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Direct Contracting with Providers Reduces Employer Health Care Costs

By March 16, 2022Commentary

Employers provide health insurance for about half of Americans.  The costs have risen substantially over the last three decades and employers constantly are looking for methods to control those costs.  Typically employers rely on health plan networks to create contracts and negotiate rates with providers.  But some larger employers have begun contracting directly with providers in hopes of creating lower unit costs.  This study examined a bundled payment program negotiated directly with providers of orthopedic and other surgical providers.  If employees and their families use these providers, their cost-sharing amounts are waived.  The cost of an episode of a care declined by over 10% under these contracts, with employers getting 85% of the savings and employees 15%.   (HA Article)

Join the discussion 7 Comments

  • Bob Harper says:

    I do not doubt the savings, but I wonder whether employers will seek the best providers as opposed to the lowest bidder. If someone is going to replace my knee, I want the ability to go to the best knee surgeon available. Don’t you?

  • rob says:

    I’ve never been able to figure out why employers have anything at all to do with employee health coverage. I mean while they’re at it, why don’t they pay for the employees’ groceries too? Or cars.

    • Kevin Roche says:

      It is basically a benefit that arose as a result of labor shortages during WWII. And it makes sense from a group purchasing and risk pooling sense.

    • Kevin Roche says:

      the providers who participate in these programs tend to be high quality–they have lower total costs because they do a better job

  • JT says:

    I still don’t understand the point of having employer’s involved in the healthcare system. To the best of my understanding, it was a left over WWII enticement program to attract employees.

    Why don’t company’s provide auto and/or homeowners insurance? The entire ‘risk spreading vs. volume’ argument doesn’t hold water. The exact same mix of employed people would be on the street, in the market place, added to all of the young-ish gig-working people who would dilute the high cost risk even further. Instead of companies negotiating for contracts with relatively small groups, you’d have insurance brokers negotiating with millions of subscribers. You can actually find better deals on the exchanges, outside of your company offers in many cases, so there are already options.

    It’s a broken model which needs a complete overhaul … Obama had his chance, but instead of simplifying the process, he tangled it up with the IRS, another bureaucratic swamp ! There are far too many piglets at this trough to ever control costs … and how do you ever unwind an IRS program? He’s an IDIOT !

    Can you imagine the balance sheets of public corporations if they didn’t have to be healthcare admins? Plenty of money to raise pay to offset the individual’s market place insurance decisions.

    • Kevin Roche says:

      actually risk pooling makes a lot of sense, the alternative, a single-payer system would come with extensive govt controls that no one would like, or an individual based system would either have crazy variable premiums depending on a person’s health, or would have the same risk-pooling that is found in a group system, with a much higher admin cost.

    • Bob Harper says:

      Health insurance as a ‘fringe’ benefit came about as a result of the exclusion of such benefits from WW II price controls. If, as we’re taught, the road to Hell is paved with good intentions, this is a perfect example. I agree with JT that it’s a broken system. How we cut the Gordian Knot is beyond my ken, but that it must be cut is essential, both for workers, who are in many cases tied to jobs they don’t like, simply because of health insurance, and for employers, who are saddled with the enormous expense of providing these benefits (though the percentage they vs. the employee funds continues to decrease). I agree with Mr. Roche that single-payer would be a disaster, with more bureaucracy, rationing resulting in longer wait times (vide Canada), and poorer outcomes as a result. There is a solution out there somewhere that provides universal (or nearly so) coverage in a competitive marketplace. We need to keep looking for it.

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