What does it mean when an employer is self-funded for health benefits?

[siteorigin_widget class=”SiteOrigin_Widget_Image_Widget”][/siteorigin_widget]

A self-funded employer directly assumes the costs of its employee’s medical care instead of paying insurance premiums to an insurance carrier. According to survey by the Kaiser Family Foundation, employer-sponsored health insurance covers approximately 149 million working-age people in the U.S. Of these, sixty-one percent are in a self-funded plan.[1] Therefore, the self-funded market in the U.S. covers roughly 90 million lives.

Self-funded is different from self-insured. If you hear a speaker or read an article from an author who uses the term interchangeably, you may have encountered one of two things: Either the author is uninformed and has only superficial knowledge of the realm of self-funded health benefit plan operations and regulations, or, they may be under the assumption they are addressing someone uninformed. Or in the case of an article found on the Internet, they’ve decided that self-insured will be the search term and are seeking to be discovered through SEO tactics.

Self-insured employers actually form an insurance company organized under state insurance laws. The laws and regulations and reporting requirements are very different for a self-insured plan than for a self-funded employer that does not form an insurance company under state laws. Self-funded plans follow the laws and regulations and reporting requirements of the Employee Retirement and Income Security Act of 1974 (“ERISA”),

Where the two program types rules diverge significantly is in the rules governing coverage decisions, disclosures, and appeals procedures for denied claims.

Efforts to contain costs

Employers that self-fund their health benefit plans have greater flexibility than employers who purchase an off the shelf insurance policy.  Self-funded employers can custom tailor benefit design to meet the needs of their employees, dependents, retirees and union members.  That way, they aren’t paying for a generically-designed health benefit plan that may not align with their employee’s and dependents and retirees on the plan.  They also use several different options than those used by insurance companies to contain healthcare benefit expenditures.


  • Self-funded employers are at liberty to “lease” an existing network for a modest fee per-employee-per-month. Some may have as many as 5 network logos on the plan participants’ identification card. One will be the primary network, though it is not always clearly identifiable. The other networks are considered “wrap-around” networks. Wrap networks fill in gaps in the primary network.  The employer pays a network access lease fee per-employee-per-month (PEPM) for each network that appears on the identification card.


  • They may also contract independently with providers outside their “network” of PPO contracted and vetted providers. When they do this, it is referred to as “disintermediation“.


  • They may also purchase access to a discount on a single case basis by paying the owner of a contract with a healthcare provider for a percentage of savings arrangement.


  • They may purchase access to a pharmacy benefit management (PBM) arrangement, which may give access to discounts on medications and may also periodically rebate the employer a certain amount of money for limiting choices of certain brands of medication to incentivize plan participants to choose selected medications on a formulary where more than one drug is considered the therapeutic equivalent of another at a lesser cost.


  • With 700 employees in a single location (a generally-held “sweet spot” for feasibility), they may also elect to establish a worksite health center that is either staffed by a physician or nurse practitioner or one that is staffed by a lower level provider (a registered nurse or a medical assistant) and supported by telehealth using a kiosk.  The center may be open around the clock. It may be accessible to all employees and intended to treat work-related illness or injury, or complete primary care. Services may be available at the usual and customary rates in the local marketplace, at a greater discount or completely free without having to satisfy deductible and copayment amounts.


  • They may require, as a condition of employment certain health habits (e.g., no smoking) and encourage wellness through various wellness and fitness programs they can purchase from commercial sources. Some purchase “Executive Checkups” which are mandatory for senior executives and managers. These exams facilitate early diagnosis and intervention for high-value employees. If a serious health condition is discovered that will eventually cause that high-value employee to retire early for health reasons, early diagnosis may lead to an initiation of an action plan to begin knowledge transfer. In many Executive Checkup programs that are a requirement or condition of employment, these exams may be paid for by the company in full, are far more comprehensive than the periodic checkups available through the primary health benefit program, and the employee is required to release the findings of all testing and diagnoses and treatment plans to the employer.  In general, employers tend to complain that the spending on most wellness programs is wasteful. This is because about 95% of employees don’t use the program, but the employer pays roughly $60-100 per-employee-per-year for the program.  Proponents (sales reps and brokers) of wellness programs back around 2010-2014 would tout returns on investment of $5 in savings for every dollar spent on wellness programs. More recently, that ratio has been abandoned because it hasn’t been proven or if it once hit that ROI, it wasn’t sustained.


  • Self-funded employers may also carve out certain benefits of value to only a limited number of plan participants and relegated those benefits to a Healthcare Reimbursement Arrangement (“HRA”). In this program, those who access the benefit file a claim for reimbursement, but the employer retains the funds in a special account and pays out claims for services allowed under IRC213D. These services are considered “eligible expenses” paid for care, supplies or services as described in Section 213 (d) of the U.S. Internal Revenue Code.  Among these, travel expenses to seek treatment, specialist consultation or arrive at a diagnosis are permitted for certain conditions.


