How direct pay makes health benefits affordable (2024)

Looking for an innovative and affordable alternative to traditional health insurance for your employer clients this open-enrollment season — one that will also help achieve health plan equity?

Direct payments to providers without the need to submit claims to a third party benefits everyone in the healthcare ecosystem. This mutually beneficial approach allows medical providers to extend discounted services, usually on par and even less than what they collect from Medicare.

A direct-pay network can be set up to cover 85% to 90% of all medical events, which involve everyday acute primary care for both in-person and virtual visits, as well as diagnostics like labs and imaging, and pharmacies. Other layers can be added to the mix that would allow healthcare consumers to buy up coverage for mental health, dental and vision care. While coverage for inpatient and major medical care would not be included in this arrangement, employers can continue to provide a more "traditional" insurance plan, or explore alternative programs like HealthShares, or can even arrange for direct contracting with local hospitals with the help of their adviser.

In this direct-pay ecosystem, employees know and pay at the time of service a fair and reasonable amount for the entire visit without the opaqueness of copays, deductibles, coinsurances, etc. Employers may elect to support their employees by providing a defined amount that can be used for these routine services.

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The approach not only brings transparency and cost control to health plan members and employers, but also helps medical practices in a number of ways. For starters, they are guaranteed full payment. Direct pay also eliminates low value and costly billing activities, which actually increase revenue for medical practice since one third of their revenue is "lost" in these collection and claims activities, not to mention the time drain away from treating patients.

Of course, it's also a big win for the broker of record, who will be perceived as a rainmaker in the eyes of all involved parties once health plan members transition away from rising out-of-pocket costs associated with fee-for-service medicine. It has become increasingly clear to independent benefit brokers and advisers that this is why so many working Americans either ration or avoid doctor visits.

But easing access to healthcare services with a concept like direct payments also has lasting benefits for producers. We have seen the Great Resignation exacerbate employee turnover, especially in the service sector, and economic uncertainty impact benefit budgets. What happens if employees quit or their employer decides to no longer offer healthcare benefits? What happens to all that sweat equity that you put into the client's ecosystem?

Under direct pay, individuals who stay engaged with the service, regardless of their employment status, will ensure that advisers continue to secure their share of the service fees that are collected. So there are long-term rewards that can be reaped relative to the traditional health insurance model whose renewals can be unstable.

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These revelations about direct pay date back early on in my medical career as an emergency medicine physician and department director. That's when I gradually realized our healthcare system was broken and alternate avenues were needed to make patient care more affordable. What became clear to me over 15 years of working in a large healthcare system was that we weren't really addressing the delivery of care problem. There wasn't any visibility or control for the average consumer.

And so about seven years ago, I left a comfortable corporate job to start a clinic, which was my first foray into community medicine and gave me great insight into how blinded the patient and employer can be when it comes to determining who is responsible for paying medical bills. We had our own employees at the clinic, which meant I was also an employer having to review our employee benefit options. A great gold plan was made available through Blue Cross, but the premium, which we were paying 80% of, kept rising. Only about three quarters of our employees actually elected to take the benefit.

I remember asking at a staff meeting whether our employees would be open to the idea of dropping our employer-provided health benefits and just giving everyone $400 a month to spend at their discretion — an amount that reflected our share of their premium. I was shocked that nearly everyone raised their hand. Admittedly, we had a bit of a younger population, but it was still an a-ha moment for me.

When viewed within a much larger context, direct pay can be used as a valuable talent-management tool to help recruit and retain top talent during a time of unique labor challenges. We all know just how important healthcare benefits are to overall compensation, but what good are they if the coverage is unaffordable and no one is able to use them?

As I always say, a benefit not taken is a benefit not provided — which means we all need to do a better job of making healthcare services more accessible and affordable.

Jawad Arshad