Labs Should Prepare for Larger Patient Deductibles

Employers, insurers shifting costs to patients by expanding enrollment in consumer-directed plans

CEO SUMMARY: Employers are taking active steps to control the year-over-year increases in the cost of health benefits. One strategy gaining favor is to move employees away from traditional health plans and enroll them in high-deductible health plans (HDHPs). This is a trend with huge financial implications for clinical labs and pathology groups. It means all labs would be smart to put procedures in place to collect directly from patients who may have an annual family deductible of as much as $5,000.

EMPLOYERS IN THE UNITED STATES are making significant changes in their health benefit plans that will affect most clinical labs and pathology groups in the coming year.

Several different market dynamics are motivating employers to restructure the health benefit programs they offer to employees. What many of these changes have in common is that employers will require beneficiaries to pay more money out of pocket for laboratory tests, particularly if they use out-of-network laboratories.

These are unwelcome developments for lab administrators and pathologists. First, local labs may find themselves out of network for a growing proportion of the patients in their community. Second, labs will need to collect larger amounts of money from patients for lab testing services, due to new requirements for patients to pay higher annual deductibles.

One factor shaping employer’s thinking is last summer’s U.S. Supreme Court decision that upheld the Affordable Care Act (ACA). With this cloud over the law removed, employers began aggressively moving to comply with the law, according to a recently-published report. It is the 18th annual Towers Watson and National Business Group on Health (TW/NBGH) Employer Survey on Purchasing Value in Health Care.

The survey contains aggregate responses from 583 organizations with a collective $103 billion in total 2012 health care expenditures. Authors of the study stated that employers are moving rapidly to manage rising costs of health benefits. Employers also want to avoid triggering ACA’s excise tax on high-cost plans that starts in 2018.

Shifting Costs to Workers

The primary strategy employers are using to contain the rising cost of health benefits is to shift those costs to workers, explained the report. They are using a form of high-deductible health plan that goes by the new acronym of ABHP, for account-based health plan. ABHPs are simply a consumer-directed health plan (CDHP) that is linked to a health savings account (HSA) or a health reimbursement account (HRA).

This trend of employers shifting more healthcare costs to employees and family members directly affects all clinical labs and pathology groups. It will mean that labs must be more vigilant about collecting copayments and deductibles from patients at the point of care—or see a big increase in their lab’s bad debt.

Moreover, this trend is another reason that every lab organization should be implementing procedures to allow all patients to pay at the time the specimen is collected, typically in a patient service center. Other providers are moving to do the same, thus conditioning patients of the need to pay their deductibles and co-pays at the time of service.

For the TW/NBGH study authors, ABHPs will be one cornerstone in employer’s efforts to manage the cost of their health benefit programs. “ABHPs can be an important strategy for reining in costs in advance of the 2018 excise tax and facilitating the shift toward greater accountability from employees and more consumer-like behavior in their purchase of health care,” the report said. “Today, 66% of companies have an ABHP in place, and 13% expect to add one by 2014.”

Eliminating Standard Options

Lab executives and pathologists should understand that ABHPs are going to crowd out more traditional forms of health insurance. Many employers are using ABHPs to eliminate standard health insurance plans.

This is happening at a fast pace. Just during this year alone, about 15% of responding employers used an ABHP to replace their standard insurance plans. That number is double the rate from 2010.

During this same period, enrollment in ABHPs rose from 15% in 2010 to nearly 30% in 2013. What’s more, about 25% of all respondents may offer only an ABHP next year, the survey showed.

Among the largest employers (meaning those with more than 1,000 workers) responding to the survey, 66% offered at least one ABHP this year and 80% will do so next year. This trend is moving as swiftly as the abandonment of closed- panel, fully-capitated HMOs did in the second half of the 1990s.

In March, Kaiser Health News reported on this trend, commenting, “Historically, one of the perks of working at a big company has been generous health benefits with modest out-of-pocket costs. But increasingly, large companies are offering their employees only one option: a plan with a relatively high deductible linked to a savings account for medical expenses.”

Early Insights about Trend

This swift growth in ABHPs was described at the Executive War College last year by Paul Mango, a Director with McKinsey & Company, in Pittsburgh, Pennsylvania. He told the audience that the introduction of ABHPs is a little- known trend among employers and insurers that permits them to significantly reduce that they spend on healthcare. By introducing high-deductible health plans, insurers and employers are shifting medical risk to consumers, he said.

“This shift is the biggest stealth issue of the last four or five years because it has resulted in a dramatic increase in HDHP enrollment,” declared Mango. He went on to say that, in recent years, the market for HDHPs has tripled. There are now almost 30 million people enrolled in these products, or about 20% of the insured population.