  • Many self-funded employers also implemented high-deductible health plans. In an attempt to make the transition more palatable to employees, some self-funded employers also established an account to “grant” employees an amount to defray the high deductible by making a contribution to the employee’s Health Savings Account (“HSA”), which the employee may use on any IRC213D eligible expenses, including travel to a foreign country or another state or region in their own state to to seek treatment, specialist consultation or arrive at a diagnosis are permitted for certain conditions.


  • Another cost containment tactic used by self-funded employers may be the use of narrow networks. Narrow networks may be used for a single diagnosis or treatment, a group of diagnoses and procedures or for all services. Sometimes these narrow networks are referred to as Exclusive Provider Organizations (“EPOs”) and Exclusive Provider Networks (“EPNs”).The exclusivity comes from the requirement that the plan participants access care exclusively narrow network providers in the EPO/EPN to obtain their highest plan benefit levels and lowest out-of-pocket cost share. In recent years, the term High-value Network (HVN) and similar terms have replaced the terms EPO or EPN and Narrow Network.


  • Yet another cost containment approach may be to give access to or require the use of designated Centers of Excellence (COEs). Centers of Excellence are not a marketing hyperbole term. Instead, these are specialized programs within healthcare institutions which supply exceptionally high concentrations of expertise and related resources centered on particular medical areas and delivered in a comprehensive, interdisciplinary fashion—afford many advantages for healthcare providers and the populations they serve. It is assumed that COEs provide better clinical outcomes at a lower price because they can charge slightly less for volume-driven utilization steered to their door for select services.


  • For self-funded employers, another way to contain emergency department costs which can range from $1300 per adult on average, per encounter to about $1600 per pediatric encounter, is to make telehealth available at a low or no-cost fee per utilization. In some cases, the employer pays a per call fee, while in other arrangements, the employer may pay a network lease fee for the telehealth network for unlimited monthly access per plan participant. Call centers are staffed by nurse practitioners or registered nurses or physicians. For example Walmart recently lowered their telehealth fee for employees from around $40 per call to $4 per call.


  • Case management is a service to self-funded health plan sponsors that is often either subcontracted or provided through a TPA. Case managers use healthcare and plan resources and services in the best way possible. They assist plan participants with decisions, choices of facilities and between different care environments. Rarely do case management firms offer patient movement and logistics services for care out of a primary service area.


  • A chronic medical condition is one that has been (or is likely to be) present for six months or longer, for example, asthma, cancer, cardiovascular disease, diabetes, musculoskeletal conditions and stroke. There is no list of eligible conditions; however, CDM services assist patients who require a structured approach, including those requiring ongoing care from a multidisciplinary team.


  • In healthcare, predictive modeling is a subset of concurrent analytics, which uses two or more types of statistical analysis simultaneously. The goal of predictive modeling is to anticipate an event, behavior, or outcome using a multivariate set of predictors. Self-funded employers use predictive models to anticipate utilization and disease courses by analyzing consumer and patient demographics, psychographics, preferences, and lifestyles. Care coordinators can then create campaigns and interventions targeted at particular audiences and delivered through specific channels.


  • One way that self-funded employers and insurers attempt to contain extraordinary costs or catastrophic illness and injury costs is to purchase reinsurance.  Reinsurance is insurance that is purchased by an insurance company or self-funded employer or a healthcare provider contracted under a shared-risk arrangement, in which some part of its own claims expense liability is passed on to another insurance company. Reinsurers maintain their own narrow networks of providers and include contracted domestic Centers of Excellence outlets for transplants, multi-trauma, detox, eating disorder treatment and substance abuse rehabilitation in inpatient or partial hospitalization settings, extended inpatient or partial hospitalization physical rehabilitation, and burn care among others. Medical travel has long been a component of reinsurers’ networks. A cedent company that purchases a reinsurance policy may be required to steer plan participants to the Center of Excellence and the travel to the care destination may be paid a) by the employer as an extra-contractual eligible expense (under IRC213D) paid from the claims fund; b) as a direct reimbursement from the company to the employee or retiree; c) as a travel expense advance and a per-diem allowance for travel and accommodation and out-of-town meals; d) the travel allowance may also be paid out of an HRA fund; or e) or it may be bundled into the amount that the reinsurers pay.


