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Limiting the Sky
Health-care inflation: How Connecticut companies are coping with higher costs
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Business New Haven
3/4/2002
By: Nancy Barnes
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Behind the sleek, orange-and-blue signs that identify the Budget rent-a-car centers, a quiet revolution in health care is underway. The Illinois-based Budget Group is among the first large companies in the nation to offer a “consumer-driven” health plan.
“It's fantastic,” says Jan Cohen, director of benefits for Budget. He says that Benefit launched the program on January 1, and that nine percent of Budget's employees who are eligible for health insurance have already signed up for the scheme. “The enrollment has surpassed our expectations,” he says.
Consumer-driven health plans like Budget's - so named because they give the consumer greater choice in determining how he/she chooses to spend a personal care account set up in her or his name by an employer - represent a strong ray of hope for businesses in an otherwise barren health-care landscape.
Because the United States lacks universal health care, corporate America pays the bulk of the nation's health care costs for its 160 million citizens under age 65. Last year, private health insurance covering that population totaled a staggering $440 billion, according to statistics released by benefits consultant William M. Mercer.
And employers can expect to see a double-digit rise in medical costs this year. In Connecticut, inflation in health care costs is expected to reach 13 percent at companies with 50 or more employees, according to a recent survey by the Connecticut Business & Industry Association (CBIA).
Compounding the problem for all employers is the fact that their employees have for the most part remained blissfully unaware of medical inflation.
“I think, under current plans, individual enrollees have been very much protected from the reality of cost increases in health care for the past several years,” says Jan Spegele, assistant director of regulatory affairs for CBIA. “The economic landscape of health costs has changed dramatically.”
Spegele points out that employees who pay flat fees for their health care do not know that the costs of providers have soared.
“If you've got a plan that's got the individual enrollee paying 20 percent of the cost, you [the employer] know what the underlying cost is and you can see when it's rising,” explains Spegele. The employee, she hastens to add, does not.
For employers, this amalgam spells trouble. Yet the places where employers are coping with higher health-care costs are as close to consumers as the Internet - and as unlikely as the nearest rental car center.
At present, the consumer-driven product that Budget offers is almost exclusively the province of small, startup health-care firms. The Definity Health Corp., which developed Budget's product, was founded in Minnesota in 1998. Headquartered in Virginia, Lumenos Inc. opened in 1999, with partial funding from the Avon, Conn.-based Internet Health Care Group.
Doug Kronenberg, chief financial strategist for Lumenos, says the consumer-driven health-care concept began with the medical savings account, a kind of insurance that has typically been used by small companies.
“The real idea,” he says, “ emerged when some of us got together to build these programs for the larger companies.”
“Our whole goal is to provide an open marketplace for consumers. The whole movement toward the engaged consumer is a new concept, and it tends to fly in the face of the traditional managed approach, which came with a lot of strictures.”
In a consumer-driven health plan, an employer contributes a defined sum to what is termed a “personal care account” for each employee, which the employee draws on for routine care. Medical costs that surpass it come from the employer's pocket (if the employer is self-insured) or from an employer's catastrophic health coverage. In some cases, consumer-driven plans come with what is termed a “bridge,” in which the scheme specifies a middle range of health care expenditures which come only from the consumer's pocket.
In Budget's case, the consumer-driven plan offers preventive measures - such as screenings and immunization - to employees at no cost. According to benefits director Cohen, each enrollee has a proprietary Web site where she can review her medical expenditures. “It's a fantastic educational tool,” he notes.
What benefits directors such as Cohen also like is the fact that any money remaining in an employee's personal savings account can be rolled over and used the following year. And Cohen appreciates the price transparency that such plans provide.
For instance, Budget employees have access to a database of roughly 800,000 doctors, which lists the doctors' fees. “[The health plan] may make doctors more competitive because their fees are exposed,” Cohen says.
