Tyler
Traditional healthcare insurance models have trapped employers into a cycle of rising costs and limited flexibility, signaling a clear need for disintermediation. D2E contracting challenges the status quo by cutting out the insurance middleman and giving employers direct control over healthcare delivery for their workforce. Instead of funneling money through insurance companies each month, D2E models enable direct partnerships between employers and local health systems for covered services. This approach strips out unnecessary overhead and delivers more personalized, cost-effective care that aligns with the needs of the employer’s workforce.
While D2E contracting has gained traction only recently, incentive for large employers to manage workforce health dates back to the early 20th century. From the pioneering 1929 employer-sponsored hospital care plan between Baylor University Hospital and Dallas public school teachers to today’s digitally enabled models of care, several legislative programs and innovations in plan administration have steadily removed barriers between patients and providers, paving the way for accessible, employer-driven solutions like D2E contracting.
Defining the Provider Agreement
The cornerstone of every D2E contract is the direct provider relationship, which defines the scope of healthcare services, costs, and administrative responsibilities that an employer must manage. Employers may opt for any level of care for their workforce, spanning from comprehensive multispecialty services to a focus on specific areas such as primary care. Contract terms may entail a variety of D2E models, the most common of which include:
Larger contracts, like risk-based arrangements, often bear greater costs for employers as they must take on standard insurer duties of contract negotiation, billing, claims processing, and provider relations. This requires investment in specialized staff, systems, and processes to manage these tasks in-house, creating a significant administrative and financial burden.
Reimbursement Models in D2E
Once the service agreement is established, reimbursement for providers is typically arranged through fixed pricing agreements, with employers assuming financial responsibility for claims. The primary reimbursement models—bundled payments, capitation, and mixed models—are detailed below to illustrate their application and benefits.
Bundled payments indicate a lumpsum price paid for multiple medical services provided to a patient during a predefined episode of care. Bundled payments are often used with CoEs to encourage coordinated, high-quality care when treating specific conditions. For example, large service or skilled labor companies may choose contract with a local CoE for comprehensive care for joint replacement (CJR), which covers all healthcare services expenses related to total hip and knee replacements. Studies have linked the shift from fee-for-service to bundled payments with significant healthcare savings for payers.
Under capitation D2E models, providers receive fixed, pre-arranged monthly payments regardless of the services rendered. These payments are structured as a per member per month (PMPM) fee, with risk and savings tied to outcomes: costs below the fee result in provider gains, while excess costs are borne by the provider. This type of agreement focuses on incentivizing cost-conscious provider behavior, with an emphasis on high-quality care to prevent downstream risk.
Mixed care models can be used to incentivize providers to deliver high-quality, cost-effective care through a combination of methods, which include traditional fee-for-service payments and performance-based incentives. D2E contracting gives employers the freedom to customize agreements in a way that best suits their workforce—the health markers that are most important to employees can be structured as incentives or requirements that providers must maintain.
Even in traditional fee-for-service models, D2E’s direct negotiating power often yields lower rates for employers compared to standard health insurance coverage. For example, Intel’s PresIntel partnership with Presbyterian Healthcare Services established a custom integrated delivery system for employees in New Mexico that yielded “lower deductibles, co-insurance and out-of-pocket maximums compared to other Intel High Deductible Health Plan (HDHP) options”.
Self-Funding: The Financial Backbone of D2E
The funding method in D2E contracting is just as critical as the provider relationships. Most D2E arrangements operate within a self-insured model, where employers assume financial responsibility for employee healthcare claims instead of paying premiums to an insurer.
Employers that assume this risk budget a fixed monthly amount to cover administrative fees, insurance, and health claims. Smaller employees often use Third-Party Administrators (TPAs) to manage claims processing, rigid compliance standards, and other administrative tasks, as they may lack the resources for in-house administration. Employers of any size will likely purchase stop-loss insurance—a standard component of self-insurance used to mitigate the risk of unexpectedly high claims. This fixed-budget approach incentivizes cost efficiency, as any savings can be redirected toward other business priorities.
Advantages of D2E Contracting
The most common reason for pursuing these arrangements is the fundamental advantage that comes from eliminating the excess cost that insurers create. This 2019 study examined over 50 unique peer-reviewed publications, government-based reports, and reports from gray literature and identified $265.6 billion in healthcare waste from administrative complexity alone. This stems from a variety of factors like high marketing costs, fragmented operations, outdated systems, and inadequate planning. Employers with well-structured systems can cut these costs and negotiate favorable contracting rates with local providers, especially for large workforce population that allow for consistent volume and quicker payments to a provider network.
