3501 Topic 8 Articles: Healthcare Cost Containment Techniques

What are the potential benefits of wellness programs for employers and employees?

They can help participants become healthier.

They can help health plans reduce costs for employers.

Which major federal laws regulate employer-sponsored wellness programs?

Employee Retirement Income Security Act (ERISA)

Affordable Care Act (ACA)

Health Insurance Portability and Accountability Act (HIPAA)

Americans with Disabilities Act (ADA)

What is a key advantage of integrating a wellness program into a compliant group health plan?

It can satisfy key requirements of ERISA, the ACA, and HIPAA privacy and security rules.

What is the general rule under HIPAA's non-discrimination provisions, and how do wellness programs relate to it?

HIPAA generally prohibits discrimination regarding eligibility, cost, and coverage. Wellness programs that meet specific requirements are an exception to this rule.

What are the three common types of wellness programs mentioned?

Standard-Based Programs

Stand-Alone Programs

Participatory Programs

What defines a "standard-based" wellness program and what rules apply to it?

A program that requires participants to meet a health standard to qualify for a reward.

It is subject to HIPAA's non-discrimination rules, including requirements for reward size, reasonable design, uniform availability, alternative standards, and participant notice.

What is a "stand-alone" wellness program and are HIPAA non-discrimination rules applicable?

A program that does not provide or pay for benefits and where the reward is not connected to a group health plan.

It is generally not subject to HIPAA non-discrimination rules, but other laws (like the ADA) may still apply.

What defines a "participatory" wellness program and its compliance status with HIPAA?

A program that rewards participation without requiring a specific health standard.

It is deemed to comply with HIPAA non-discrimination rules if it is available to all similarly situated individuals.

What are two key ADA restrictions that may apply to wellness programs?

Programs requiring participation must offer reasonable accommodations for individuals with disabilities.

Programs involving medical exams or disability-related inquiries are subject to EEOC rules on voluntariness and other requirements

According to the October 2021 Tri-Agency guidance, how are vaccine premium incentives classified under HIPAA wellness rules?

They are classified as activity-only health-contingent wellness programs, not participatory programs.

What is the key distinction between a participatory and a health-contingent wellness program under HIPAA?

Participatory: Reward is not based on satisfying a standard related to a health factor.

Health-Contingent: Reward requires satisfying a standard related to a health factor.

What is the maximum incentive limit for a health-contingent wellness program under HIPAA?

The reward cannot exceed 30% of the total cost of coverage (or 50% if including tobacco-cessation programs).

What is the Reasonable Alternative Standard (RAS) requirement for health-contingent wellness programs?

The program must provide a reasonable alternative way to earn the reward for individuals for whom it is unreasonably difficult due to a medical condition or medically inadvisable to meet the standard.

According to the guidance, what are two of the five criteria a vaccine premium incentive program must meet under HIPAA?

Be reasonably designed to promote health or prevent disease.

Provide a reasonable alternative standard to earn the reward.

What is the Tri-Agencies' position on conditioning eligibility for benefits or coverage on being vaccinated?

It is not permissible under HIPAA. Denying benefits for COVID-19 treatment based on vaccination status is discriminatory and the wellness program exception does not apply.

How does a vaccine premium incentive (discount or surcharge) affect the ACA employer mandate affordability calculation?

The incentive is treated as if it applies to everyone.

For a discount, affordability is based on the higher, undiscounted premium.

For a surcharge, affordability is based on the higher, surcharged premium.

According to EEOC ADA guidance, when does merely requesting proof of vaccination trigger ADA wellness rules?

It does not. Requesting proof is not a medical exam or disability-related inquiry, so ADA wellness rules do not apply.

Under the EEOC's ADA guidance, when do pre-screening questions for a vaccine become a disability-related inquiry?

When the employer or its agent administers the vaccine directly. In this case, incentives must not be so substantial as to be "coercive."

What does GINA allow regarding incentives for a family member's vaccination?

An employer may offer an incentive for a family member getting vaccinated from a third party. It is not permitted if the vaccine is given by the employer or its agent

What are the three benefits for an employer of having healthy employees?

Employees take fewer sick days.

They are more productive.

They cost less to insure with an employer-sponsored health plan.

What is the potential legal issue with an employer charging a surcharge for being unvaccinated, like Delta Airlines did?

It may conflict with federal statutes including the Affordable Care Act (ACA) and other health regulations.