HDHPs typically require consumers to pay for everything out of pocket until they reach an annual deductible of $5,000 or more, observed Mango. That high level of spending makes consumers very conscious of price. It means they place great importance on value. Labs must respond to this trend by raising the value proposition they provide to patients.

Mango also explained that: “Health insurers have other ways they can use to exit the traditional health insurance business. Health insurance companies can serve self-insured employers in arrangements known as administrative services-only (ASOs).

To Mango’s point, last fall, Aon Hewitt, a consulting firm in Lincolnshire, Illinois, issued the findings of a survey it conducted last fall. It said that CDHPs surpassed health maintenance organizations (HMOs) as the second most common plan design U.S. employers offered. Aon Hewitt’s survey of nearly 2,000 U.S. employers showed that 79% of respondents offered a preferred provider organization (PPO) in 2011. Next, 58% of respondents offered CDHPs and 38% offered HMOs.

The message in these trends for clinical laboratories and pathology groups is that more consumers will be paying more out of pocket. With annual family deductibles of $5,000 or more, it means labs should be prepared to collect 100% of a bill directly from patients. This will be true for a growing proportion of every clinical lab’s and pathology group’s test claims.

It hasn’t gone unnoticed that this trend toward increased patient responsibility for the cost of care makes it more difficult for all providers to collect the money patients owe. ZirMed, Inc., a company in Louisville, Kentucky, that offers revenue cycle management systems to providers, recently published its own report on this situation.

“Thanks to higher-deductible plans, the greater number of uninsured patients, and the larger co-pays, more of the money owed to providers is coming directly from patients’ pockets,” ZirMed said in a report titled, “Collect More from Patients Without Hurting Satisfaction.” Collecting from patients is one of the biggest challenges hospitals and practices face, ZirMed said.

New Collection Challenges

“And as those funds start making up a larger percentage of providers’ incomes, collecting them is becoming more and more critical,” wrote the report’s authors.

As might be expected, when patients pay a greater share of a lab’s income, the level of bad debt rises. Statistics reported by the Association of Financial Professionals (AFP) illustrate this point. AFP noted that a healthcare survey revealed that, in 2010, while only 10% of providers’ overall annual revenue came directly from self-pay patients, more than 58% of bad debt came from self- pay patients.

Since 2010, the proportion of total revenue that comes from individual patients has risen and is now estimated at about 30%, according to ZirMed. “As hospitals and physician practices work to improve cash flow, collecting more of what they are owed from patients will be one of the areas that has the biggest impact on the bottom line,” reported ZirMed.

Labs face a challenge in this regard. Like most providers, labs are well prepared to bill insurance companies and rebill if needed. But they are not well prepared to collect revenue from patients, ZirMed said. It also noted that many provider organizations often make no changes to their collection procedures out of fear of offending patients and thus damaging patient satis- faction scores or losing them as customers.

Steps Labs Should Take

Among the steps labs and all providers can take to increase collections at the point of care is to implement new processes that allow providers to estimate or calculate exactly what patients owe. Many health insurers are introducing tools that allow patients to know what they owe in real time for most health care services. These tools even calculate the amount that remains of a patient’s deductible throughout the year.

ZirMed offers a patient estimation tool that uses data from a national database of healthcare payment information to make predictions about what patients owe. But knowing what patients owe solves only part of the problem. The bigger issue is collecting what’s owed.

For this, labs need to collect when patients arrive for service because the longer a debt exists, the less likely the organization will collect. Some 52% of patients are willing to pay at least some of what they owe at the point of care using a credit or debit card, ZirMed said.

Taking Payments over Time

It should be possible for labs to collect at least a portion of the amount owed when a patient schedules an appointment, ZirMed added. Then, they could pay the balance at the point of care or over time. Just knowing what the patient owes will allow the lab to make arrangements to pay.

Trend Among Employers Is to Offer Employees Account-based Health Plans (ABHPs)

ONE FAST-MOVING TREND is for employers to introduce account-based health plans (ABHPs) to their employees as a way to manage the rising cost of health benefits. This trend has major implications for all clinical laboratories and pathology groups because it means that a growing proportion of patients must meet significantly higher annual deductibles and out-of-pocket spending requirements as defined by the ABHPs.

These findings were reported by Towers Watson and the National Business Group on Health (TW/NBGH) following its 18th annual “Employer Survey on Purchasing Value in Health Care.” The survey authors wrote that there has been “…a substantial increase in employee enrollment in these plans, which has risen significantly over the past three years, from 15% to 30% [see below]. We’ve seen a steady increase in enrollment in both account types, with HSA enrollment rising from 13% in 2011 to 20% today, and HRA enroll- ment rising from 28% to nearly 40% in 2013.” The growing adoption of ABHPs means that laboratories should prepare to collect money from patients at the time of service.

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