Health Insurance Industry Explained--Health Insurance from Job (Employer-Sponsored)

This video provides an in-depth exploration of employer-sponsored health plans, dissecting the complex financial and administrative structures that underpin healthcare coverage for a significant portion of the American workforce. Dr. Eric Bricker, the speaker, systematically breaks down the four core constituents of these plans—employers, employees, insurance carriers/PBMs, and providers/pharmacies—illustrating their intricate interdependencies and the flow of money and services among them. The presentation progresses from foundational concepts to more nuanced aspects, including different risk-transfer models, network discount methodologies, medical coding standards, administrative service options, and the dynamics of health insurance captives.

The speaker's approach is highly educational, using clear analogies and specific examples to demystify complex industry jargon. He begins by outlining the basic transactional relationships, such as premium payments from employers to insurers, out-of-pocket costs from employees to providers, and claim adjudication by insurers. He then delves into the critical distinction between fully-insured and self-insured plans, explaining how risk is borne and the financial implications for employers, particularly those with over 200 employees who often opt for self-insurance. This segment highlights the concept of the medical loss ratio (MLR) and the necessity of stop-loss insurance to protect self-funded employers from catastrophic individual or aggregate claims.

Further segments elaborate on the mechanics of network discounts, detailing various repricing methodologies like percent of charge, fixed case rates, per diems, and carve-outs, using examples such as gallbladder surgery and hip replacements to illustrate their application. The video also provides a comprehensive overview of medical coding, explaining the purpose and structure of UB04s, HCFA 1500s, ICD-10, CPT, DRG, and HCPCS/J-codes. The discussion then shifts to administrative services, differentiating between Administrative Services Only (ASO) provided by major carriers (BUCA) and Third-Party Administrators (TPAs), outlining their cost structures and flexibility. The final section introduces health insurance captives, explaining how small employers can pool risk for better rates, while also cautioning about the risks of adverse selection and the "death spiral" in fully-insured captive models.

Key Takeaways:

• Four Core Constituents of Employer-Sponsored Health Plans: The system involves employers (providing coverage, paying premiums), employees (receiving care, paying out-of-pocket and payroll deductions), insurance carriers/PBMs (adjudicating claims, managing networks, receiving premiums), and providers/pharmacies (delivering care, filing claims, receiving payments).
• Fully-Insured vs. Self-Insured Models: In fully-insured plans, the insurance company bears all the risk, while in self-insured plans, the employer retains the financial risk, directly paying claims from their own funds (often via the insurer as an administrator). Most companies with over 200 employees tend to be self-insured.
• Medical Loss Ratio (MLR): Insurance companies in fully-insured plans typically aim for an MLR of around 85%, meaning 85% of premiums go to claims and 15% is kept for administrative costs and profit. This ratio influences future premium adjustments for employers.
• Stop-Loss Insurance for Self-Funded Employers: To mitigate the risk of extremely high claims, self-funded employers purchase stop-loss insurance. Specific stop-loss covers individual catastrophic claims (e.g., above $100,000 per person), while aggregate stop-loss covers the entire group if total claims exceed a predetermined threshold.
• Network Discounts and Repricing Methodologies: Insurance companies negotiate discounts with providers. Repricing methods include percent of charge (e.g., 40% off billed charges), fixed case rates (e.g., $2,000 for an MRI regardless of billed amount), per diems (e.g., $3,000 per day for inpatient stays), and carve-outs (separate reimbursement for specific high-cost items like implants).
• Medical Coding Standards: Healthcare bills use specific codes for diagnoses (ICD-10), procedures (CPT, including E&M codes for office visits), inpatient services (DRG), and additional items like medications or implants (HCPCS/J-codes). Understanding these codes is crucial for claims processing and data analysis.
• Administrative Services Only (ASO) vs. Third-Party Administrators (TPA): ASOs are services provided by major insurance carriers (Blue Cross, United, Cigna, Aetna) for self-funded employers, handling claims adjudication and network access. TPAs are independent or carrier-owned entities offering similar administrative services, often at a lower cost but with potentially less comprehensive support or requiring employers to "rent" networks separately.
• Health Insurance Captives: These are pooled groups of small employers who band together to gain leverage for better insurance rates, often by self-funding collectively. While offering potential cost savings, fully-insured captives are susceptible to adverse selection, where sicker groups join, driving up costs and leading healthier groups to leave, potentially causing a "death spiral." Self-funded captives are generally more stable.
• Financial Scale of Employer-Sponsored Health Plans: On average, health insurance premiums cost about $10,000 per employee per year, with roughly two plan members per subscriber. A company with 100 subscribers could pay $1 million annually in premiums.
• Credibility in Premium Setting: For fully-insured plans, premiums can be community-rated (based on regional risk for small groups), partially credible (partially based on the employer's own claims experience), or fully credible (entirely based on the employer's claims for larger groups, typically over 500 employees).

