Strength lies in numbers. That’s the basic premise of insurance, whether it’s health, automobile or homeowner’s insurance. Large numbers of people pay premiums, which are pooled to pay claims. In any given year, some people will incur claims while others will not. The people who don’t incur claims essentially subsidize the ones who do, but next year the tables could turn. The risk is shared, so everyone is protected.
When it comes to health care premiums, people typically think they’re too high, and they wonder how the premium is calculated. Premiums can vary based on group size and funding type; for example, if the employer’s health plan is fully insured, meaning the insurer assumes all of the risk and pays claims from its own funds, or if the employer is self-insured, meaning that the employer assumes the risk and pays claims from its own funds while the insurer administers the plan.
Underwriters and actuaries can provide very complicated details about how premiums are calculated. But they’ll also tell you that health care premiums are directly correlated to the underlying cost of medical care. It’s very simple: the more care that is used, and the greater the cost of that care, the higher the premium will be.
Individuals may not realize it, but their behavior can affect the cost of care and, ultimately, their premium. If they use the emergency room for non-emergency care, that drives up cost. Using brand name drugs when a generic equivalent is available also drives up cost. When they don’t use their health plan’s cost and quality tools to find the best care at the best price, they may pay more for their care than they should. If they have a chronic condition, like diabetes or heart disease, and don’t take steps to manage it and keep it from worsening, that could lead to health complications and costly hospitalizations. And when people go out of their health plan’s network for care, that can really drive up cost. At Cigna we often say that the most expensive decision an individual can make is the decision to go out of network.
But as I noted at the beginning of this column, strength lies in numbers. You and I might make the right decisions about appropriate use of the ER and generic drugs. We might be smart health care consumers and shop for the best care at the best price. And we might always stay in network and manage our chronic conditions. But what about the other 4,000 people in our group plan?
The behavior of everyone in the plan really matters. If all 4,000 members of the group engage in “premium friendly” behavior, that will help keep premiums in check for everyone. But if the group as a whole doesn’t make wise choices, it’s going to drive up premium costs for all of us. It’s not just individual behavior that needs to change; it’s the group that matters, the sum of the parts.
Doctors can influence the cost of care by the way they practice medicine. When they improve quality by following evidence-based medicine guidelines and ensuring their patients get the preventive and follow-up care they need, it helps people stay healthy and avoid costly health complications in the future. Health service companies like Cigna can develop collaborative arrangements with physicians and provide incentives to doctors who meet quality and cost targets. The more doctors that participate in these arrangements the bigger the impact will be on health care costs and premiums. Strength lies in numbers.
Employers also can play a big role. As sponsors of their group health plans, they need to communicate to their employees about how to use their health benefits wisely. Health service companies like Cigna can help employers with this.
Some employers are more engaged than others. They’re committed to creating a culture of wellness in their company, which can include offering healthy meal options in employee cafeterias, sponsoring fun runs and teams challenges (for example, which team can walk the most or collectively lose the most weight during a two-month period), and communicating often with employees about living a healthy lifestyle.
One employer that’s had success keeping health care costs and premiums down through effective employee communication and by creating a culture of wellness is Richardson-based Fossil Group.
Working together with their health service company, employers can also structure their benefit plans to reward people for maintaining a healthy weight, quitting tobacco, making progress toward their goals for managing a chronic condition, and even for getting care from high-value doctors who get the best results at the best price. With the right mix of education, engagement, incentives and tools, we can work together to help people make “premium friendly” decisions that will benefit everyone in the plan.
LaMonte Thomas is Cigna’s president and general manager for North Texas and Oklahoma.