  • Reference-based pricing (RBP) is another tactical approach some self-funded employers have tried in recent years.  The popularity of Reference Based Pricing (RBP) negotiations has grown exponentially. Initially positioned as a fast-growing alternative to the Preferred Provider Organization (PPO) plans, RBP plans are a newly popular option for self-funded employers looking to utilize a group benefits plan. But without understanding the intricacies, how they affect providers, and their short- and long-term implications, I predict that this too will flash and fizzle except in one-off negotiations. Reference based pricing health plans do not contract with a network of doctors or hospitals. Instead, the employers attempt to pay providers directly at steeply discounted rates, after the fact, and by simply sending a check for their chosen amount with the hope that the provider will cash it and write off the balance.
  • While RBP appears to be patient-friendly on the surface, it has a domino effect for payors, providers, employers, and plan participants. These plans are inherently misleading to patients because patients are liable for more out-of-pocket costs. Self-funded employers believe they are giving their employees a great plan that protects against catastrophic events and lowers their monthly premiums — but below the surface, problems are loom. Providers work proactively to identify health plans offering RBP products and bar the door at the registration department. Many are turned away without a deposit when the provider discovers there is no regulated plan behind the card.  Plan participants using RBP plans put themselves in a position to pay out-of-pocket costs that they did not necessarily realize they were liable for. In fact, Plan participants may be under the impression that their premium payments cover all costs. When these patients receive a bill for out-of-pocket costs, they are likely to be are caught off guard and angry. One employer who tried to bully their way to a discount is facing a supreme court trial in Virginia because of it. Now there’s a way to spend time and money! One-off negotiations may be great and effective in a pinch, but as a long term strategy, it is a very costly approach to attempt to get a discount. Two pieces of advice: Negotiate before service, and use the right reference basis!


  • A “cousin” to pre-negotiated reference-based pricing is the bundled case price. I began developing bundled case pricing for an IPA and MSO of outpatient surgery services associated not with a hospital (the hospital was too stupid to grasp the opportunity – yes I used the word “stupid”. It sounds better than “greedy” and for a hospital greed is a by product of short term stupidity.)  Stupidity is defined as “behavior that shows a lack of good sense or judgment” and when I offered the hospital a chance to participate, they said “no.” So I went up the down the same street, 2 blocks from the hospital parking lot to the local ASC. Same surgeons, same surgeries, better prices. That was 1995.
  • Twenty four years later, there are consultants touting global case rates and bundled pricing as if it is a new thing. No it isn’t. And I didn’t make it up either. I stood on the shoulders of giants who had been quoting bundled case pricing for cash paying patients as well as for the Amish and other Anabaptists, including Mennonites who do not carry commercial health insurance; they prefer to pay for healthcare and other goods and services in cash, and they are famously thrifty shoppers and they travel to places like Mexico if necessary to access bundled case rate pricing. The insist on a single, all-inclusive price for tests, procedures and episodes of care, rather than a lengthy list of itemized charges that didn’t even include professional fees.  In 1995, we approached self funded employers in Denver with this program specific to their workers’ compensation surgeries. The program still works and the way it was designed, employers pre-authorize the case and surgery is carried out within 5 working days of the authorization if the patient is medically cleared for the surgery. This reduces the time off work for temporary total disability. Payment is predictable, transparent, and more quickly turned around.
  • When I see Medicare and other insurers and consultants act as if episodic care and bundled case rates are something new and exciting, I groan with derision.  Don’t they realize that when they call it something “new” and it isn’t new, they immediately show their lack of knowledge and how late they are to the concept?
  • One reason why more hospitals don’t offer and vehemently resist bundled case pricing is because they don’t know their costs for providing care. I met a hospital CEO in Rome who impressed me with his bundled case rate development worksheets. He had been a banker prior to taking the helm of the hospital. He had his staff trained to create bundled case rates for every procedure. Case after case, bundle after bundle – their team nailed it. I offered to market a class for hospital managers in the USA but he didn’t feel comfortable with his command of English to teach the class. So few are prepared to offer bundled case rates and calculate them properly.
  • To get a package price, patients must pay before they leave the hospital or ASC. Many providers will not offer package prices to patients paying through health plans, which generally won’t play by the rules. But self-funded employers with reinsurance in place, willing to start slowly and sign a contract for direct pay liability outside the realm and influence (and prying eyes) of a TPA or ASO who want to talk with hospital administrators and ASCs call me all the time to help them with the deal. I bring the contract wish is mutually respectful, transparent and friendly to all concerned, and we simply fill in the numbers.


