the rate of inflation. At the same time, they’re hearing from employees about their dissatisfaction with the traditional healthcare system,” Trigg said. “Self-insured employers that pay premium prices for largely commodity products and services are not getting value for their healthcare purchasing.”

Tullman agreed with Trigg’s assessment, adding that the key to addressing the problem is driving efficiency in the system and ease of use for patients. As an example, he highlighted how the process of getting a ride to the airport has evolved, from the inefficient and often stressful practice of hailing a cab to the quick and easy process of using Uber or Lyft.

“The country may seem divided about a lot of things, but everybody agrees that health care is more confusing, more complex, and more costly than ever before,” Tullman said. “Every other industry is getting more efficient. So, the problem to be solved is, ‘How do we put consumers in charge of their health care the way we’ve done it in every other industry?’”

Balancing health and care

One way to improve the cost/results dynamic in healthcare is by more effectively addressing some of the country’s biggest health challenges, such as obesity, diabetes, and cardiovascular disease. GLP-1 drugs like Ozempic and Wegovy, for example, have proven to be effective in controlling blood glucose, supporting weight loss, and reducing the risk of major heart-related events. But, as Tullman pointed out, there’s a catch.

“Used correctly, these are miracle drugs, and that’s good news,” Tullman said. “The bad news is that, as we find more and more cures, we also have to find ways to pay for them. We have a cure to hepatitis C now, and it's great. It's a five-year winner. But it's a one-year disaster if you're a small company. So, how do we balance that?”

The solution, Tullman said, is to strip out all the inefficiency from healthcare, and then make it easier for people to navigate the healthcare system.

Simplifying access and decision-making

Consumers want a single point of access for all health care, but the current fee-for-service system disincentivizes that kind of streamlining.

“If you shattered a glass in a room, you would clean up the glass. But in healthcare, we make a little path through the room, then we hire somebody to show you the path, and they charge you every time you want to go into the room,” said Tullman. “With the help of artificial intelligence (AI), we can give people the information they need to find their own way through this whole process.”

Traditional healthcare is organized fundamentally around the provider, Trigg added, rather than the consumer.

“The incentive structures are wrong. But if we can deploy data and technology like AI, mobile apps, and automation, we can deliver a better experience that creates compelling word of mouth and boosts utilization,” said Trigg. “You’re starting to see these innovations come together in a way that wasn’t possible 10 years ago, all oriented around better experience with demonstrably lower cost.”

Tullman predicted that large companies would begin exploring new approaches to healthcare within the next two years, driven by the dramatic price reductions and cost savings delivered by these solutions.

“When those announcements come out, there’s going to be a rush toward adopting these new technologies,” said Tullman. “We’re going to see a very disruptive time that will be beneficial to employers and to all of us as health consumers.”

Conclusion: Ushering in an era of transformative change in healthcare

Rising costs and inefficiency are putting a strain on self-insured employers, and the employee goodwill that would normally accompany a benefit of this magnitude is diluted because the consumer experience in the U.S. healthcare system is so poor. Instead of kudos, employers get complaints, making big medical bills harder to swallow.

But the panelists say they believe the system has reached a tipping point — at the same time employers and enrollees are running out of money and patience, new innovations are emerging that promise to increase transparency and efficiency, reduce costs, and empower consumers.

“Change happens gradually and then suddenly, and I think we’re a lot closer to the ‘suddenly’ stage than most people realize,” Johnson said. “Once we get the incentives right, we can unleash the American innovation engine on the industry. And if we can do that, we’ll free up enormous resources and pay people more money to invest in more productive industries, to fund vital societal needs. There’s going to be a lot of disruption between now and then.”

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