E&W Blog

As premium prices spike, business owners are turning to new and interesting ways to cut health care costs. One potential solution growing in popularity is direct contracting, which involves an employer that directly contracts with a provider for care and services.

In his opening statement, Chairman Bob Good (R-VA) praised “direct-to-employer” arrangements, while highlighting burdens to expanding this innovative model: “The system is rigged against employers who want to pursue value-based payment models. It takes time and resources for health care innovators to overcome the significant economic and regulatory barriers in place across the country.”

The esteemed witness panel featured health policy experts including Mrs. Michele Beehler, Senior Director of Health and Wellbeing at Schweitzer Engineering Laboratories (SEL); Ms. Laura Josh, General Manager of California Schools VEBA; and Dr. Christopher Whaley, Health Economist at RAND Corporation.

At SEL, utilizing innovative direct contracting models saved the company nearly $2 million in 2023. Mrs. Beehler described SEL’s success story in her opening statement. “We deliver high-quality and patient-centric care with virtually no wait time and at similar or lower cost than other clinics,” she testified.

Thanks to SEL owning its own clinics, employees can access direct primary care with a simple walk across the parking lot—all at no out-of-pocket cost to the patient.

While the upside is high for this model as illustrated by SEL, there are key hurdles to expanding it to the rest of America, which Dr. Whaley discussed in his opening. “Employers need access to data, both claims and usable Transparency in Coverage data,” said Dr. Whaley. “Access to these types of data is central for successful health benefit design innovations.”

In other words, President Biden and Senate Democrats need to do their part in getting the House-passed Lower Costs, More Transparency Act signed into law.

In an exchange with Ms. Josh, Rep. Rick Allen (R-GA) highlighted that economies of scale currently prohibit many small business owners from utilizing innovative health models. Large employers like Walmart, GM, and Boeing are spearheading many innovative models, but smaller businesses lack the market power and resources to craft their own direct contracting arrangements.

“Just for small employers, the more market power that you can give them—that they can come together—the more able they are going to be able to access these innovations,” stated Ms. Josh.

“And the only way to do that is association health plans,” emphasized Rep. Allen.

There it is. Democrats can add the Association Health Plans Act to the long list of bills sitting on their desks that would cut American health care costs.

Employers also face state regulatory challenges in implementing direct contracting models. California Schools VEBA, a voluntary employees’ beneficiary association covering school districts, municipalities, and other government agencies, knows well the difficulty of working with overzealous state regulators. In her questioning, Chairwoman Virginia Foxx (R-NC) asked Ms. Josh to elaborate on VEBA’s challenges.

In short, Ms. Josh testified that the only contracts California would let VEBA negotiate required the payment of doctors for each service performed, commonly referred to as a fee-for-service basis. Only after passing special legislation did California give VEBA more options, which allowed their direct contracting pilot program to launch in January. Self-funded ERISA plans should not have to obtain special waivers to participate in risk-bearing contracts.

Overzealous regulators, economies of scale, and data black boxes all add to the mounting health care sector costs that can be felt by every American. Zooming out, something must be done—and soon. As Rep. Allen pointed out, last year taxpayers paid $1.6 trillion on health care, a key driver of our $34 trillion debt.

It’s a tall order, but Republican legislators are up to the task.

Bottom Line: Republicans are hard at work tearing down barriers to low-cost, high-quality health care.