What are the two types of ACA penalties under IRC section 4980H for applicable large employers?

4980H(a): Penalty for not offering coverage to at least 95% of full-time employees and their dependents.

4980H(b): Penalty for offering coverage that is not affordable or does not provide minimum value.

What is a primary ACA risk of implementing a wellness program surcharge for being unvaccinated?

It could make the lowest-cost plan unaffordable, potentially triggering section 4980H(b) penalties.

What must an employer include in the reported plan cost on Line 15 of the 1095-C if a COVID-19 surcharge is implemented?

The cost must include the COVID-19 surcharge, adding an additional reporting burden.

According to the EEOC, when can an employer offer an incentive for vaccination without it being considered a wellness program?

If employees confirm vaccination on their own (not in response to an employer request), an incentive is allowed if it is not “so substantial as to be coercive.”

What is a key limitation regarding incentives for family members' vaccinations under GINA?

The incentive must not extend to family members receiving a vaccination administered by the employer or its agent.

What major ACA compliance risk does a company face if it decides not to insure unvaccinated employees?

It risks failing the 4980H(a) requirement of offering coverage to at least 95% of full-time employees.

What are the two primary considerations an employer should weigh before implementing a COVID-19 vaccine incentive?

The desire to keep health insurance costs down.

The need to stay within the bounds of the law and keep employees happy

Do federal wellness rules apply to a tobacco surcharge on a group health plan?

Yes. Tobacco use is a health status factor protected by HIPAA/ACA nondiscrimination rules. Financial incentives related to it must comply with wellness program requirements.

What type of wellness program is a tobacco surcharge or reward considered under HIPAA/ACA rules?

It is considered a health-contingent, outcome-based wellness program.

What is the maximum incentive limit for a wellness program that includes a tobacco-related reward or penalty?

The total reward/penalty cannot exceed 50% of the total cost of coverage.

What are the five key requirements a health-contingent wellness program (like a tobacco surcharge) must meet?

Frequency of opportunity to qualify (at least once per year).

Size of the reward (30% or 50% limit).

Reasonable design to promote health.

Uniform availability and a Reasonable Alternative Standard (RAS).

Notice of the availability of the RAS.

What is a Reasonable Alternative Standard (RAS) and who must it be provided to?

An alternative way to earn the reward/avoid the penalty (e.g., completing a smoking cessation program). It must be provided to any participant who requests it, regardless of health status.

What is a critical requirement regarding providing the reward when a participant completes the RAS?

The participant must receive the same full reward (or avoid the penalty) even if their health outcome does not improve (e.g., even if they do not quit smoking).

When do the EEOC's ADA wellness rules apply to a tobacco use program?

They apply if the program uses medical testing (e.g., saliva or blood samples) to verify nicotine/tobacco use. They do not apply if the program merely asks employees if they use tobacco.

How does a tobacco-related wellness incentive affect the ACA affordability calculation for the employer mandate?

For tobacco incentives, the lower premium (the one available to non-users or those who complete the RAS) is used to determine affordability.

This is different from non-tobacco incentives, which are treated as not earned for affordability calculations.

What was a common violation found in DOL lawsuits regarding tobacco surcharge programs?

Employers failed to inform plan participants that a Reasonable Alternative Standard (RAS) existed that would allow them to avoid the surcharge.

According to the text, what is a common type of RAS for a tobacco surcharge program?

A smoking cessation or nicotine counseling program where an individual avoids the penalty by completing the program, regardless of whether they quit smoking

What is a tobacco surcharge in an employer wellness program?

A charge where tobacco users pay higher health insurance premiums than non-tobacco users, typically unless they complete a smoking cessation program.

What major legal issue prompted a $4.95 million settlement by Bass Pro Shops?

A class action lawsuit alleging their tobacco surcharge program was unlawful under wellness program rules.

Under HIPAA, what general rule does a tobacco surcharge program operate as an exception to?

The rule that prohibits discriminating against participants based on a health status factor, such as charging higher premiums due to a health condition.

What is the maximum allowed surcharge amount for a tobacco-related wellness program?

The surcharge cannot exceed 50% of the total cost of coverage (combined employer and employee premiums).

What is the Reasonable Alternative Standard (RAS) requirement for a tobacco surcharge program?

The employer must provide an alternative way to avoid the surcharge (e.g., completing a smoking cessation program), considering all facts and circumstances.

How often must employees be given a reasonable opportunity to avoid the tobacco surcharge?

