Exclusive Provider Organizations: Employees and employers both save 

The jump in health benefit cost growth in 2023 – and predictions for continued higher increases – has made cost management a business imperative. But given concerns about affordability and the tight labor market, tactics like cost-shifting to employees are off the table for many. These conditions call for employers to pivot to new ways of managing cost, even if it means accepting a certain level of disruption.  

A network strategy is one of the key levers that employers can use to impact healthcare costs without shifting cost to employees. We’re seeing growing adoption of network configurations that differ from the traditional broad PPO network. This might mean eliminating out-of-network benefits, offering a plan with a narrow network of high-performing providers, or both. According to our Survey on Health and Benefit Strategies for 2024, 24% of large employers (those with 500 or more employees) now offer a medical plan option with a High-Performance Network curated by a carrier. Most often, these are plans offered by a national carrier in which the providers are a subset of the carrier’s larger Preferred Provider Organization network and are selected based on quality and cost metrics. A few independent provider networks (for example, Centivo and Imagine Health) have gained some traction as well. The largest employers are moving the fastest – 38% of companies with 20,000 or more employees offer some type of high-performance network. 

A look at Exclusive Provider Organization performance  

Many, though not all, HPNs are structured as Exclusive Provider Organizations, in which no benefits are paid out of network. That’s also how most Health Maintenance Organizations are structured, but unlike traditional HMOs, EPOs generally are an overlay on a larger PPO and do not include a primary care provider gatekeeper feature. In our 2023 National Survey of Employer-Sponsored Health Plans, we tracked the prevalence of EPOs separately from HMOs and found that 12% of all large employers are already offering an EPO – and that jumps to 25% of employers with 20,000 or more employees.  

What are the advantages of an EPO? They typically offer a trade-off of lower cost and richer benefits for a closed network. We examined a group of 115 large organizations offering EPOs (not including traditional HMOs) and found that, relative to the PPOs offered by these employers, EPO employee contributions were significantly lower, while the benefit value was significantly higher. To put some numbers behind that statement, the average employee contribution amount was 24% lower for employee-only coverage and 17% lower for family coverage in EPO plans compared to the PPO plans. That’s enough of a gap to be felt in employees’ paychecks. And healthcare is more affordable under the EPOs as well. For example, the median individual deductible is $600 for the EPO but $700 for the PPO. The actuarial value, which measures the overall richness of the benefit, averaged 94% for the EPOs but 89% for the PPOs. 

All of this makes an EPO a more affordable choice for employees willing to accept the limited network. In this group of 115 large employers, the vast majority (95%) offer the EPO as a choice, which means none of their employees must take a closed-network plan if they are not comfortable with that constraint. In this group of employers, a substantial portion of employees were willing to accept a closed network – on average, 41% enrolled in EPOs.  

Finally, what about the total cost? In the employer group we studied, the average per-employee cost of EPO coverage was 9% lower than the cost of PPO coverage. While it’s certainly possible that generally healthier employees were more likely to select the EPO, the average enrollment rate of 41% reported by these employers is more than a small slice of the total population. Some of the cost difference is simply due to the elimination of out-of-network claims; our actuaries estimate this can reduce cost by up to 2%. The relative quality and cost-efficiency of the providers included in the EPO network may also be a factor, if the EPO is built on a high-performance network.  

First step: Change in mindset

The first tenet in this strategy is “disruption is not a dirty word.” You can’t expect to achieve measurable savings if you are not willing to make a change. In the case of an EPO, the change is the restriction to in-network providers and in many cases, a high-performance network. In the group of employers we studied, employers were able to provide a richer benefit in their EPO plans compared to their PPOs and still achieved savings. From the employee perspective, there are clear advantages to an EPO -- smaller pay-check deductions and a richer benefit. For many, these will outweigh a lack of out-of-network coverage. 

While our analysis is based on a small number of employers, the results are intriguing. Certainly they provide food for thought – perhaps enough to spur interest in a new strategy for 2025 or beyond?