Colorado trying to nudge state employees toward lower health care costs

Colorado’s health insurance plan is taking steps toward changing how it pays for state employees’ health care, in a test of whether market-based solutions can deliver results.

State employees have a choice of two health plans, run by Kaiser Permanente and Cigna. The state is trying something new with the Cigna plan. It conducted direct negotiations with hospitals and other providers, and is trying to nudge employees to use the ones that are cheaper and deliver better outcomes.

Kaiser Permanente, which keeps most care in-house, won’t make significant changes to its plan.

Efforts like Colorado’s are trying to determine if health care can function as a market, said Bob Smith, executive director of the Colorado Business Group on Health, which partnered with the state to negotiate rates with hospitals and other providers.

People can’t just decide to do without a surgery or medication they need if the price is too high, and hospitals have little incentive to negotiate because there’s relatively little competition, he said. (The insurance industry is also consolidated, which can set up battles between behemoths that leave patients stuck in the middle.)

In theory, insurers should negotiate prices down for their clients. In practice, they don’t necessarily have the incentive to do that, since, as costs rise, so does the amount they can claim as overhead and profit. Hospitals and providers don’t have much incentive to keep prices down either, because patients’ ability to shop around is limited.

While the state tried to negotiate lower prices, there’s still a wide variety in what different facilities charge for the same procedure. The roughly 20,000 state employees in the Cigna plan will get incentives to choose providers who are toward the lower end of the cost spectrum and have above-average outcomes, using a tool called Healthcare Bluebook.

Users who search a procedure and their city or zip code are given a “fair price” and a list of facilities ranked from green to red, depending on how their listed price compares to what Healthcare Bluebook deems fair for the area. If a patient chooses a green facility, they may be eligible for a financial reward, depending on the procedure. It also includes outcome data from Medicare, to steer patients toward providers that get better results, Smith said.

“What we want to do is give employees the incentives to pick the people who are the best and give the physicians incentives to do better,” he said.

Hilary Glasgow, executive director of state employee union Colorado WINS, said that, in general, they support efforts to bring down the cost of health care.

“We are hopeful this innovative program will provide public employees with more transparency into their health care costs and result in long-term cost savings,” she said in a statement.

The tool only became available to employees in July, so it’s too early to know if it’s succeeding in limiting costs, said Doug Platt, communications manager at the Colorado Department of Personnel and Administration. Hopefully, employees will be more engaged with their health care and experience better outcomes, he said.

The state hopes to save about $1,500 for every $1,000 it pays in rewards, and that employees will be more productive and need fewer sick days, Platt said.

“When we talk about saving the employer money, that’s saving taxpayers,” he said.

Other provisions the state is testing include working with Cigna to encourage state employees to use lower-cost medications and sharing the savings with primary care providers if they prevent hospitalizations and other expensive complications from employees’ health conditions, Smith said.

The state isn’t the first public entity in Colorado to try to save money on health care by getting more involved in purchasing. The Colorado Public Education Health Plan, a group of 16 school districts that negotiate together, has reduced the rate at which the districts’ employees’ monthly health insurance costs grew over the last 15 years, CEO Ben Taylor said. The employees pay less out-of-pocket if they choose a hospital that has good outcomes for their procedure and reached a deal for lower prices, he said.

“Our trust was founded on the idea that school districts can take more control,” he said.

They still have an administrator who handles the actual claims processing, but the districts attempt to use their combined power to negotiate better rates themselves, Taylor said. That can be more challenging in rural areas with few providers, though the plan does reimburse the cost of travel if it makes sense for a member to drive 100 miles or further to a hospital offering better value, he said.

Joe Schott, president of the Colorado Springs Education Association, said the plan helped keep premium increases to an average of 2.5% per year in District 11, which is one of the larger members. He has been involved in the health care purchasing process, but said he couldn’t speak on behalf of the district. Annual increases for all employers have been twice that high in some years.

Schott said employees have lower out-of-pocket costs if they choose providers that have made better deals with the health plan. Not everyone loves that certain providers aren’t in the network, but it has helped keep premiums from rising as fast as they did nationally, he said.

Taylor said that public employers, like school districts or the state, will have more money left to spend on their services if they can stop health insurance costs from eating up an increasing share of their budgets.

“I think the state reached a pretty important realization of, ‘We can do better here,’” he said.

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