State Employee Health Plans Key for Driving Value-Based Initiatives

Damon Haycock MBA
Mark Japinga MPAff

2018 has brought renewed attention to high and rising employer health care costs, especially among employees. Teacher strikes across the country, motivated in part by rising health costs that have essentially canceled out small yearly raises, demonstrate the impact of these cost increases, which impact workers in all sectors of the economy. Over the last five years, the employer share of health care costs for family coverage increased by 32%, while employees’ share increased 14%. Average premiums have almost tripled since 2000.

Taking action is imperative. However, no single group can drive change of its own, not even giants like Amazon and JP Morgan. The total number of employees at most organizations represents a very small number of the commercially insured population. A critical mass of employers is needed to drive change, and should include an often overlooked and underused group: state employee health plans.

State employee health plans are frequently the largest commercial plans in the state; in 18 states, they cover more than 10% of the privately-insured population. Their members are often spread across the state, giving the plan a footprint in every major market. State employees have than double the median tenure of private sector employees and are often insured through retirement, making it more financially viable for the state to make long-term investments in employee health. States often have regulatory flexibility to try new initiatives, and their transparency requirements allow state employee health plans to signal to the market their future direction and leverage publicly shared information in negotiating reforms.

As state funded plans, they are also under pressure to run efficiently, with many succeeding. Nevada’s plan runs almost 10% leaner than comparable commercial plans while still reimbursing providers competitively. While running a lean plan limits some plan flexibility and management options, it offers an example for how plans can operate at the lowest possible cost.

States run leaner plans in part through initiatives aiming to bring more value to health care, improving care and controlling costs without cutting benefits or sacrificing quality. Though many plans are new to value-based initiatives, recent research outlines the variety of value-based approaches state employee health plans are already taking to modify benefits and payment methods. Though results are early, the breadth of initiatives shows that regardless of a plan’s priorities, administrators can find and develop initiatives that work for them.

California and Nevada have lowered costs for services like joint replacement surgeries and specialty prescription drugs by using reference pricing initiatives that set maximum prices for procedures and charge enrollees the price difference if they select a more expensive provider. This echoes work throughout the private sector showing that reference pricing—and further negotiation when necessary—can lower prices for “shoppable” services that are available from multiple providers and are easily comparable, especially when implemented by large numbers of plans.

State employee health plans are also pursuing initiatives that encourage enrollees to pursue low-cost, high-value care. Massachusetts’ Group Insurance Commission (GIC) provides incentives for their members to use higher-value providers or narrower networks. Since 2005, the state’s Clinical Performance Improvement program has used quality measures and cost-efficiency scores to sort specialists into tiers, incentivizing enrollees to see the highest-value physicians by offering lower co-pays. The state also offered to pay three months of premiums if an employee switched to a plan with a smaller network. Eleven percent of enrollees did, saving anywhere for $268 to $956 per employee per month.

For these programs to work, employees need access to information about the cost and quality of different providers. Next year, Nevada will implement Healthcare Bluebook, an online transparency tool that will list costs and provider ratings, and the program will issue checks to enrollees who select high quality, low-cost services.

State employee health plans have also seen success through collaboration. Tennessee’s state employee health plan and the state’s Medicaid program, which together cover 26% of the state’s population, partner on a bundled payment initiative that has reduced costs for several common procedures and that will expand to as many as 75 procedures by 2020. Similarly, the Washington state employee health plan collaborates with other payers through the Bree Collaborative to identify new care models that could be implemented by multiple payers; the state plan recently implemented a bundled total joint replacement surgery model and negotiated with major practices in the state to use it.

Obviously, adopting value-based payment models is easier in theory than practice. State employee health plans must identify specific priorities and implement targeted strategies that play to their strengths and their markets. Results will differ based on patient population, geography, and other factors. Plans must also balance concerns from elected officials and employee unions and seek state government support for change.

The assets that state employee health plans bring in pursuing value-based initiatives still outweigh these limitations. They are critical players and collaborators in the effort to drive health system transformation. Their ability to develop new initiatives and collaborate with peers creates a better environment for all purchasers to bring costs under control and improve quality and outcomes, giving these initiatives the best chance to succeed.

Mark Japinga is a Senior Research Assistant at the Duke-Margolis Center for Health Policy

Damon Haycock is Executive Officer of the State of Nevada’s Public Employees’ Benefits Program

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4 replies »

  1. Well written. Today, digital technology is transforming healthcare. It is important that the providers adapt to new technologies to keep pace with this change to provide better care for their patients and at the same time increase their operational efficiency. Such solutions will help you move from fee-for-service to providing value-based health care.

  2. “Value” is a marketing term designed to convince you you’re getting something extra when in fact it’s either a higher price (private sector) or lower choice/quality (public sector). Typically here in NC, state employees meager wage increases have been eaten up by higher health premiums/co-pays to the BCBS monopoly state insurer.

    Continued corporate tax breaks and lower taxes need to be paid for somehow – state employee heath costs are one way to do it.

    I agree with Barry, I want to choose my surgeon and procedure – not the state or insurance carrier. I don’t expect some arcane choice system to charge me more for a worse outcome.

    The real solution is to set prices for all (Medicare reimbursement) and let the patient make the choice on a level playing field.

  3. I’m still skeptical about the ability to define value in healthcare. As a patient, if I need surgery or cancer treatment, what I want most is a good outcome. Some patients are riskier to treat than others which means that without an adequate risk adjustment mechanism, doctors will have an incentive to avoid the sickest and riskiest patients. If I were a patient in that category, the whole value concept might work more against me than for me. Wouldn’t it?

  4. You have to be brave vis a vis the PBMs. Too much opacity in the drug business. They are running amok just at the time more science and precision in medicine is calling for increases in the money going through the drug sector. Read Dr Adam Fein’s blog, Drug Channels. The complexity of this business is astonishng and very few people undersand what is really going on with drug pricing.

    “Insured patients can sometimes end up paying more for medicines than people without coverage.”

    “Some pharmacists say that their contracts with insurers and pharmacy managers can prevent them from informing the patient that they could buy the drug at a lower price.”

    “We need to remove these constraints, so that the pharmacist can be more proactive–they can help the patient find the best price.” says John Norton of the National Community Pharmacists Association””

    from the Financial Times, David Crow “Patients death exposes true cost of US medicines”