Many large employers are self-insured for their health care costs. That means the premium dollars that are paid, either by the worker or the company, are used for direct medical costs, often through an intermediary health insurance plan.

If workers are healthy, medical costs are low. If workers are sick, the company pays more.

Statistics show that 80 percent of companies with 1,000 or more employees are self-insured.

The advantages include the ability to pay only for the services that employees use, and keep any extra money in reserves. This also allows for customization of the plan, adding features specific to workplace needs, which may not be readily available with standard commercial insurance plans. There are also possible tax advantages with these self-funded plans.

But there are potential disadvantages as well. The control that can be exerted harkens back to an earlier time before insurance even existed.

Can the boss dictate where workers go to get their medical care?

Walmart, which employs more than a million people, thinks so.

As big companies try to control costs, they’re also reducing the medical care choices for their employees.

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Starting in January 2019, Walmart will require its employees to use certain hospitals for costly spine surgeries, hoping to save money by using physicians who might be more conveniently located.

The program started in 2013 on a voluntary basis. Workers were enticed by the company paying travel costs and by significantly reduced or eliminated copays.

In a recent analysis, Walmart noted that half of the workers who had volunteered to travel for their care were able to avoid surgery entirely. Major spine centers were less aggressive about recommending surgery, opting for a more conservative approach to spinal care. This reduces the risk for surgical infections and complications, and completely avoids surgical recovery time.

The entire insurance industry actually arose from the desire of workers to have more freedom to choose providers while still having their health care subsidized by employers.

Hospital systems such as the Mayo Clinic, Geisinger Medical Center in Pennsylvania, and Memorial Hermann Health Systems in Texas are all participating in the program in partnership with Walmart.

Other major employers have also partnered with designated health care centers. Lowe’s employees have the option to travel to major centers for certain heart, orthopedic and spine procedures.

The role of the employer to determine the location of medical care is not a new phenomenon. Here in Hawaii, the earliest health care systems were based on the plantation doctor model, where the companies would pay a doctor to exclusively take care of their workers for a set fee.

The entire insurance industry actually arose from the desire of workers to have more freedom to choose providers while still having their health care subsidized by employers.

Nevertheless, Apple has created a health campus in Santa Clara, a few miles north of its headquarters in Cupertino. The plan is to provide company-employed primary care doctors, exercise coaches, and health care navigators.

Amazon, JPMorgan Chase and Berkshire Hathaway have all aligned to focus on changing health insurance for their employees. The companies are self-funding the insurance costs for 1.2 million people.

The goal is to provide a more efficient model of care, but the practicalities have yet to be worked out. And the changes potentially prioritize cost considerations over other less measurable factors, like family support and recovering at home.

As the efforts to contain costs in medicine continue, there needs to be a shift in the plan for saving money to a plan for increased overall quality of care. Rather than requiring patients to travel to major centers for routine procedures, a greater effort should be made to support the quality of care from the local hospitals as well.

Diverting resources to other major medical centers sounds like a good way to reduce overall costs for the employer, but if local hospitals close due to the lack of revenue from their daily operations, then employees may lose in the long run. Emergency rooms may not be available, and routine care for conditions like pneumonia would require lengthy travel to the few hospitals that survive the downturn.

If the boss can demand that medical care has to be provided in at a specific location, this could also stretch the major medical centers to compete with each other on cost, leading to a bidding war for the cheapest price for a hip replacement.

Should medical care be chosen based on the potential profits for a company, or on the most appropriate care for the patient? Will innovation in future hip replacements be stifled because the only covered services are those that cost the least?

Self-funded medical insurance is not a new concept, but the potential implications of offering surgery in a limited number of medical centers do not propel the medical industry forward with improved quality of care.

When the boss who pays the bills can dictate who gives the care and where, how much different is that than the old plantation days?

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