Examining the fine print of carrier contracts
Carrier contracts, like most legal documents, often read like another language. For plan sponsors, dissecting them can be difficult.
In any standard carrier contract, whether it’s for medical coverage, pharmacy coverage or any number of voluntary benefits, much of the language is standard and non-negotiable. But a small percentage of content in every contract — typically around 10% — is specific to your plan and the carrier and should be reviewed. How these parts are written could affect how the plan is administered and how claims are paid out. If you don’t know what to watch out for, you — or the plan members — could be surprised.
Here’s some language to look out for in medical and pharmacy contracts.
Medical coverage contract
Healthcare is changing rapidly, and carriers are trying to stay ahead of these changes by creating new policies and updating the way they operate. It’s your job as the HR professional to understand exactly how your plan works.
Frequency provisions or limitations: Under the Affordable Care Act you cannot enforce a dollar limit on qualified medical benefits. However, you can limit the frequency of visits for specific types of services. You’ll often see limits on the number of visits for care from a chiropractor or therapist, for example. Not knowing what your limits are may surprise your plan members.
Network integration: In the past, a provider was either in-network or out-of-network. But one new trend we’re seeing is that a plan can include multiple tiers of preferred providers within a network. For example, a plan member may pay a $20 copay for a preferred provider in Tier 1 and a $35 copay for a provider in Tier 2. Review the language around network integration so you understand exactly how your plan is set up. Adding an additional tier or two with varying levels of preferred providers and differing copays can be confusing for plan members and can even create scheduling difficulties.
Contract year vs. calendar year: Carrier contracts often start in January; however, they also may start in July or virtually any other time. Deductibles are tracked against this timeline and benefits reset based on the start date. Ensure that months align properly and you know when your contract will renew.
Deductible application: Understand how deductibles apply, whom they apply to and which services count toward meeting the deductible. Your plan should be set up so that it helps you meet your goals and aligns with any regulations. Not double-checking the deductible application could cost you or your plan members.
It’s less typical to have access to pharmacy contracts because many carriers bundle Rx with medical if you’re fully insured. However, if you are self-funded, you’ll have a window into these typically very complex contracts. Here’s what to look for:
Mail order requirements: Some carriers require that daily maintenance drugs be purchased through a mail order contracted pharmacy, for example, while other carriers give you the ability to opt out of mail order requirements but make it complicated to do so. You may also see costs structured to drive mail order use rather than retail pharmacies. Review these details to make sure you know what your requirements are. If not, your members might sign up, send a prescription to a retail pharmacy and then find out it must be sent to a mail order pharmacy, which can be a headache to sort out.
Specialty prescription provisions: Many drug companies spend the majority of their research and development on specialty drugs to treat serious conditions. Carriers have different methods for cost containment that you need to review in order to understand how costs are shared. If you’re self-funded, find out what the rebates and cost management programs are around specialty scripts.
Rebates: Fully insured employers typically won’t receive rebates for drugs. However, self-funded groups should review rules around rebates offered from pharmaceutical manufacturers. Rebates could yield thousands of dollars for a company. Even so, receiving them doesn’t necessarily mean you are saving money. Plans typically receive bigger rebates because they’re spending money on more expensive prescriptions, which may be a reflection of plan members’ health. Regardless, employers should be aware of rebates and understand where they can contain costs.
Utilization management: Investigating how plan members are being prescribed certain drugs can help groups manage costs in a practice called utilization management. Pharmacy benefit managers can look at members’ health conditions and the drugs they’re being prescribed to see if there are alternative treatments that will be more cost- effective for the employer and the patient.
Navigating dense language and understanding exactly how it’ll affect your plan members isn’t for the faint of heart. Luckily most HR professionals can look to their benefits broker or, at a larger firm, a risk manager or compliance lead for help. Regardless, it’s helpful to be involved in carrier negotiations for your own edification, and to help you educate your plan members and limit confusion.
About the Author
TRAVIS TURNER, Vice President, Account Management
Travis Turner is an expert in the mid-sized employer market, fully insured and self-insured funding arrangements and various lines of health and welfare coverage to provide optimal employee benefit solutions. He is Vice President of Account Management for Corporate Synergies, an employee benefits brokerage and consultancy.