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Diminishing Choices
As both HMOs and health-care providers consolidate,
employers scramble for alternatives
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Business New Haven
10/1/2001
By: Susan Cornell
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Small businesses nationwide are shifting insurance costs to employees, reducing coverage or dropping health benefits altogether.
“This year is particularly bad for small businesses,” says the director of health-care policy for the U.S. Chamber of Commerce, Kate Sullivan. Inflation in the health-care industry is driving premiums up, and there exists a growing urgency for HMOs to show profits. In addition, the health insurance prognosis for 2002 is not expected to be any less painful than in the current year: Unexpectedly high rate increases will leave many employees in Connecticut and nationwide aching as they share the onus with employers.
Price quotes with increases of 15 to even 20 percent for January 1 are startling several larger employers as they arrange health insurance. Smaller businesses, too, will start seeing the jump this fall. Benefits consultants say that employers had anticipated increases in the range of ten to 13 percent. However, insurers claim that costs and increased utilization of medical services are rising faster than anticipated. There is also the argument that the aging population spikes expenses. Meanwhile, doctors and hospitals balk at reimbursement rates.
Large employers frequently “self-insure” at least one of their health plans, hiring insurers to administer the plan and assuming the financial risk. But even self-insured plans are expected to face 12-percent increases next year, according to Hewitt Associates, a global management consulting and outsourcing firm specializing in human resource solutions.
Managed care has rapidly dominated the delivery system and health-care financing in the U.S. More than 1.5 million Connecticut residents belong to managed-care organizations, according to the state's Department of Insurance. And Connecticut has the highest per-employee health benefit costs in the nation, averaging nearly $5,700 last year, according to a survey by the William M. Mercer Co., a benefits consultant.
According to Hewitt's “Survey on Future Health Care Expectations,” managed care as we have come to know it is being dismantled. The report says that this will have a significant effect both on the employers' bottom line and their relationship with employees.
“Proactive strategies and planning to evaluate rising health-care costs, health-plan selection, pricing, cost-sharing, benefit design, health-care legislation, and the new consumer-driven market, are needed to manage the impact on every organization's business results,” the findings proclaim.
The employer's role is changing, too, the survey reveals. “Employers see competitive health-care benefits as a basic requirement, but not a key driver of employment decisions,” it says. “A majority of employers aspire only to provide basic access to care at the lowest practical cost, preferring to lead the total compensation strategy with other more positive reward elements.”
It seems that many employers would like to be less involved in health care. Further, “Retiree coverage is eroding and is likely to continue to be more limited in the future.”
Says Ken Sperling, health care practice leader for the Norwalk-based Hewitt Associates, “We are really only seeing diminishing choices for Medicare-eligible retirees.” This is because “The 1999 Balanced Budget Act introduced a cap so all the health plans could get was a two- to three-percent increase from the federal government.” Many plans are exiting as reimbursements are constrained while costs are not. Says Sperling, “The Medicare Plus Choice segment is really falling apart.
“For active employees there are just as many choices, but employers are facing the highest increase in years - about 19 percent on average nationally for insured HMOs. We believe the marketplace will settle at around 13 percent.”
Employers are thus looking at an array of tactics, Sperling says, including plan design changes and changes in employee contributions. “The co-pays will go up and so will employee contributions,” he says. “We have seen employers reevaluate and terminate plans. And we have seen increases as high as 75 percent.
“So companies are reevaluating,” he adds. “Where they might have offered three choices, they now may offer only one or two. Or they offer self-insurance for stability in prices. Or they consolidate their offerings instead of local plans all over the place in 50 to 60 different pockets.
“Companies are also interested in companies that manage catastrophic illness,” Sperling says. “There are programs that help employees manage their health better - these can have a substantial impact on cost. We are seeing companies experimenting with new and different models such as defined contributions. This puts more decision-making and control in the hands of the consumer. We have insulated that patient from the actual cost of health care over the past years.” Sperling says that this is becoming less prevalent: Instead, “Employers want employees to behave in cost-efficient ways.”
In Connecticut as well as elsewhere, the managed-care industry was built on negotiating steep discounts with providers. What has happened, Sperling says, “is that the providers have consolidated, especially in the hospital area. Hospitals such as Yale-New Haven are coming together with others, which is giving the hospitals more clout. They then renegotiate the deal and the health plan must then pay more than in the past, causing the cost to go up. This took the health plans by surprise.”
While this is happening nationwide, “It is happening in Connecticut in particular,” Sperling says. “The leverage has shifted from the managed-care plan to the provider.”
Other factors contributing to the increase in health-care costs include inflation and demographics: Americans are getting older and more reliant on prescription drugs. As well, notes Sperling, “Direct consumer advertising causes increases in the pharmacy components of benefits. The final factor is that health plans are under pressure from Wall Street for profitability. It's a double hit - they need to generate earnings plus make up what they've lost. This is contributing to a cost climate that for many companies is downright scary.”
In May, state officials inaugurated the Office of Managed Care Ombudsmen for Connecticut. The Hartford office, established by the General Assembly in 1999, includes a Web site and a toll-free telephone number to handle consumer questions. Gerald Martens was appointed by Gov. John G. Rowland to the post of managed-care ombudsman.
Martens has planned and implemented health benefits programs for SNET's 10,800 retirees and 14,000 employees and has participated on committees that work on health-care reform. Martens has also been the president of the New England Association of Preferred Provider Organizations. The mandate of his office is to help individuals and companies with plan selection as well as to be an advocate for patients.