In Connecticut, one company that is taking the plunge into a consumer-driven health model is Pitney Bowes, headquartered in Stamford. According to Lumenos' Kronenberg, the program was introduced there in October. Lumenos is still in the process of familiarizing the company's employees with the resources offered by the new plan, Kronenberg adds.
Not surprisingly, the larger insurance companies have taken notice of the consumer-drive product. In September, Hartford-based Aetna US Healthcare became the first of the traditional insurance companies to offer a consumer-driven scheme. The plan, called Aetna HealthFund, became available nationally in January. The plan targets both national accounts with more than 3,000 employees as well as the larger middle-market accounts designed for companies with 300 to 3,000 employees, according to company spokesperson Ann Marie Gothard.
Gothard says Aetna developed the product partially in response to employees' demands for more choice and control of their health-care decisions. But, because the amount in each employee's account is defined, the plan also gives companies more predictability in terms of their insurance expenditures.
“Aetna HealthFund will enable employers to control and predict a greater portion of their contributions to health benefits, while allowing their employees to have more control and input over their health coverage decisions,” Gothard says.
To contain costs, Aetna has also stepped up its outreach efforts for its disease and case-management services. The company introduced these services in the late 1990s, explains Martin Kodish, a physician who serves as the company's senior medical director for the Northeast.
“What these [products] represent is an attempt to standardize the best medical practices so that all member have access to a reproducible care pattern.” Kodish says.
A hue-and-cry over health-care inflation that has taken place very much in the public eye is the skyrocketing cost of prescription drugs. For employers and employees alike, the good news is that the patents or monopoly protection on some of the most commonly prescribed drugs, such as the allergy medication Claritin and the stomach drug Prilosec, will expire by 2005.
The savings that can accrue from such loss of exclusivity are substantial. For instance, pharmaceuticals giant Eli Lilly & Co. lost its monopoly on the anti-depressant medication Prozac last year. At that time, annual sales of Prozac's 20 mg. capsule totaled $2.2 billion. In August, Barr Laboratories of Pomona, N.Y. launched a generic equivalent of that capsule at greatly reduced prices - and it has already captured nearly 80 percent of Prozac's market, according to company reports.
And, as last fall's showdown between the federal government and the Bayer Corp. over the Anthrax -fighting antibiotic Cipro illustrated, drug companies are not immune to jawboning by government officials. In the wake of the terrorist attacks, Bayer reduced the price the federal government pays for Cipro under strong pressure from the U.S. Department of Health & Human Services.
Perhaps mindful of the industry's sudden vulnerability, other pharmaceutical firms subsequently offered to donate antibiotics to the government or reduce the cost of medication for the elderly. Even doctors concede that a number of drugs, such as the antibiotic penicillin, are woefully overprescribed.
A trend with the potential for substantial savings in the area of drug costs has become pharmaco-economics. This is an area of research that documents the cost-effectiveness of drugs. Blue Cross & Blue Shield, for instance, has helped to fund an institute, Rx-Intelligence, that offers drug-effectiveness data to insurers. And California-based Kaiser Permanente, with offices in West Hartford and Manchester, has put its convictions on drug effectiveness data into action, strictly limiting subscribers' prescriptions for some non-generic or brand name drugs.
There is more good news for Connecticut employers confronting soaring health costs. According to the CBIA's Spegele, Connecticut is a state with expensive drug plans, in part because the state legislature has mandated many requirements for health insurance programs.
Spegele points out that the state legislature passed seven mandates last year, four mandates in 1999 and seven the year before that.
“It is true that Connecticut health insurance plans are mandated to cover over 65 different services and providers,” Spegele says, “and that's significantly higher than any other state.”
But Spegele is upbeat about the current session's legislative agenda. “In this particular year, we're not seeing the whole host of proposed mandates that we've seen in previous years. We're very thankful that legislators seem to be aware that we've got a real crisis in health care costs. So far there have not been proposals from the insurance or public health committees that would drive up costs,” she says.
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