D2E contracts also enable employers to explore value-based arrangements focused on and tailored to the outcomes of their workforce. Employers possess great insight into the needs of their workforce population, so increasing involvement of these key stakeholders in health plan design should yield more personalized care and improved outcomes. Employers that craft plans in this manner should expect improvements in employee satisfaction and retention. This aligns the findings from a 2018 consumer survey—56% of U.S. adults state that their health coverage is a key factor in deciding to stay at their current job.
Large employers forming D2E agreements with specific provider groups can expect enhanced access to care through faster appointment scheduling, tailored care options (like onsite or virtual care), high-quality provider networks, and lower out-of-pocket costs for employees. Walmart has exemplified this improved access through its partnership with Mayo Clinic CoEs, which entails record review, travel, and on-site care at Mayo Clinics at no cost to Walmart employees.
Limitations to Consider
Despite its advantages, D2E contracting presents notable challenges that employers must carefully consider before adoption.
The implementation process is inherently complex, requiring specialized expertise to navigate detailed contract terms, ensure compliance with federal regulations (primarily ERISA and HIPAA), and maintain effective provider relationships. Without dedicated legal and healthcare teams, employers face risks of non-compliance, potentially leading to penalties or disruptions in care delivery.
Smaller employers encounter scalability concerns that can hinder adoption. A workforce with less than 1,000 employees may lack in diversity and the ability to generate sufficient demand to secure favorable provider rates, while the administrative demands of claims processing, billing, and compliance can overburden limited resources, heightening financial risk if claims exceed projections.
Additionally, D2E contracts are typically localized, tethering employees to specific provider networks within a defined region. Employees seeking care outside these networks—such as during travel or relocation—often incur higher out-of-pocket expenses, which can diminish the plan’s appeal, particularly for geographically dispersed workforces.
D2E in Today’s Healthcare Landscape
D2E contracting aligns with today’s narrative of population-directed care and value-based arrangements with a focus on the long-term health of patients. This style of contracting enables employers to maintain the health of a large workforce through a fully customizable, fixed reimbursement system that is often less expensive than commercial health insurance coverage. Data collected from Deloitte’s Labor Market Intelligence identified that every state in the United States has at least one employer with 1,000 local employees or more (and 24 states with more than 20 employers of this size). This signifies a clear market opportunity for an abundance of large employers across the U.S. to take charge of employee health in a way that is both cost-effective and quality-driven.
D2E contracting is a relatively new concept, but the foundations of its proposal have existed for decades. Employers with large workforces should consider these arrangements in an evolving healthcare landscape that is shifting towards long-term, value-based care—it could very well yield a more productive and satisfied workforce.
Case Study: General Motors and Henry Ford Health
The most expansive D2E contract to date involves the agreement between General Motors (GM) and Henry Ford Health System (HFHS) for coverage of over 24,000 non-union employees across Michigan. Driven by a desire for greater control over its benefit plan, GM sought to bypass the limitations of traditional commercial insurance, customize care delivery, and directly negotiate provider fees. HFHS, a multi-hospital integrated system with a robust clinically integrated network (CIN) and accountable care organization (ACO), was an ideal partner due to its expertise in population health, care management, and data tracking.
The resulting value-based plan, ConnectedCare, covers hospital, outpatient, behavioral health, pharmacy, and physician services across a seven-county area in Michigan. It emphasizes employee access with features like same-day primary care appointments, specialist visits within 10 days, extensive telehealth options, and a dedicated phone line for GM beneficiaries. ConnectedCare operates as a PPO with a $1,500 deductible, encouraging in-network use through larger cost-sharing differentials for out-of-network care. HFHS is financially accountable for all care costs, including out-of-network services, and must meet 19 quality, cost, and utilization metrics to share in savings—or bear losses if targets are missed.
ConnectedCare has delivered significant cost savings for GM. In its first year (2019), the plan achieved a 17% per-member, per-month cost reduction compared to GM’s target, followed by 14% savings in 2020. As GM’s lowest-cost plan option, ConnectedCare saves employees hundreds of dollars annually in payroll contributions, making it a financially attractive choice over traditional insurance models.
The program’s success lies in its ability to drive down costs while ensuring high-quality care through HFHS’s accountable provider network. By empowering GM to negotiate directly with HFHS, ConnectedCare eliminates traditional insurance constraints that create the excessive costs that drive higher monthly premiums. Their model offers a blueprint for other employers seeking cost-effective, employee-centric healthcare solutions. As enrollment in the program continues to grow, GM is well-positioned to scale its value-based incentives and provide exceptional care to its entire workforce.
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