EMPLOYEE BENEFIT PLANS

May 2000

HEALTH CARE TRENDS IN THE NEW MILLENNIUM

By Jeffrey S. Reisel, CLU, ChFC, Geller & Wind, Ltd.

Employers need to review their group health plans this year, as they are certain to experience sizeable rate increases. Employers will need to take a preemptive strike at health care inflation through effective design, cost sharing with employees, self-funding arrangements, carve-out programs, vendor performance guarantees, and other initiatives to minimize the impact of increased health care costs.

Increased Health Care Costs

Employers have terminated traditional indemnity insurance plans in favor of managed health care programs, which control cost by negotiating discounts with medical providers and managing the delivery of health care. As the managed health care industry grew, employers experienced a gradual decrease in rates. Managed health care cost-containment initiatives have matured, however, resulting in a return to a period of increasing rates, which will affect most employers.

Flexibility and Choice. Numerous health plan provider mergers and acquisitions have occurred in recent years, causing a consolidation among health insurance and managed care plans. Large national managed health care companies have succeeded in offering local networks under a single administrative platform.

Nevertheless, flexibility and choice continue to be of primary concern to employees. Given the current low unemployment rates and shortage of skilled labor, competition has motivated employers to offer and subsidize comprehensive benefit programs.

Merger activity among insurance carriers has further narrowed the choices available to employers, resulting in cost inflation. Additional inflationary pressure is being applied by the medical profession, which continues to develop new medical technologies and new therapies, at increased costs. Many employers, fearful of reducing benefits or passing cost increases on to employees, have absorbed program cost increases. Consumers are less enamored with managed care programs, even though these programs may have helped to curb the rising cost of health care.

Corporate Benefits Philosophy

An employer must carefully review its employee benefits programs in order to design a cost-effective strategy that can succeed in this competitive labor market. Communicating this strategy effectively to employees is vital to its success. Website communications, vendor enrollment services, and printed materials are essential to acceptance of employee benefits programs.

Specific Coverage. In order to contain costs, employers should determine specific benefit levels for certain procedures such as mental health treatments, infertility treatments, prescription drugs, and wellness programs.

Employers have been forced to abandon indemnity programs in favor of point of service (POS) and health management organization (HMO) models, but have tried to bypass the more costly preferred provider organization (PPO) model. Cost containment in the POS and HMO models could be attributed to the greater control of medical utilization through a primary care physician referral system. The PPO model does not require a referral from a primary care physician to gain access to specialty care. Nevertheless, PPO plan costs have become more attractive and demand has increased. PPO plans are generally preferred by employees because of their convenience.

Carve-Out Programs. Employers should consider specialty carve-out programs, particularly in fully insured plans. Traditionally, carve-out programs encompass prescription drugs and mental health benefits. Employers are also considering carve-out programs for infertility benefits. Some employers are transferring their health benefit programs into a separate subsidiary established to administer benefit plans and carve-out programs.

Operational Audits. Employers should request their plan's claims experience as a part of their contracts for services. Claims reports should include monthly experience by the plan and corresponding enrollments, cost and utilization by type of service received, and large claim information. Employers should obtain information regarding in-patient hospital visits, physician office visits, and prescription drugs.

Employers should perform claims and operational audits on a periodic basis to determine any errors in payment and delays in service. Health program vendors should be held accountable for their performance and cost arrangements, and employers should obtain performance guarantees tied to fees or premiums paid for coverage.

Utilization and Cost Information. Once negotiated agreements are in place, employers will want to monitor the agreements and any changes in utilization that require investigation. Utilization and cost information should include dates and kinds of services, places of service, diagnosis and feature codes, discharge status, amount charged for each service, and amounts paid. With these kinds of data, employers can determine whether the plans meet their benefits philosophy.

Negotiated Agreements. Health care consultants can negotiate on an employer's behalf to effect the appropriate discount. They can also help employers determine whether they should negotiate with existing service providers or build their own systems, identifying providers, designing programs, and establishing the administrative structure.

Health care consultants need to consider deductibles, co-insurance, interior limits and maximums, employee contributions, coverage, and the medical expense budget. Alternative care management, preventive care management, and financial management methods should also be considered to reduce and contain the cost of group health care and other welfare benefits. *