Key Concepts:

• Fully-Insured: An insurance model where the insurance company assumes all financial risk for claims.
• Self-Insured: An insurance model where the employer assumes the financial risk for employee health claims, often using an insurer for administrative services only.
• Risk, Adjudication, Network: The three core components of any insurance policy; risk refers to who pays for claims, adjudication is the processing and payment of claims, and the network is the group of contracted providers.
• Medical Loss Ratio (MLR): The percentage of premium revenue that an insurer spends on medical care and quality improvement.
• Stop-Loss Insurance: Reinsurance purchased by self-funded employers to protect against high-cost claims.
  • Specific Stop-Loss: Covers claims exceeding a set amount for an individual.
  • Aggregate Stop-Loss: Covers total claims for the entire group exceeding a set amount.
• Repricing Methodologies: Various contractual agreements between insurers and providers to determine the allowed amount for services after discounts.
  • Percent of Charge: A fixed percentage discount off the provider's billed charges.
  • Fixed Case Rate: A predetermined payment for a specific service or procedure, regardless of billed charges.
  • Per Diem: A daily rate paid for inpatient hospital stays.
  • Carve-Out: Separate reimbursement for specific high-cost items, often implants or specialized medications.
• Medical Coding: Standardized alphanumeric codes used to describe diagnoses and procedures for billing and record-keeping.
  • ICD-10: International Classification of Diseases, 10th Revision (diagnosis codes).
  • CPT: Current Procedural Terminology (procedure codes, including E&M for office visits).
  • DRG: Diagnosis Related Groups (used for inpatient services).
  • HCPCS (J-codes): Healthcare Common Procedure Coding System (additional codes, often for medications or specific supplies).
• Administrative Services Only (ASO): Services provided by major insurance carriers to self-funded employers for claims processing and network access, without assuming risk.
• Third Party Administrator (TPA): An organization that processes insurance claims or certain aspects of employee benefit plans for a separate entity, often for self-funded employers.
• Health Insurance Captives: Groups of employers that pool their resources to self-insure, often to achieve better rates and more control over their health plans.
  • Adverse Selection: The tendency for individuals with higher health risks to disproportionately seek out and utilize insurance coverage.
  • Death Spiral: A phenomenon where adverse selection leads to increasing premiums, causing healthier individuals to leave the plan, further increasing premiums and eventually leading to the plan's collapse.

Examples/Case Studies:

• Repricing Example (Gallbladder Surgery): A $10,000 billed charge, with a 40% discount, results in a $6,000 allowed amount paid to the hospital.
• Carve-Out Example (Hip Replacement): A $100,000 billed charge for a hip replacement with a three-day stay might include a $3,000 per diem for the stay ($9,000 total) and a $30,000 carve-out for the implant, totaling $39,000 in reimbursement.
• Catastrophic Claims: Examples like a premature baby in the NICU or a skiing accident leading to an ICU stay illustrate individual claims that can exceed $1 million, necessitating specific stop-loss insurance.
• TPA Examples: UMR (owned by UnitedHealthcare) and Meritain (owned by Aetna) are examples of carrier-owned TPAs that offer more flexible, lower-cost administrative services compared to their parent companies' ASO offerings. Independent TPAs like GPA Group and Pension Administrators or Web TPA also exist, often renting networks from major carriers like Cigna or Aetna.
• Reinsurance Companies: Sun Life, QBE, and Tokyo Marine are mentioned as examples of companies that provide stop-loss insurance.
• Self-Funded Captive Examples: Roundstone and Pareto are cited as prominent examples of self-funded captive models.