At least once per year (e.g., during initial enrollment or annual open enrollment).

What must the notice of availability for the Reasonable Alternative Standard include?

A description of the RAS.

Contact information for obtaining it.

A statement that a physician’s recommendations will be accommodated.

What was the first key allegation against Bass Pro Shops' program?

It did not offer a true RAS; tobacco users could only avoid the surcharge by meeting the original standard (being tobacco-free for 90 days).

What was the second key allegation against Bass Pro Shops' program regarding the reward?

It did not provide the full reward (avoiding the surcharge for the entire plan year) upon completing the RAS; the surcharge was only removed on a going-forward basis.

What are the four critical questions employers should ask when evaluating their own tobacco surcharge program?

What is the amount of the surcharge?

What must tobacco users do to avoid it, and by when?

What happens when the RAS is completed?

How is the program communicated to employees

According to the expert, what is the root cause of the national healthcare cost crisis?

A lack of medical cost transparency, driven by parties motivated to keep benefit plan sponsors and consumers in the dark.

What is the core problem with traditional PPO network discounts according to the text?

Even after a 50-60% discount on billable charges, the cost is still double or triple what Medicare pays for the same service.

What is reference-based pricing (RBP)?

A cost-control method where employers pay for medical services based on a percentage of Medicare reimbursements (e.g., Medicare + 30%), rather than a discount on billed charges.

How does reference-based pricing differ fundamentally from PPO pricing?

PPO Pricing: Pays a percentage discount of the hospital's billed charges.

Reference-Based Pricing: Pays a set multiple of the Medicare reimbursement rate.

What was a key result for the state of Montana's employee health plan after adopting reference-based pricing?

It set a reference price at 243% of Medicare, allowing hospitals to profit while providing price transparency and consistency. Hospitals have agreed to accept this price.

What is the primary risk for plan members under a reference-based pricing model?

They may face balance billing, where a healthcare provider bills the patient for the difference between the reference price and the provider's full charge.

How can the risk of balance billing be mitigated under reference-based pricing?

Through employee education and by having a law and auditing firm available to resolve payment disputes.

What was the outcome of the example where a patient was balance billed nearly $230,000 for a back procedure?

An audit found the total charges should have been ~$70,000. The health plan had paid ~$75,000, and a jury awarded the hospital only an additional $766.

What is the main advantage of reference-based pricing cited in the text?

It is a forward-thinking way to manage costs while providing high-quality benefits and improving medical cost transparency

What is Reference-Based Pricing (RBP)?

An alternative network option where members can go to any provider. The plan caps payments for services by using Medicare pricing as a baseline.

What is the key structural difference between an RBP plan and a traditional PPO?

RBP plans have no preferred provider network; members can see any provider. PPOs have a contracted network of preferred vendors.

How does an RBP plan determine payment amounts for medical services?

Payments are set as a percentage of what Medicare would pay for the same service, using Medicare fee schedules and cost data.

What is the primary financial benefit for employers adopting RBP?

Potential savings of 20%-30% on healthcare costs, with year-over-year cost trends closer to general economic inflation rather than higher healthcare inflation.

In the provided example, what was the final negotiated charge for the same procedure under a PPO vs. an RBP plan?

PPO: $45,000 (a 40% discount from the $75,000 bill).

RBP: $22,500 (based on a percentage of the $15,000 Medicare price).

What is the major risk for employees under an RBP plan, and what is it called?

The risk of balance billing, where an employee may be charged the difference between the provider's full charge and the plan's capped RBP payment.

Why is balance billing a particular concern in emergency situations?

Because employees in emergencies cannot evaluate their options or choose lower-cost providers, increasing the risk of receiving a high balance bill.

What are three critical steps for a successful RBP plan rollout?

Careful planning and comprehensive employee education.

Routine auditing of claims processing.

Choosing a vendor with expertise and a strong member advocacy track record.

What is a potential operational challenge with RBP due to the lack of a network?

Providers have no contractual obligation to accept the RBP payment. Some may be unfamiliar with RBP and require explanation, potentially creating access hurdles.

Despite the challenges, why do many employers consider adopting RBP?

The large savings potential (20%-30%) and the ability to achieve more stable, predictable cost trends aligned with general inflation are often worth the tradeoff

What is the core definition of reference-based pricing (RBP) within self-funded healthcare?