  • Self-funded employers have, for the past 10 years or so, also tested online shopping platforms that require employee engagement to shop around town or within a certain distance from home for the lowest cost providers. Upon advice from a physician that the plan participant needs a specialist consultation, surgery, or diagnostic test such as an MRI or colonoscopy. The plan participant uses the online directory to find out which provider charges less than the others. Due to the confusing way that listings are compiled and prices reported, so far few of these platforms have resulted in significant savings for plan participants and plan sponsors. As a result fewer and fewer plan participants continue to engage with them because of the information is outdated or intentionally misrepresented to attempt to lure the participant to lower prices only to discover after the fact that the lower posted price was unreliable or irrelevant in terms of out of pocket expense. The latest entrant into this space is Guroo, which is powered by claims data, grouped regionally, based on care bundles, and free to use.


  • Self-funded employers who decide to contract directly with providers are prohibited by rules under ERISA regulations to “capitate” (pay a flat fee per-plan participant-per-month and transfer full risk of claims cost to providers) the way licensed insurers are permitted to do so.  One way that employers can share risk of clinical outcomes and spending levels is to set targets of measurable performance objectives. The metrics can be designed to measure and evaluate things like HgBA1C (the measure of blood glucose control on average for diabetics) reduction and maintenance in primary care, and hospital readmission rates and post-operative infections and other complications in health facilities agreements.
  • Value-based purchasing models determine reimbursement based on provider performance on health outcomes, cost management, or a combination of both. But to assess providers, healthcare organizations need to implement health IT systems that can gather, analyze, and report data from across the organization and communicate results to payers, directly.
  • If the party to the agreement meets the performance objectives, they go have lunch, shake hands, smile, and carry on for another year. If they exceed the performance objectives, they earn a bonus. If they fall short, a probationary period and corrective action plan and performance improvement are initiated and ultimately, the contract is at risk for termination for cause, tied to the stated performance objectives in a Pay-for-Performance addendum or attachment that specifies the mutually agreed to expectations.
  • Pay-for-Performance requires one of two things to make it work: a willing and competent TPA/ASO or a small task force or committee to monitor the data supplied by the hospital or the TPA/ASO that highlights certain occurrences and data to evaluate what’s happening in the plan.  While the task force may be busy, it can hire out the measurement and evaluation to a cost containment firm. This sort of project is not that expensive to hire out as the work is not a constant oversight, but instead, a periodic check-in and review of the data (quarterly or semi-annually) and some time to meet and check in with the providers. $5,000 a quarter is sufficient as a budget to measure, monitor and conduct the payer-provider meetings a program. The group size doesn’t matter as much as the quality of the data. The break even analysis is simply measured by the following: can you trim the cost equivalent of 1.5 days (or more) per quarter using this approach? If yes, it is a no brainer. Why TPAs don’t offer this or do this is because many of them are being paid a rebate (a “kickback” in my book) of a percentage of the revenue generated by the hospital or medical group. So the higher the revenues of the hospital, the more kickback…err “rebate” flows back to the TPA or the ASO. The employer and plan participants lose both ways in these perversely-incentivized deals. Hence when the employer asks their TPA/ASO, “Can we initiate something like a Pay-for-Performance campaign?” The TPA/ASO says, “Sorry, no that’s not possible” and the discussion usually ends there – or the TPA is replaced with one that will cooperate. Yes, it is possible. No, it’s not that expensive. Yes the hospitals and medical groups are open to it, but have not been asked. By comparison, with hospital and federal dollars going to hospital readmissions, CMS (Medicare) created a value-based reimbursement program that penalizes hospitals for excessive readmission rates for six conditions, including chronic lung disease, heart attacks, and hip and knee replacements. The Hospital Readmissions Reduction Program (HRRP) decreased rates by 8 percent nationally between 2010 and 2015.  CMS penalized over 2,500 hospitals by more than $564 million in 2017 for excessive 30-day hospital readmission rates.  Employers operating their own health plans paid…and paid…and paid…  To combat growing costs, insurers across the industry are adding hospital readmission quality measures to their value-based reimbursement programs. Hospitals engaging in any model are likely to face penalties if their providers cannot improve hospital readmission rates. About one-quarter of healthcare payments made through commercial, Medicare Advantage, and Medicaid health plans, were paid via an alternative payment model with population-based accountability in 2016.  But self-funded employers won’t see significant improvements in their own costs paid by their trusts if the TPA won’t help and they don’t adopt direct-with-provider contracted relationships. When employers decide it is time, the PPOs of the country will be rendered redundant.
  • Some of the ways we have helped with Pay-for-Performance since 2003 when it was the topic du jour, include examining claims to find things like waste in the form of repeating tests because a patient just had an MRI ordered by their primary care provider but the specialist didn’t get the results, so the specialist simply orders another. Lab tests are also wastefully repeated without therapeutic value.  An exciting new development in home monitoring technology is working its way through the FDA clearance process for a toilet seat cardiovascular monitoring system for congestive heart failure patients.


