Employers as Payors: Shifting Healthcare Costs onto Employees, Providers

Large employers are acting like health insurance companies and other payors, negotiating with healthcare providers on price and setting caps on prices for specific medical procedures.

The New York Times looked at the trend of large employers negotiating directly with providers for reduced pricing and found it to be exploding across the country.

“Although it is in the early stages, the strategy is gaining in popularity and there is some evidence that it has persuaded expensive hospitals to lower their prices,” writes the Times’ Reed Abelson.

Approximately 15 percent of large employers will test some form of the “employer-as-payor” approach next year, up from 5 percent this year, according to a survey by HR consultant Towers Watson.

California Public Employees’ Retirement System, one of the nation’s largest employers, was able to cut costs for participating employees by 19 percent with no identifiable impact on quality of care, the Times reported. The public employees organization was able to persuade hospitals to make substantial concessions on price for medical procedures.

According to the Times, employers for years have been demanding transparency in healthcare provider pricing.  ”One of the goals is to determine when the price of a medical service bears no resemblance to the quality care,” writes Abelson. “Paying more money without getting better care in return has been a longstanding source of frustration for employers.”

Employers functioning like payors is growing, but other strategies such as shifting more of the costs onto employees has become the norm rather than the exception. As a recent Tower Watson survey found, “more than 80 percent of respondents plan to continue to raise the share of premiums paid by employees, including rethinking their subsidy strategy for dependents.”

Currently nearly two out of three employers offer employees an account-based health plan (ABHP), and Towers Watson found that number will grown to four out of five by 2014.