Every year, all employers negotiate with health insurers over what they’ll pay in insurance premiums for the coming year. And many employers also negotiate with hospitals, health systems and physician groups over what they’ll pay in direct-contracting arrangements that bypass traditional insurance contracts.
In both negotiations, the employers will be seeking better care and lower costs, as they do each year.
But this year is unusual for two reasons. First, health insurers are expected to request premium increases for 2021 that could be higher than normal for employers, as well as individuals. Facing higher costs this year due to the need to cover testing and treatment for members infected with the novel coronavirus, insurers may request premiums increases of at least 4 percent and possibly as much as 40 percent, as we reported in a recent blog post.
Second, when negotiating directly with hospitals, health systems and physician groups, employers may be facing a buyers’ market, says François de Brantes, senior vice president for commercial business development at Signify Health, a care management company that works with employers, health plans and provider organizations.
In a new AHCJ tip sheet, health care journalist Lola Butcher outlines the reasons employers are interested in direct contracts and the different types of contracting arrangements they have with provider organizations.
Dealing with the coronavirus has cut deeply into the routine work that providers normally do, and that drop has resulted in much lower revenue for them and hospitals since March, when many cities and states issued stay-at-home orders.
That revenue loss means all providers are likely to be eager to work with employers in direct-contracting arrangements because they need the revenue, de Brantes said.
What’s more, when providers negotiate monthly payment rates to cover all of an employer’s workers and family members, they get a regular monthly stream of income for each employee and family member covered under a capitated payment contract, he added. Under such contracts, providers get a basic monthly payment for each member covered and that basic rate increases for members with chronic conditions,
“Providers are struggling now because they’ve been hit with this storm of illness from COVID-19,” he said. “And it’s unclear how fast that work will come back.”
Not only are hospitals and physicians suffering from much lower revenue routine patient care, such as elective surgeries, but there’s also no way to know if or when the regular work they do will return.
Also, the rate of infections will ebb and flow in different parts of the country, and the contagion could return in the fall with a second, higher level of infections and deaths. If that happens, providers could suffer more financial losses, de Brantes says.
Michael Thompson, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, agrees that employers may have an opening to negotiate direct contracts from a position of strength this year. Still, there are worrisome issues to address as well.
“COVID-19 has helped to magnify multiple concerns and opportunities in employer health care and benefits strategies, including unaffordable employee cost-sharing, undervalued primary care, concerns about balanced billing and waste in the system,” he says.
The alliance is an organization in Washington, D.C. that represents coalitions of employers, and many of those employers have direct contracts.
As Butcher points out in her tip sheet, direct employer-to-provider contracts are an example of health care payment reform that can enable employers to bypass the traditional methods of contracting with health insurers. In their pursuit of lower costs and higher quality care for their workers, employers often call these arrangements, “value-based direct contracts.”