Acknowledges Martens: “There is not much choice in Connecticut right now. This creates problems for patients, because their employer may not be as aggressive in pursuing quality services with the HMO because they view it as a useless enterprise. This in turn allows for the practice of the health plan in question to emphasize cost over quality or value.
“In the long term, costs will continue to rise and the root cause of medical inflation will not be addressed,” Martens says. “We cannot afford to have health care increase as a percent of GNP.”
The executive director of the Clinton Chamber of Commerce, Ellen Cavanagh, says that smaller chambers such as hers “offer health-care insurance in partnership with larger chambers such as the Middlesex Chamber.” More and more, businesses are turning to their chambers for group buying power. “You don't need to be a rocket scientist - costs are escalating and you need group buying power,” says Cavanaugh. “The alternative is often going without insurance.”
To cope with rising medical expenses, corporate America has experimented with alternatives; rather than relying on managed-care outfits and insurers, companies have tried a myriad of do-it-yourself approaches that override traditional intermediaries or eliminate them completely.
Some giants such as Honeywell and GM have employed specialists to advise them or their employees on available health-care options. Others have set up their own hospital and doctor networks, hoping more favorable deals can be negotiated. Additionally, groups of companies have allied to create purchasing coalitions that provide clout when paying for medical services from hospitals, doctors and managed-care plans.
HMOs and insurers are being forced to adapt. Some are helping employers to set up proprietary networks, provide employee information online, or offer customized products.
A concept sometimes known as “direct contracting” can be an alternative to managed care. Here companies build their own national network of doctors to replace the PPOs and HMOs operated by insurers. In many cases, the corporation contracts with existing physicians groups including those that belong to insurer-formed large networks.
Motorola was one of the early birds to do so and now has a network of 118,000 doctors. The plus for Motorola is that the company is in charge rather than the insurer. As such, Motorola can set higher standards for doctors and can customize care to meet employees' needs. In theory, patients receive individual attention and, thus, are more apt to take better care of themselves.
Other employers have formed purchasing coalitions much like those envisioned by Hillary Rodham Clinton's health-care reform plan of 1994. Coalitions help with quality, according to a 1999 study by a nonprofit health policy think tank, the Alpha Center. For many small companies, these have become a key cost-control device.
Some businesses have also discovered that they can save money and improve care by educating their workers about health issues. For example, Honeywell started a program to encourage workers to participate in decisions about their treatment. The company hired a health-care specialist, Consumers Medical Resource (CMR), to provide information to employees diagnosed with certain critical-care conditions. Rather than second-opinion programs that allow patients to decide whether to ask another doctor for advice, CMR allows the employee to set up a consultation with both a Harvard Medical School doctor and a research assistant. In this model, the consumer assumes the role of the gatekeeper.
The Internet can also open up a customer-driven approach to health care and reduce costs. Not only can the Web be used to sign up for coverage, but companies plan to use the technology to provide employees with access to treatment information and comparisons of benefit-plan options. The future may provide employees with the information to comparison shop for health care, much as we now do for automobiles.
sWhat are the perceived impacts of the changing face of managed care? Connecticut Light & Power's project manager of benefits design, Robert MacAlpine, notes that although “We may be down to five or so [HMOs], but they're also merging. There's a change, but not a reduction.”
MacAlpine adds: “Generally, cost does not go up. Costs have changed, but have not gone up dramatically. What you have to do is to look at what the company offers for services.
“We're not taking anything away from the employee,” he says. “As long as you have a carrier providing coverage and there are three or four others, you still have a competitive environment. Often, the docs are in the HMO, the POS, and the PPO, so no one is losing anything in that sense. It may be the company's decision to be restrictive.
“We want to offer a number of choices because there is no one carrier who can cover all employees at a reasonable cost,” says MacAlpine. “You say you want access to coverage, but you know ConnectiCare, for example, doesn't have good penetration in a good portion of the state, so I'll offer something else, too. The strategy is to make sure you have enough providers to cover all of your employees. Our tactic is to offer complete coverage for employees with a minimum number of carriers.”
Jack Dwyer, vice president of human resources and administration for New Haven's Sargent Manufacturing and some other subsidiaries of the Swedish-based Assa Abloy, shares a different experience. “Recognizing that managed care is less and less effective to control costs, we developed a self-insured plan for many of our subsidiaries,” Dwyer says. “We assume our own insurance risk - for many subsidiaries, it's a much more viable option. We made our own luck where we couldn't afford the costs.”
Adds Dwyer, “Health insurance used to be an inconsequential benefit.” Today, however, the company distributes “Employee newsletters and other vehicles so that employees know what a huge chunk of change the compensation costs. We enlighten them on the cost and how it is an overall part of the compensation.”
Webster Bank's vice president of human resources, Larry Murray, says of diminishing choices, “We have a single provider so we're not affected.” However, adds the Waterbury bank's vice president of community relations, Cal Vinal: “Unfortunately, you're at the mercy of the market. We've had to make adjustments with our programs to deliver the best programs at the best prices. It's an ever-changing landscape and continually challenging.”
Adds Chris Salafia, owner of three small businesses - Beacon Travel, PowerPhone and Internet Crimes - “It's not so much the declining choices as the rising costs.”
The future may hold fewer companies delivering health care while employees purchase it on their own. The idea is to create a defined contribution health-care plan similar to a 401(k) in which the company gives its employees a voucher to purchase medical insurance. With online information, consultants say, employees could shop for the plan best suited for their particular needs.
Says Sperling, “Where is it going? It's a runaway train with a lot of track in front of it. There's no clear solution on the horizon, but clearly there must be changes made in the way health care is delivered so that it is affordable for both companies and employees.”
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