This commentary was first published as Bryan Dowd, Tim McDonald, “Affordable Commercial Health Insurance Is Available—If We Want It,” Health Affairs Forefront, April 23, 2025, copyright © 2025, Health Affairs by Project HOPE—The People-to-People Health Foundation, Inc.
The high cost of health care has been a longstanding frustration for Americans. Providers and politicians have been accused of driving up costs, but insurance companies seem to bear the brunt of the blame. A primary source of dissatisfaction with health plans appears to be the denial of claims. But anger with insurers is misplaced—not because health plans are paragons of virtue—but because, in denying claims, health plans are performing a task that someone must perform: managing the total cost of care. To keep the total cost of care reasonable, some entity must be responsible for limiting both fees and use of care, and for the most part, employers have ceded this responsibility to health plans. Fortunately, there are alternatives for employers that would rather see accountability for the total cost of care in the hands of providers and employees (consumers), together. Employers and employees can use their health insurance benefit designs to make health care more affordable, and without the need for further taxpayer subsidies, by designing tiered networks of providers who are responsible for meeting specific total cost of care benchmarks.
Who Can Be Accountable for the Total Cost of Care?
Total cost of care—the starting point for health insurance premiums—depends on both fees and the amount of services consumed. There is wide variation in both. In 2018, the Minneapolis Star Tribune reported that Minnesota health insurers paid as much as $47,000 for a patient's total knee replacement and as little as $6,200—a nearly eight-fold price difference. The same wide range also was seen for hip replacements, and labor and delivery. Recent studies have shown that within the United States, the total use of resources explained more of the variance in total health care spending than fees, so it is important to have constraints not just on prices but on how many services are used.
Thus, if anything is to be done about the total cost of care, some entity is going to have to take responsibility for both fees and use of services. The recent price transparency legislation is an important step forward on prices, but patients often lack the clinical expertise to determine which services they need. Should consumers celebrate getting a great price on an MRI that has no medical value?
Currently, health plans manage both the price and quantity of health care services, but apparently, neither consumers nor clinicians trust them to play that role.
Currently, health plans manage both the price and quantity of health care services, but apparently, neither consumers nor clinicians trust them to play that role. It doesn't have to be that way. For example, in the Minnesota State Employees Group Insurance Program (SEGIP), the Minnesota Advantage health plan, first established in 2002 and the largest employer-purchased health plan in the state, employees choose a primary care practice that is held responsible for the employee's total cost of care, and based on that total cost, practices are placed in one of four cost-sharing tiers. Employees choosing lower-cost practices pay lower copayments, deductibles, and annual out-of-pocket maximum expenditures.
How Would Tiered Total-Cost-of-Care Benefits Work?
Building on the success of SEGIP in Minnesota, we propose that more large employers should adopt a tiered total-cost-of-care benefit design. Primary care clinicians in such a system could prescribe whatever care they like, wherever they like, as they do in traditional fee-for-service Medicare. But clinicians who prescribe fewer low-value and avoidable services, use lower-cost personnel, and direct patients to lower-cost specialists and hospitals, will be placed in lower cost-sharing tiers, and will be chosen by more consumers as a result. Specialists and hospitals that offer high quality at lower cost will receive more of the referrals from primary care clinics. Consumers who want to bypass their primary care provider and self-refer to specialists and hospitals should be free to do so, as long as they face the full marginal cost of that choice, compared to the costs associated with receiving a referral under the tiered system.
Some clinicians may claim that they are not prepared to be “navigators,” for example, to direct patients to efficient specialists and hospitals. Specifically, they do not know the prices of their own services, much less for other providers. But any health insurer or third-party administrator has all the data necessary to create risk-adjusted total-cost-of-care profiles for medical practices, and data on the relative prices of specialists and hospitals. Why can't that information be given to consumers and clinicians? Referring patients to better-value specialists and hospitals, and improving coordination to reduce waste, will be more attainable for larger or sophisticated health systems, but digital tools may be able to smooth out the process for clinics, for example, by showing them in summary format and with decision-support tools who the more efficient options are.
Creating a More Efficient Health Care Market
Charging employees the same premium and co-pays for high- and low-cost providers is not only inefficient but also unfair. Why should consumers who are willing to patronize lower-cost practices subsidize consumers who prefer higher-cost practices? Some consumers might worry that lower cost implies lower quality, but a decade of searching for a relationship between health care cost and quality thus far has come up empty-handed.
Instead of trying to control costs directly, a key role for employers and employees could be to use their health insurance benefit design to establish three essential components for a sound market: Hold some clinical entity—such as primary care practices—responsible for total cost of care; measure the performance of those practices and give the information to clinicians and consumers; and share the savings with consumers who choose lower-cost practices. These three conditions place clinicians and consumers at the center of decisionmaking—not insurance companies. Those practices that provide measurably better care for lower cost will attract more patients.
Some consumers might worry that lower cost implies lower quality, but a decade of searching for a relationship between health care cost and quality thus far has come up empty-handed.
Who will lead the way toward better health insurance benefit designs? It won't be the providers who are doing well under the current system of poor consumer information and distorted prices. And why should health plans irritate high-cost providers unless consumers demand it? That brings us to the good news for employees and employers: Affordable health care in the commercial insurance sector without additional taxpayer subsidies is within your grasp. If you don't take a leadership role, who will?
Employers and employees should take a hard look at how their health insurance benefit designs contribute to rising costs. Rather than depending on insurance companies to manage the cost and quality of care, they should use their health insurance benefit designs to create a more effective market, putting clinicians and consumers at the center. Instead of searching for villains, that approach offers a positive and promising solution.
Authors' Note
The authors would like to gratefully acknowledge the support of the Patrick and Catherine Weldon Donaghue Medical Research Foundation; the National Institute for Health Care Management; and the Agency for Healthcare Research and Quality.