  • One area where there’s a lot of hidden waste in trust expenditures is in pharmacy spending. Doctors know what medicines to prescribe. But if patients fail to take medications correctly, skip doses, or skimp on doses due to affordability challenges effectiveness and treatment and clinical improvement suffer.  The remedy for this comes in a few flavors. The first is the lowest hanging fruit: an employer-branded pharmacy discount program that reduces medication costs. I offer this to self-funded clients of up to 2500 lives for $150. The program rides on top of any PBM contract and saves on all FDA-approved medications for the whole family and even pets. The second is an inexpensive app that can be white labeled for the employer that helps those on medications remember to take the right medication, the right way, at the right time – every time with a simple app on their Apple, Android and Amazon devices.  The app I usually recommend is one I’ve tried and loved. Patients or their caregivers or parents enter basic information about each medication prescribed, such as the name, dosage, and how and when they take it. Medication regimens can also be pre-populated automatically by external systems. Setup reminders are editable on a fixed schedule, at intervals, or as needed. They can adapt the dose schedule to their changing day, taking a dose early or postponing it as long as needed and track remaining quantities, receive refill reminders, and log adherence and send the adherence tracking to their physician. Studies have shown that medication non-adherence for chronically ill patients is 50% or higher (Eularis, 2010), resulting in about $310 billion annually in additional healthcare cost in the US (New England Healthcare Institute, 2009).


  • When self-funded employers contract directly with providers (namely hospitals and diagnostic testing centers) they can stipulate to a prohibition on surprise billing.  Surprise billing can leave consumers (and plan trusts) with enormous out-of-pocket expenses for unexpected or out-of-network services.  As the cost of health care in the United States continues to rise, many groups, including AHIP, the ERISA Industry Committee, and the BlueCross BlueShield Association, among more than a dozen others have asked Congress to take action on this rising problem.  You see, some years back, the recommendation to providers was to adopt an out-of-network strategy for providers who were told “no” by HMOs and PPOs when they asked for rate increases. At that time, fewer physicians were employed by hospitals. Today, the number of physicians employed by hospitals has risen significantly, but a significant driver of high costs are exorbitant bills that millions of patients with comprehensive benefits through their employers receive every year, demanding arbitrary fees for treatment by certain specialty medical doctors they did not seek out for care and, often, never even knew treated them. In fact, at least one in five Americans receives a surprise medical bill every year!  A 2016 study published in the New England Journal of Medicine found that an out-of-network anesthesiologist bill averages 580 percent of the Medicare reimbursement rate! Without a contract, they balance bill the patient the amount of the difference between what the employer views as reasonable and customary (between 140-200% of Medicare) and the billed charge.  Non-contracted emergency medicine physicians inflate their rates even higher: the average bill for an out-of-network ED visit could total a whopping 798 percent of what Medicare would pay for the same set of services. For the more than 100 million Americans covered by a self-funded health plan, these state laws provide no protection and underscore the need for federal action. But if the self-funded plans (or their TPAs and ASOs) were better equipped to manage this or willing to implement limits in contracts with hospitals to prevent these surprises, the problem could be handled without federal action. Again, if the TPA and ASO are being rewarded for turning a blind eye and in turn receiving higher revenue percentage kickbacks, why would they shoot themselves in the foot by addressing this? On the other hand, the employer that knocks on the hospital’s door and says let’s do a direct contract with pay for performance, bundled rates, and a few other more aggressive cost containment initiatives, hospital administrators in the same community will listen and likely agree rather than have the employer choose to strip off the most lucrative or the most frequent lower cost surgeries and procedures fly over the top of them with a medical travel pilot program.

Medical Travel as a Cost Containment Strategy

In the past 15 years, medical travel (a/k/a/ #health tourism, #medical tourism, #cross-border healthcare) has followed a circuitous route to acceptance in self-funded employer circles.

1995-to 2010

Since 1995, I’ve seen many startups flash and fail. Some consultants (including me) foolishly believed that employers would rush to adopt cross-border healthcare.  A few early adopters began their programs as early as 2006-7. I worked with some of them. Many faced hurdles because the medical travel logistics and patient movement was far more complicated than anticipated. Many assumed it was little else than purchasing airline tickets for the patient and companion, and paying less for the procedure. They quickly learned that the travel itself give risk to complications associated with altitude physiology (wrong size and configuration of aircraft for the recovering patient to be safe and comfortable in flight) and cultural biases (like getting stuck in an LGBTQ-unfriendly location en route to the treatment destination).  Some chocked. They tried to launch with too many procedures at once. Others relied upon pre-configured networks that offered destinations and providers they didn’t want and lacked the ones the did want. I had tried this model for several years at great network development expense. I ended up building a large network (the largest on the planet).


