How the Largest Companies in the U.S. Buy Health Insurance

What do Marriott, Verizon, IBM, Johnson & Johnson, Macy’s, American Express and Coca-Cola have in common? For starters, three years ago they joined forces with 35 of the largest employers in the United States in purchasing health insurance.

This coalition represents 6.5 million insured employees in all 50 states. In the first three years, the coalition projects its members will save 15% on prescription drug costs alone or $600 million combined.

Now you might be thinking, “My company doesn’t have 50,000 employees I can bring to the bargaining table to leverage insurance companies and pharmacy benefit managers (PBMs).”

You don’t need that many employees to make an impact. A company that insures 50 employees has a one in five, or 20%, chance of having a bad claims year. A company (or coalition) with as few as 400 insured employees has a one in 20 or 5% chance of having a bad claims year.

Coalition programs are about much more than finding like-minded employers fed up with the always rising cost of health insurance. At the most basic level, these programs require that participating companies be self-insured, a term many employers immediately associate with volatile cash flow, increased liability, and generally being a bad idea. The cost of employer-provided health insurance is the fastest growing line item on employer profit-and-loss statements.

It’s time we assess and evaluate all ideas.

If you watched the 2017 Berkshire Hathaway annual meeting, you heard Warren Buffett call medical costs “the tapeworm of American economic competitiveness.”

He continued, “If you go back to 1960, or thereabouts, corporate taxes were about 4% of GDP [gross domestic product] and now they’re about 2% of GDP. At that time [1960] health care was 5% of GDP, and now it’s about 17% of GDP.”

Charlie Munger, Berkshire vice chairman, added that U.S. manufacturers are at a “big disadvantage” compared to countries where their governments pay the health care costs.

As I speak around the country, it is clear employers are mad about healthcare’s hyperinflation and its impact on their ability to operate efficiently. The good news is that there are employers, brokers and partners who understand they do have control over their health care costs and are consistently teaming up and bending the cost curve downward.

On a recent web search for an MRI of my shoulder, I discovered that the cost of this MRI within my network could range anywhere from $200 to $2,500. There are third parties who will put part, or in some cases all, of their fees at risk to make sure your employees use the $200 provider, not the $2,500 provider. Performance-based contracts that tie vendor compensation directly to your bottom line are like insurance for your insurance.

Drug manufacturers offer rebates to pharmacy benefit managers in exchange for preferred distribution under health insurance plans. A drug that costs your insurance plan $1,000 per month could come with a cost of $600 to manufacture and a $400 rebate that is paid back to the insurance company or PBM, not you or your employees. Simply contracting with a PBM who refunds manufacturer rebates can lead to immediate savings with no disruption in service.

The largest employers in the U.S. have signaled that the only impactful health care reforms are those that you can control directly with partners whose financial motivations are aligned with your own. With the information and ideas readily available, the challenge for small and mid-sized employers is finding a partner who can execute the vision.

DCW Group is a third-generation employee benefits and business consulting firm headquartered in Boardman that describes itself as committed to the continued disruption of an industry that rewards mediocrity and lacks transparency.

DCW Group founded the Valley Health Coalition to deploy education, technology and thought-provoking conversations to create an environment of better health, better coverage and lower costs. If you are interested in conducting a feasibility study to see if the Valley Health Coalition is a good fit for your organization visit or call 330 953 2962.

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