Who are the Payers
The term payers when it comes to healthcare has a broad definition. Payers in healthcare can refer to several different entities such as:
- Pharmacy Benefit Managers: PBMs are typically the companies that administer and manage the prescription drug benefits of health insurers.
- Health Plans are the corporations that provide the medical insurances.
- Plan Sponsors or Employer Groups: These are the organizations that set up a healthcare plan for the benefit of their employees or beneficiaries.
Understanding who is paying for the cost of patient care is confusing. In the past decades, insurance plans have become increasingly more complicated. Companies help employees by offering to bear full or partial health-related expenses through a third-party payer. These can either be public or private, depending on whether you work for a governmental entity or a private or public company. Often, the term "payer" is used when "plan sponsor" is what is really meant.
The distinction is important. A plan sponsor is acknowledged to the “leader” of the benefits where they are the entity ultimately writing the check. It is usually employers, the government or individual consumers who buy their own health insurance. Those three groups often directly or indirectly hire other entities ("payers") to take their premium payments and pay the providers. A payer could be a health insurance plan, PBM, or plan administrator. There are generally three types of plans:
Government-Sponsored Insurance Plans – The government provides insurance to those people who could fall under an assistance category because of their age, income or disability. The two programs, Medicare and Medicaid, typically reimburse healthcare providers for 80-100% of costs. These programs are considered a public insurance plan. The government plans also may allow private insurance plans to administer benefits on their behalf such as Medicare plans (Medicare Advantage Plans. Medicare Advantage Plans, sometimes called "Part C" or "MA Plans”). They are offered by private companies approved by Medicare. Individuals with Medicare Advantage Plans continue to have Medicare. These "bundled" plans include Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance), and usually Medicare prescription drug (Part D).
Employer-Sponsored Insurance Plans – Most U.S. employers offer this employer-sponsored coverage, where they negotiate with the insurance company to decide the employee’s overall benefits. The employer often offers 2-3 plans that an employee can choose based on their personal needs and how much they are willing to contribute to premium costs.
Employer-sponsored plans often use third parties to help them administer their employee’s benefits. Third party plans often brand themselves as simply third-party administrators who process pharmacy or medical plans, and some offer many additional services to employer groups. They are called Pharmacy Benefit Managers. When PBMs were initially created, their mission was “Managed Care” defined as a structured approach to financing and delivering covered health care benefits designed to provide affordable access to improve the quality of care in a cost-effective manner. A PBM would help the employer with administrative burdens of providing organized benefits coupled with easy access to their employees.
Pharmacy Benefit Managers (PBMs) manage pharmacy benefits for managed care organizations, other medical providers or employers. PBM activities may include some or all of the following: benefit plan design; creation/administration of retail and mail service networks which include contract pricing; claims processing; and managed prescription drug care services such as drug utilization review, formulary management, generic dispensing, prior authorization, and disease management.
A Self-Insured Employer Sponsored Plan is a health coverage plan in which the employer (rather than an insurance company) bears the financial risk for any expenses incurred. Self-insured plans usually contract with a third-party administrator, PBM, or insurance company to pay claims, determine eligibility, etc. Fully insured employer sponsored plans do not bear the financial risks of all expenses incurred. Instead fully insured plans pay one set amount per month and the insurance company bears all the financial risks of all expenses incurred. As a result, PBMs can apply edits (criteria that, if unmet, will cause an automated claims processing system to “reject” a claim for further/manual review), like Prior Authorization, step therapy, mandatory specialty and mail order pharmacy to ensure expenses do not exceed the Per Member Per Month (PMPM) fee paid by the employer.
Individual or Small Group Insurance Plans – With these plans, individuals’ contract with an insurance company for a specific plan that meets their needs. These individuals pay monthly and renew their own policy at the end of the term. Many of the insured in these plans are self-employed, while others contract for additional coverage above and beyond what they may receive in benefits from a government-sponsored plan like Medicare or benefits under the Affordable Care Act. That additional coverage may help pay for prescriptions, dental and vision and other services. Under individual or small group plans, members can choose between types of plans like HMOs (health maintenance organizations), PPOs (preferred provider organizations), EPOs (exclusive provider organizations) and POS (point of service) plans.
The above is a comprehensive 10,000-foot overview of the “payers” in healthcare. Future blogs will discuss insights on the 5 P’s: PBMs, Plans (health), Plan Sponsor, Physician Practices, and Patients.