In 2010, the Obama Administration enacted the The Patient Protection and Affordable Care Act (PPACA) #AffordableCareAct, which sent self-funded employers into a frenzy to comply with certain applicable regulations. The distraction was enough to stall medical travel research and adoption for most employers. Suddenly millions of people without insurance had coverage. Pent up demand made it difficult to access care for people with new cards in their wallets.

In December 2013, still awaiting the arrival of the promised masses of medical tourism adopters regaled in the reports of the Medical Tourism Association® propaganda reports and the Paul Keckley report of 2008 under the Deloitte Brand, I folded the network and confidentially licensed the intellectual property I created for network development to a licensed insurer considering a medical tourism benefit expansion with a 3-year exclusive and non-compete.   Keckley’s 2008 Deloitte report fueled much of that buzz by predicting that 6 million Americans would leave the country for medical care by 2010, and that by 2017 that figure would explode to 25 million. “Missed it by that much” as Maxwell Smart would say.  Shortly before the license expired, I was offered an early buy out of my non-compete and return of my intellectual property for an undisclosed sum that I accepted. The insurer assured me their gratitude but became so overwhelmed with other regulatory concerns and exchange plan preoccupation and the unanticipated risk associated with the marketplace exchange plans, they never had the time to delve into medical tourism as anticipated.

Medical Travel Won’t Solve All your Problems

Only recently, have employers been calling on me to ask “if” medical tourism might help them to contain costs. My answer is not always positive. It really depends on what the data reveals.

Everyone’s Targeting Employers

Meanwhile, there are now several medical tourism consultants and companies marketing to self-funded employee health benefit plan sponsors. Most are on the learning curve at a point where I was more than 10 years ago.  They will quickly flash and fail because they are undercapitalized and won’t be able to scale.

Some are grossly underqualified and have no grasp of the nuances associated with ERISA or Taft Hartley regulations. Some have no clue and have done no research or self-study about these complex regulations. Some built a very typical medical tourism facilitator business (with a usual lifespan of 18-24 months), a website and a program to serve individual consumer shoppers and have picked up some buzzwords and decided that the same network configuration will be applicable to corporate buyers. That’s not the case, but they will learn from their assumptions, maybe. Often they simply go dark and abandon their websites and move on to something else.

Many have no clinical training and have no real policy, procedure or set of standards to pre-qualify facilities, specialists, surgeons, accommodations, airports, airlines, and ancillary providers. They negotiate contracts with providers, sight unseen, via email.

Many Non-compliant Arrangements – Some intentional, others just plain ignorant

They negotiate agreements for a percentage of the surgical fee, a practice that is illegal in the USA known as fee splitting and referral brokering and violates at least 5 state and federal laws. The practice tends to cost the employer more than they need to pay because the employer is covering that 20-30% commission payment on the price of the surgery. Some argue that the rules don’t apply with healthcare providers outside the USA. I wonder how they look in orange scrubs? All it takes is a phone call to blow the whistle on them to regulators and “another one bites the dust.”

Bad Advice, Wasted Time, and Costly Mistakes

In addition, many employers make it harder to get started than is really necessary, and more costly. They follow bad advice, attempt too much too soon, or focus only on procedure prices by comparison to what they currently pay Most fail to take into consideration the “appropriate” travel and other ancillary costs and aftercare. One article I recently published on LinkedIn helps to bring light on what to compare and how to identify high-value providers. In their cost estimates they tend to estimate economy airfares that may actually raise risks or cause harm.

Recent Case Study – Feasibility

In that article, I describe a case study of an employer group of 770 lives. Based on past utilization and trends projected going forward, with only 13 cases over two orthopedic procedures, they could save $405 PEPM on plan trust funds or $313K for the year, net, after travel expenses and ancillaries and hometown after care are calculated back in.  Then there’s Walmart. Walmart instituted a combined approach of medical travel, center of excellence, narrow network and transparently bundled case rates. 

Case Study – Walmart

From 2015 to 2018, 1,836 Walmart associates had joint replacement surgery at a COE site, constituting 18 percent of all employees who underwent the procedure in that timeframe.  the 18% utilization percentage is spot on. It generally ranges from 5-20% of all potential elective cases. very few emergency cases are carried out, worldwide through a medical travel program.  About two-thirds of those patients were women, and most were 50 to 64 years old. COE specialists determined 20 percent of patients wouldn’t benefit from surgery.  There are CDC statistics on incidence frequency rate for joint replacement surgeries and these statistics from Walmart almost mirror them exactly.

