This is a follow-up article to “A Tale of Two Employer-Based Healthcare Models” in which we compare and contrast RosenCare and Haven Healthcare. In the last three decades, RosenCare has been able to offer quality care and spend 30 to 50% less on healthcare than the national average.
Here is RosenCare’s secret to success. The model’s savings are largely derived from two sources: an on-site facility that provides comprehensive primary care and a narrow provider network. Since Rosen Hotels & Resorts owns the primary care facility, it is incentivized to perfect prevention, chronic disease management, and healthcare utilization monitoring. The company has an advantage in rate negotiations with specialists and hospitals because it uses a narrow network of providers. And workers are not allowed to receive care outside the network without prior authorization.
In 2019, the School District of Osceola County in Florida hired RosenCare to help manage the district’s health center, aiming to replicate RosenCare’s success. This is the only example found in the public domain.
Now the question is, Why hasn’t the model been widely adopted among employers?
The answer lies primarily in (1) how employers make the trade-off between provider network size and healthcare spending; and (2) the extent to which the decision affects staff recruitment and retention in a competitive labor market.
Specifically, three conditions may limit an employer’s adoption of the exact RosenCare model.
1. The employer hires predominantly lower-wage workers.
For this working population, offering quality healthcare is challenging. For illustration purposes, we define “lower-wage workers” as those whose earnings are at or below the 25th percentile, about $44,000 per year or $20 per hour. In 2021, the national average insurance premium for family coverage was about $22,000. That is, providing average health benefits would account for one-third of the total compensation! In comparison, average health benefits cost only 18% of the total compensation to “higher-wage workers” with earnings at or above the 75th percentile, i.e., $99,000 per year.
As a result, the burden of ever-increasing healthcare costs is especially heavy on employers of lower-wage workers. They are facing an increasingly tough decision about health benefits.
The economics behind this is that one additional dollar of cash means more to lower-wage workers than to higher-wage ones. We all have to buy essentials such as food, clothes, and housing. Unless there is an immediate need, healthcare is likely secondary to those essentials.
Therefore, lower-wage workers are more willing to accept a narrower provider network and more restrictions in healthcare. For them, it is a trade-off between essentials and healthcare. Sometimes, they might even go without health insurance (this is a topic for another day). They will likely be satisfied if they can find a job offering health benefits even with a limited provider network. The alternative for them to get healthcare is to enroll in Medicaid, which has many limitations too.
On the other side of the labor market, employers of lower-wage workers have to offer the right mix of wage and non-wage compensation to attract and retain talent. They can remove health benefits from the compensation package, but doing that might make them lose some productive workers who want health benefits.
There is evidence that such employers dropped health benefits when the minimum wage increased or used more part-time workers when an employer insurance mandate was imposed. Some employers of lower-wage workers are willing to pay a penalty under the Affordable Care Act because it is much cheaper than offering health insurance (personal communication with such employers). It seems these employers are forced to work with a different set of employees who put less value on health benefits and may be less productive.
The ideal situation is to offer quality healthcare at a reasonable cost; that is what the RosenCare model can do. Note that Rosen Hotels & Resorts has a staff turnover rate of less than 15%, while the hospitality industry has a rate of 60 to 70%.
It is much less likely for employers of higher-wage workers to adopt the exact model. Since higher-wage workers have the financial capability to afford more generous coverage and a wider provider network, employers adopting the exact RosenCare model may lose their ability to attract and retain talented employees.
2. Workers are located in the same area.
To adopt the exact RosenCare model whose primary care facility serves all employees and their families, employees have to be physically based in a local area. Apparently, a virtual company with employees all over the country is not going to make it work.
3. The number of workers is not too small.
In order to obtain a favorable rate for specialist care or hospital care, the employer has to have a fairly large number of workers. It is a numbers game. Rosen Hotel & Resorts has nearly 3,000 workers and 6,000 covered lives under RosenCare. It is definitely not the largest employer in Orlando, Florida, where Disney has nearly 60,000 workers. It is very hard, if not impossible, to get a low price from hospitals or physician networks if an employer has several hundred workers.
Nevertheless, for large employers with higher-wage workers, adopting some variants of the RosenCare model elements would benefit them financially and enable them to gain a competitive advantage in the labor market.
No employers can escape the rapidly increasing healthcare costs, including those with higher-wage workers. In the last decade, the insurance premium for family coverage increased from $15,745 to $22,221, a whopping 41% change, compared to a 21% uptick in the consumer price index during the same period. To bring down healthcare costs, employers can either reduce the size of their provider network or increase worker cost-sharing.
So far, it seems employers have primarily relied on increasing cost-sharing, particularly emphasizing high deductible health plans. Between 2013 and 2021, the percentage of covered workers with an annual deductible of $1,000 or more increased from 34% to 58%.
But there is a price associated with higher cost-sharing. Workers have difficulty understanding and navigating high deductible health plans, which have been demonstrated to reduce medical care, including both necessary and unnecessary care. Reducing necessary care today may lead to an increase in utilization in the long term.
It has been shown in prior research that using a narrower network of quality providers––one key element of the RosenCare model––can decrease costs significantly. At a minimum, employers could consider customizing their provider network for workers located in different geographic areas. There is efficiency to be gained without losing productive workers.
For some reason, employers have not considered narrower networks as much as they have used high deductible health plans. Maybe it is easier to change cost-sharing schemes than negotiate and set up a narrower but quality provider network. The burden of the former falls on workers who have to learn how to navigate the system, whereas that of the latter is on employers.
The other element of the RosenCare model is on-site primary care. Different from narrow provider networks, on-site primary care has become increasingly popular in the last decade, especially among large employers. According to a recent employer survey conducted by Willis Towers Watson, about one-quarter of large employers now offer on-site or near-site primary care, such as manufacturing companies (e.g., Laitram Machinery, Trek Bike), agricultural companies (e.g., the Wonderful Company), large warehouses (e.g., select Amazon worksites), and school districts (e.g., Metropolitan Nashville Public School District).
Unlike RosenCare, most of these on-site clinics offer mostly a convenience for workers, do not offer comprehensive primary care, and are not the only place where workers can get primary care. Several studies, including two led by yours truly, show that on-site primary care can improve clinical outcomes and reduce healthcare costs.
Although higher-wage workers can bear more expensive healthcare, there is a limit on how much they are willing to spend. If hypothetically, healthcare costs accounted for 50% of their total compensation, a worker revolt or political upheaval would not be surprising. Until that happens, increasing healthcare costs will erode more private insurance over time.
Hence no action is not an option.
Given rising healthcare costs, the RosenCare model offers employers a possible way forward. It is certainly not designed for many employers, but it is a good option for those hiring a relatively large number of lower-wage workers who are physically based in a local area.
Nevertheless, adopting some variants of the RosenCare model elements, especially by large employers of higher-wage workers, could generate savings, which can be used to either improve care quality, increase wages, or offer other non-wage benefits. This will enable such employers to be more competitive in attracting and retaining productive workers.