"Un-HMO-izing" and other gems from the ASO Value Visit in Chicago

Rick Koven, Koven Consulting & Coaching

06/12/2017

Over forty representatives from 16 Health Plan Alliance member plans assembled in Chicago May 16-18 to take stock of the ASO opportunity.  Self-funding continues to gain popularity with its value prop of lower costs and greater employer control.  Yet independent health plans have not traditionally had a strong foot hold in the segment.  Among member plans 19% of lives are ASO, which reflects significant growth in recent years, but still far lower than the 60% market share ASO has with national carriers (BUCA).  Steve Neeleman of HealthEquity kicked off the three-day conference underscoring the record levels of self-funding and strong growth in all employer segments, most particularly the middle market as well as with HSAs.

For many plans, ASO initiatives begin as a defensive strategy.  Perhaps the parent health system and maybe one or two key clients moves to self-insured.  The plan does its best to retrofit its legacy HMO platform for ASO purposes as CFOs worry about the cannibalization of the fully insured book.  As one participant put it, this scramble to “un-HMO-ize” isn’t always a successful long-term strategy.

Some plans have moved on to a more deliberate strategy.  That shift begins, as Coralee DeGeorge of SelectHealth suggested, with an embrace of a “self-funded mindset.” Concrete steps like hiring an ASO product champion, tackling the pricing issue with an in-depth review of fixed and variable costs attributable to ASO, and establishing an ASO specific profit center with its own P&L follow.  Select Health has seen ASO margins improve, and half of new groups are now self-funded.  This view was echoed by Tom Nicholson of NorthStar Strategies who backed the idea of separate branding for self-insured business.  Taking away ASO business from an incumbent is no easy task, and often involves a two to three year sales cycle.  Yet as Tom pointed out, in the end if you “get the CFO in the room” the sales will come.  Tom’s experience at DakotaCare, which has gone “upside down” with self-funded business now representing more than 50% of the plan’s membership, like Select Health, supports the notion of a focused ASO strategy.

Brad Garrigues from Providence and myself did a deep dive into ASO pricing which we benchmarked to a price in the high $30’s PEPM needed to compete with BUCA.  Getting to that price point requires unbundling services (e.g., carving out disease management, behavioral health, etc.) so as to be on an apples to apples basis with the competition.  If the plan can’t unbundle the service than it must at least identify line item prices for each service.  Brad went thru a concrete pricing example to demonstrate how stop loss can support the ASO offer and give the Plan much more flexibility in overall pricing. Other speakers, including Chris Cobb of HAP and Keith Johnson of Greenville Health System reinforced the need to customize plan designs, flexibility being a hallmark of successful ASOs.

Mark Pierce of Stonegate Advisors identified the advantages of a middle market focus.  There is “churn” in this segment making the incumbency advantage of TPAs and BUCA less daunting.  Mark urged Plans to “own the beachfront” with a unique ASO value prop that “parlays the provider sponsored advantage“ such as installing worksite clinics.  In that vein, Neal Spero spoke about Presbyterian Health Plan’s creative initiatives for large employers including mobile clinics at worksites and bundled payments for high cost high frequency procedures.

Ron Peck from Phia group took measure of the Obamacare repeal and replace efforts in Washington, and like most observers sees little clarity on what will ultimately emerge.  Nonetheless little direct impact on self-funding is likely. Hypothetically, small group self-funding might be less attractive if Essential Benefits requirements are waived because self-funded now has more flexibility with respect to mandated benefits.  Karen Bender, an actuary with expertise in the small group segment, made a similar point, noting that in states where self-funded MEWAs and Association plans are established, they have siphoned off good risks from the fully insured pool and created ASO opportunities.  Nonetheless, she reminded the audience that small group self-funding is no small challenge requiring lots of employer hand holding and expert ERISA compliance support.  SummitRe reported significant growth in the stop loss market supported in part by increases in so called level funded plans for small groups.

Suzanne Taranto of Milliman discussed how consulting firms evaluate ASOs and their networks.  Admittedly network evaluation is a bit of “black box” and every consultant has a different model.  She advised plans, as did other speakers, that trend guarantees  backing up the promise of best in class network discounts are what sophisticated ASO buyers expect.  Jerry Burgess of Spring Street further argued that plans could deliver value with high performing, narrow networks built on ASO platforms.

A panel of speakers delved into the challenge of out of network claims observing that the ability to execute care management was just as important as the level of discounts offered by rental wrap networks.  Kevin O’Neil of MultiPlan reported that its business model was evolving with greater emphasis on claims cost data and less on fixed discounts.  Panelists took note of the growth of reference based pricing options including the potential value and pitfalls involved.

Overall the ASO Value Visit was a success. Based on the strong attendance, the level of engagement in the room and the highly positive evaluation scores we’ve since received, it’s evident that interest in ASO is high. To access all the event presentations and podcasts, visit the documents tab on the event page.

We are working on developing additional ASO programming for 2017-2018, so make sure your profile is up-to-date with product area of interest ASO/Direct Contract/Self-funded selected to receive email updates on this topic. The Alliance has two webinars related to this topic scheduled for the month of July and we hope you are able to attend.

Upcoming webinars

Reciprocity discussion
Webinar  |  7/7/2017  |  11:00 a.m. CT (60 minutes)  |  Register
Rick Koven, Koven Consulting & Coaching, and Dennis Bolin, Health Plan Alliance, will review the concept of creating reciprocity relationships among Alliance members and discuss next steps to collect data and identify the opportunity. 

A primer on reference based pricing
Webinar  |  7/27/2017  |  11:00 a.m. CT (60 minutes)  |  Register
Jason Davis, The Phia Group, will cover the fundamentals of reference based pricing (RBP).

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