Because COE patients had better outcomes and avoided unnecessary procedures, Walmart’s cost per case was about 15 percent lower at COE sites than at non-COE hospitals. The cost for joint replacements at COEs was $23,505, compared with $27,721 at non-COEs.  Now don’t get upset, but I can arrange for knee replacement surgeries at just south of $13,000 at my little underdog destination facilities, that are accredited and with board-certified, fellowshipped surgeons.  Most of my smaller clients don’t want to pay for and really don’t have the means to pay big brand healthcare prices if they can avoid it.

Walmart plan participants average 1.7 days inpatient at COE hospitals, 32 percent less time than patients who went to hospitals outside the program. COE patients returned to work after 11.3 weeks, a week and a half sooner than non-COE patients.  Almost all my cases at the $13,000 price range are outpatient that meet medically-appropriate criteria for outpatient. Those that don’t average about $15K.

Case Study – Menninger Clinic (1919 to 2003)

The Menninger Clinic originally in Topeka, Kansas was one of the original medical tourism destinations for psychiatric care.  They attracted patients from everywhere, but the Atchison, Topeka and Santa Fe Railway, often referred to as the AT&SF, one of the larger railroads in the United States and a pioneer in intermodal freight transport, allowed workers to access psychiatric services at the Menniger Clinic as an employee benefit. AT&SF had a railway, a tugboat fleet, an airline and a bus line. Menninger Clinic an early center of excellence and was engaged in private and corporate medical travel benefits from 1919 to 2003 at its original location in Topeka.  Comprising the first group psychiatry practice, founders Drs. C.F., Karl, and Will Menninger believed mental illness could be treated, at a time when it was thought that custodial care or lifetime exile were the only courses of action. So successful were the Menninger’s methods, that therapists all over the world adopted and practiced their innovations and approaches for decades before all the recent activity in the industry in the early 2000s.

Union Health and Welfare Benefit Trusts

One must remember as they study the history of corporate medical travel benefits that the Labor Management Relations Act of 1947 (where the Taft Hartley regulations reside) formalized health benefits for unionized laborers as far back as the 1940s. Taft-Hartley Trust Funds are plans established under section 302 of the Taft-Hartley Act of 1947. Each fund is formed as a result of a collective bargaining agreement. These plans are also referred to multi-employers funds, Taft-Hartley trusts, joint trusts, jointly trusted plans, ERISA trust funds and labor-management employees benefit plans. They have one important common feature; they are administered by boards of trustees on which labor and management are equally represented.  Jointly trusted plans are common when a group of employers, usually in the same industry, join together with the unions with which they have bargaining agreements, to establish a multi-employer trust. Jointly trusted plans are common in the construction industry (bricklayers, electricians, and laborers), retail industry (united food and commercial workers) and the trucking and warehouse industry (teamsters). The Trustees of the plans are charged with determining what types of benefits will be included in the plan. Payments of these benefits are made from a trust which is funded by employer contributions established through negotiations. Funding also comes from income through investments made with the assets of the trust. Contributions are made by each employer in the fund on behalf of each of its covered employees.

In terms of medical travel to international clinics and hospitals, while it may happen if there is a compelling reason, novices who have just recently discovered and entered medical tourism hoping to attract corporate clients with their international medical travel network providers will eventually learn that union members are very unlikely to travel abroad for treatment, don’t think to negotiate it into their labor and union health and welfare benefit agreements, and react rather unfavorably at the mere suggestion of seeking care abroad. These neophytes see group health benefit plan sponsors and dollar signs replace the irises in their eyes, at least temporarily. Even if a union member decides they would be willing to travel abroad for care, the Union may object. That happened in 2007 in Candler, North Carolina at Blue Ridge Paper.

Case Study – Blue Ridge Paper (2007)

Self-insured Blue Ridge Paper Products of North Carolina — implemented a medical tourism plan for its employees. Arnold Milstein, MD, chief physician at Mercer Human Resources assumed many others would follow. He pushed out press releases under the Mercer brand back in 2007 announcing that large self-funded employers and Taft-Hartley trusts were interested in learning more about the concept and how it might fit in with their insurance programs. Many of the employers, however, were and still are reluctant to identify themselves publicly for a number of reasons.  Blue Ridge had to stop its medical travel program. The program offered a cash rebate incentive to plan participants of  25 percent of the difference in cost between local and offshore treatment.

