Saving Money on Employee Benefits: ACOs
Okay, let’s continue talking about health plans and saving money on employee benefits. The last article in our series was on HMOs and today we’ll discuss an up and coming plan design called an Accountable Care Organization (ACO). While mostly limited to certain geographic regions of the country right now, more employers are considering them in the areas where they are offered. Read on to see how these new plans could help you to be saving money on employee benefits.
ACOs – The New HMO?
Large hospital systems or groups of physicians are starting their own mini-HMOs. They tout that they’ll be better able to manage the patients’ overall care because:
- They will establish a better relationship with each patient
- Make sure the patient’s values are taken into account for their care
- Consolidate all the patient’s services into one set of records
The benefits of each of these things is fairly obvious. Better relationships allows clinicians to better understand the patient. Being aware of a patient’s values and life desires allows treatments and therapies to best satisfy the patient’s needs. And of course, having all of the patient records under one “roof” increases quality of service – not to mention reducing redundant or unnecessary testing and services.
All of that sounds great, but how are these ACOs structured, and how do they work?
What Does an ACO Look Like?
The concept of the ACO has much in common with HMOs. While HMOs often have many hospital systems in their network, an ACO is frequently based on just one hospital system. Usually that hospital system will be large with nearly every medical service offered. As such, ACOs are most often found in larger cities or metropolitan areas.
Also, when I say, “hospital system”, this doesn’t necessarily mean a single hospital (although it could). For example, in many large metropolitan areas, a particular “brand” of hospital will have many affiliated locations around the area. These usually include large admitting hospitals, urgent care, professional arts facilities (doctors offices), ambulatory (outpatient) care facilities, etc. An ACO offered for a particular hospital system usually includes all of the services and locations mentioned above.
But, there is typically great variation from one ACO to another. Each ACO plan is different as to whether you can only receive care from within that one hospital system or whether there is a larger network behind it. Oftentimes, if you can get care outside the hospital system, your coverage will be reduced for that care – meaning you’ll have to pay more for it.
The Upside of ACOs
In addition to the benefits touted by the insurers above, there should be a significant cost savings in employee premiums for their healthcare. The cost of care is also supposed to be lower, both of which contributes to saving money on employee benefits.
Health insurance carriers are constantly looking for ways to incent physicians and hospitals to provide better patient outcomes while also reducing costs. Defensive medicine is the situation of a physician needing to order every possible test to make sure they’re not making a mistake that will get them sued. This, together with the increasing cost of medical technology and pharmacy costs, has caused health costs to skyrocket for many years. ACOs are one of the newer methods of attempting to combat this. Time will tell whether it’s a viable approach or not. Many in the industry are watching.
The Downside of ACOs
ACOs share some of the same downsides as HMOs. Chief of which is the size of the network. Employees with established doctors may find their doctor is not in the ACO network. While the hospital systems offering ACOs are usually quite large, some employees may find the hospitals are not conveniently located to their residences.
Another potential downside is if the cost savings doesn’t materialize. Employees might see a lower insurance premium, but the “bargain” is also to see a lower delivered cost for the services they consume. The jury is still out on whether ACOs can routinely deliver lower costs that employers and employees are expecting.
Jenny’s Insider Tips
My own personal concern is that while ACOs may be able to provide better outcomes in some ways because of the consolidation of care and records, they may also be able to take advantage of the pricing for services such as MRIs, lab tests, and other services because patients will have to use that ACO’s facilities for services that their doctor recommends. There’s no opportunity to shop for lower costs at other facilities the way they can today with a PPO. That’s a reduction in the consumerism trend that has been on the rise for years now, and a major conflict of interest in my opinion.
We are finding that most clients (remember – my clients are employers) aren’t willing to select these plans yet when they know that they’ll be limiting their employees’ choices for medical care to that certain hospital network. Many people are very attached to certain doctors or hospital facilities, and with good reason if they have serious health conditions and feel that they have a specialist that is providing them great care. It’s a touchy situation to suddenly tell an employee that in order to save a few dollars, that patient now has to find a new specialist in a new hospital system. I think many employees would be surprised to hear their employers think about the reaction of their employees, but they do. Saving money on employee benefits is important to the employer, but so is worker retention. Good benefits attract and retain good employees.
Can You Save Money by Selecting an ACO?
In general you should get a premium savings by selecting an ACO over a PPO. Also, your cost of services should be lower saving you more money. The plans may or may not have lower deductibles/copays/coinsurance than your PPO options do. Each situation is different, so you need to pay close attention to your projected total year’s cost.
Jenny’s Insider Tips
As an employee, here are some things to think about before choosing an ACO:
- Is your family physician, specialists, and preferred hospital in the ACO network – are you willing to change them if they are not?
- ACOs can be even more restrictive than the networks for HMOs. If you travel frequently, how does the plan handle emergencies while you are away from the network? Most plans have some provision for reimbursing you for services while out of the network, but they may not make it easy. And they may not provide the same coverage as if you were in network.
- Related to this is retirees or semi-retirees who live or winter in different parts of the country. The ACO networks are usually limited to relatively small geographic areas, limited to within a specific hospital system. You could have trouble getting routine care out of your service area. In this case, an ACO is probably not right for you.
- ACOs usually cover the same common services as PPOs and HMOs, but you’ll want to ask about the less common services if they are important for you. Do you have a chronic condition, or a known condition that requires special services, even if infrequently? Ask your employer about coverage of those services. If they don’t know, ask the insurance company directly. You don’t want to be surprised with an out-of-network bill.
- ACO premiums can save you money over the premium of a typical PPO, but look at all of the costs involved. Compare copays and out of pocket maximums to an offered PPO if available. So, while a PPO might cost you more in premium and until you hit the PPO out of pocket maximum, the PPO might save you money if you frequently use a service that has a high copay on the ACO plan.
- Employers are increasingly choosing pharmacy plans that are in some way separate from the main medical plan. While it is not always the case, it is typically true that pharmacy plans offered with ACOs are more restrictive than those offered with PPOs. There are usually fewer participating pharmacies and lists of covered drugs may be smaller than those offered with a PPO. This varies highly by plan, but in an effort to make the ACO cheaper than a PPO, cheaper pharmacy plans usually come along for the ride. Similar to providers, make sure your medications are covered and at what cost. Depending on the medication, the PPO plan might save you more money.
And this wraps up my discussion on ACOs. Pay close attention to the details on these plans and ask lots of questions if anything isn’t clear. Your choice of health plan is critical for saving money on employee benefits.
Please let me know if you have questions and I welcome suggestions for future articles!
Current and Upcoming Articles in the Saving Money on Employee Benefits Series:
Affordable Care Organizations (ACOs) (This Article)
High Deductible Health Plans (HDHPs) (Coming soon)
Spousal Surcharges (Coming soon)
Posted by Jenny