It is a cost-containment strategy where self-funded employers, working with TPAs, set their own "fair prices" for healthcare services based on a percentage of Medicare rates, bypassing traditional carrier networks.

How does RBP differ from traditional insurance carrier pricing?

Traditional Insurance: Carriers negotiate rates with hospitals and pay higher reimbursements (often 2x Medicare), recouping costs via higher premiums.

RBP: Employers pay a set multiple of Medicare rates (e.g., 140%), which is lower than carrier rates but higher than straight Medicare, reducing total cost.

How are "fair prices" determined in an RBP model?

A repricer uses public Medicare cost data (CMS Healthcare Provider Cost Reporting Information System), adds a margin, and lands on a price between Medicare and private insurer rates.

What is a typical cost savings range for employers using RBP?

Employers can save 20-40% per year on their medical spending.

What is a key trade-off or disruption mentioned for adopting RBP?

It significantly impacts the employee experience, requires more negotiation, and can be disruptive compared to traditional PPO plans.

What is a major benefit for employees under an RBP plan regarding provider choice?

Employees have greater flexibility and are not limited to a specific network; they can choose from a broader range of providers and facilities.

In the example given, how did an employer use RBP to steer employees toward better, more cost-effective care for childbirth?

The employer compared cost and quality metrics of three hospitals, then incentivized employees (with free diapers and wipes for a year) to choose the hospital with the best outcomes and lowest cost.

What are the two critical partners an employer needs to implement RBP successfully?

A Third-Party Administrator (TPA) to administer claims and set prices.

A consulting firm or benefits partner with deep RBP expertise to customize plans, assist with negotiations, and educate employees.

Why is employee education especially critical when implementing an RBP plan?

Because RBP represents a significant departure from traditional plans and employees need to understand how it works, their choices, and how to navigate care to avoid issues like balance billing.

What is the first step an employer should take when considering RBP?

Consult with a benefits partner to determine if self-funding in general is right for the organization before moving to the more specific RBP model

What is the primary financial mechanism of a reference-based pricing (RBP) model?

Employers pay for medical services based on what Medicare pays (the "reference") plus a specific percentage, instead of a discount on billed charges.

What type of claims drive the majority of plan savings in an RBP program?

Reduced high-cost claims, such as inpatient and outpatient procedures billed in a facility setting. These are a small portion of total claims but a large portion of claims expenses.

What are two key benefits for employers adopting RBP?

Reduced claims costs.

Total claims transparency and data, allowing them to see exactly what is being charged and how the plan is performing.

What is the primary risk for employees under an RBP plan?

They may receive a balance bill for the difference between the provider's charge and the plan's RBP payment.

How can employers mitigate the risk of balance billing for their employees?

By partnering with a third-party administrator (TPA) or vendor that provides legal representation and negotiation services to handle balance bills.

What is a critical vendor requirement for a successful RBP implementation?

The vendor should sign on to the plan document as a co-fiduciary, taking responsibility in the event of an extraordinary expense.

Why does it typically take a full year to realize the major savings from RBP?

Because the biggest savings come from the most expensive claims, which may not occur frequently. A full year is needed to capture enough data and see the financial impact.

What are the two pillars of a successful RBP rollout?

Getting experts on your side (consultant, broker, specialized vendor).

Comprehensive and ongoing employee education.

What should employee education specifically cover for an RBP plan?

How to access care under the new plan.

What to do if a provider is unfamiliar with RBP coverage.

How to handle a balance bill (including who to contact).

What is the main potential downside of RBP if implementation is poor?

Employee confusion can lead to poorly informed healthcare choices, which can undo the benefits of the program

What is direct contracting in the context of self-funded health plans?

A model where self-funded plans negotiate directly with medical providers to establish a mutually beneficial fee schedule, often bypassing traditional PPO/HMO networks.

What are three potential benefits of direct contracting?

More consistent pricing for the health plan.

Faster cash flow for the provider.

Improved access to top-level care for plan members.

What is the key problem with traditional PPO/HMO networks that direct contracting aims to solve?

They fail to standardize reimbursements for identical procedures, leading to inconsistent pricing based on individual contracts and making it hard to control claim costs.

How does direct contracting differ from reference-based pricing (RBP)?

RBP: Imposes a reimbursement percentage (based on Medicare) with little to no negotiation, risking provider access issues and balance billing.

Direct Contracting: Involves negotiating a fixed price directly with the provider, offering cost control without the same member disruption.