Case Study – Satori World Medical (2008-2012)

In 2008, Steven Lash of Satori World Medical Inc, (now bankrupted and auctioned off) filed a patent for an integrated health and financial benefits system and method. The method used by Blue Ridge Paper was flushed out but not original. Lash was awarded the patent US8160897B1 for a shared medical savings system and method that allow a patient to participate in the savings generated by selecting to have a medical procedure performed overseas. The system had one or more computing devices, a link that was capable of connecting the one or more computing devices to a medical shared savings unit that is capable of interacting with the computing devices. An employer could use the computing device to elect to participate in a medical savings plan using a Health Reimbursement Account, a patient using the computing device to select an overseas medical procedure that was part of the medical savings plan so that the savings for the overseas medical procedure is divided between the employer and the patient utilizing a medical savings plan. The patent was sold with the assets in the bankruptcy and transferred to Health Flights, Inc., in 2016 and is still active. So if and employer decides to send a plan participant overseas and use an HRA and split the savings as an incentive as did Blue Ridge Paper, by rights the employer would be required to pay a licensing fee to the patent holder, currently known as healthflightssolutions, a software company.  The software they use is advertised as a “game changer” in medical tourism and aimed at consumers through its “highest ranking” website for medical tourism, and then mentions its Health Centers Plus® program for self-funded employers and insurance companies, offering them the ability to offer medical travel as a supplemental benefit to their employees/members. Use it and you’ll pay that licensing fee from Satori’s patent. There are a few domestic health tourism suppliers associated with their product which costs more and does less than its contemporary, Higowell.


So there you have it in a nutshell. Essentially “self-funding”, not interchangeable with the term self-insured, is a way that employers take on the financial risk of providing certain healthcare benefits to its employees, dependents and retirees. With self funded plans, companies typically hire a third party administrator (“TPA”) to manage and administer plan-covered healthcare expenses from a trust fund operated under ERISA and/or Taft Hartley regulations that involve IRS and US Department of Labor regulations and oversight. This differs from traditional health insurance in which an employer pays a pre-determined premium to an insurance carrier, a policy known as a fully-insured plan licensed to operate under a certificate of authority from a state insurance regulator.

Self-funded employers for many years leased PPO networks of providers to access vetted providers who offered a discount. According to a 1983 article in Postgraduate Medicine, the first PPO was organized in 1980 in Denver at St. Luke’s Medical Center by a consultant who consulted with hospitals for Taft-Hartley trust funds. By 1982, 40 plans were counted and by 1983 variations such as the exclusive provider organization has arisen. After that, PPOs spread in cities throughout the United States. But PPOs are stuck in the models of the past and employers now want more than they offer. 

The bullet point list above are some of the things employers have tried while still paying the leasing fee to the PPO so they can access discounts on health services. The rest of the tactics above, including medical travel are among the many ways an employer that is self-funded can attempt to conserve plan trust dollars and maintain cash reserves. Many employers have also had their fill of the big human resources benefits consulting services and their fees. Like the big accounting firms, we are seeing consolidation in the HR benefits consultancies, with higher and higher fees and fewer and fewer results. When they call on me to subcontract on a client engagement, I’ll help if the project interests me. If it isn’t compelling, I don’t care to get involved, lest the employer view me as an extension of their brand that didn’t save them money with the same stuff, different day solutions. Besides my clients are the smaller groups, under 2500, who can’t afford to hire the Big Guys.

If you are a member of the benefits committee at your place of employment and the group is frustrated with how your TPA seems to collect larger and larger fees but no longer seems as valuable as it once was, print off this article or share it with your other committee members. I’ll be happy to come explain how easy it is to implement some of these tactics and strategies without killing your existing broker and TPA relationships.  I don’t replace them, and I don’t sell TPA services. I help bolt on actionable, self-managed programs such as those I’ve highlighted above from outside the TPA’s influence and control. If they balk, and resist, that’s to be expected but it is also an indication that the kickback and perverse incentives I described above may be a contributor to your increasing costs while they claim to be providing “cost containment”.

About the author

Maria Todd is the author of The Handbook of Employer Medical Tourism Benefit Design and 7 other medical tourism industry handbooks of the 19 books currently published. She is the architect of several national medical tourism market entry strategies and health and wellness clusters on 5 continents. She is a shareholder and co-developer for the world’s first medical tourism business platform, Higowell,  and was granted a trademark registration on a new term of art for a Globally Integrated Health Delivery System business entity in 2010 by the USPTO. She has worked on medical tourism destination development projects in 116 countries and all over the USA.

She leverages more than 40+ years of industry experience and training as a managed care contract negotiator, former OR nurse, and former ASC and hospital administrator and extensive training and experience in healthcare cost containment coupled with advanced understanding of ERISA and Labor Management Relations Act (Taft Hartley) regulations to help self-funded employee benefit plan administrators and fiduciaries find innovative ways to boost benefits satisfaction and save plan trust dollars.  Maria is the lead consultant at Mercury Health Travel. Her work involves the day-to-day running of continuing client projects. She works directly with clients to clearly understand their needs, and to provide effective solutions that drive results and savings and guide them through the decisions on the way forward. Follow her writing and advice columns on the Internet by searching #AskMariaTodd.