In 2022, The Transparency in Coverage Final Rule, issued by the Centers for Medicare and Medicaid Services (CMS), became effective. The rule requires health insurers to disclose pricing for covered services and items and must include the rates they have negotiated with participating providers for all covered services and items, as well as the allowed and billed amounts for out-of-network providers. Allowed amounts are the maximum rates insurers will pay for a given service and billed amounts are what providers have actually charged.
Why is this problematic for HR?
It is similar to the lawsuits currently being filed against trustees for 401 plans. NYU was sued a couple of years ago by a plan participant who alleges that they overpaid administrative fees in the plans. It was also alleged that NYU should have used its negotiating power to cut the cost as NYU had $4.2 billion in assets for 24,000 participants at the end of 2014, but selected high cost low performing funds for its 403(b) plans.
Why is the fee issue so important?
According to a U.S. Department of Labor publication, “assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7%, and fees and expenses reduce your average returns by 0.5%, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5%, however, your account balance will grow to only $163,000. The 1% difference in fees and expenses would reduce your account balance at retirement by 28%.”
By law, all plans are required to identify all fees paid by participants in the plans.
For healthcare plans, the transparency requirements put pressure not only insurers but the companies providing employee healthcare to ensure that the prices reflect what the insurance is providing. Theoretically, employers who have this information could be able to negotiate or even demand lower rates.
A recent RAND study showed that the rates private insurers and employers paid to hospitals varied widely and on average were more than double what Medicare paid for the same services. Other research has shown that paying cash instead of using insurance can save consumers money on prescriptions nearly a quarter of the time.
For employers, having this data now raises the risk of liability on the part of employers. “It’s a double-edged sword,” says Elizabeth Mitchell, chief executive officer of the Purchaser Business Group on Health, which represents dozens of employers such as Apple, Boeing, and Walmart. “They now have the information they couldn’t access before, but they also have to act on that.”
These policies will spur lawsuits common with retirement plans since the mid-2000s for high fees or bad investment choices in the funds and “all of a sudden employers started paying attention,” says Karen Handorf, a former US Department of Labor attorney now at Berger Montague in Washington, DC. Settlements in such cases have totaled in the hundreds of millions of dollars – and business insurance may not cover these settlements.
HR has to monitor their insurance carefully or face a possible lawsuit claiming the insurance costs could have been controlled better. As the new regulation forces once-hidden prices and fees into the open, companies should use the data to demand more competitive rates. Employers that “keep doing exactly what we’re doing” will face lawsuits, says James Gelfand, president of the Erisa Industry Committee, a lobbying group for large companies. “Plan sponsors always had the responsibility not to waste the employees’ money. But all the health-care prices were secret.”
Source: Bloomberg 3/8/23, Forbes 7/3/22, Deloitte Insights 2/25/21