National Academies Press: OpenBook

Employment and Health Benefits: A Connection at Risk (1993)

Chapter:4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY

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Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

4
What Does Employer Management of Health Benefits Involve? Overview and Case Study

"Debugging" is not something done on the rare occasions when things go wrong but is an expected part of making a program work.

Jeffrey Pressman and Aaron Wildavsky, 1973

OVERVIEW

American employers—in varying degrees—have voluntarily undertaken responsibilities for making health insurance work that are unknown to most of their counterparts in other advanced industrial countries. Moreover, in each decade since employers first began to get significantly involved with health benefits over 50 years ago, the diversity of their options and the complexity of actually implementing them have grown. Accelerating innovation in biomedical science and medical specialization have interacted with rapidly growing costs, an increasing pluralism in health care delivery and financing, and diverse regulatory mechanisms to create an increasing array of matters that require judgment by health plan sponsors and an enlarged range of options for exercising that judgment. Increasing costs have, in particular, motivated many employers to increase their oversight of employee health plans and expand their participation in plan management.

Matching this diversity of responsibilities and opportunities is the diversity of employer circumstances, capabilities, and preferences, which leads to further variability in employee health benefit programs and their management. By choice or necessity, many smaller employers delegate virtually all tasks to the insurer for their health benefit program. For the very smallest employers, "the glove compartment in their pickup truck may be the file drawer for their employee health benefits program" (Polk, 1992). At the other extreme, a few large employers take on almost all insurance and administrative functions themselves, shouldering risk, directly paying claims, negotiating with health care providers, and auditing payments and utiliza-

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

tion. Most employers fall at various points in between these extremes, although the general trend has been toward more involvement or at least more active oversight. Neither employers nor their environments are static, so a report such as this one necessarily provides only a snapshot of the proverbial moving target.

This section reviews some of the decisions, tasks, and options faced by those responsible for the design and maintenance of employers' health benefit programs, considers sources of diversity in the actions taken, and briefly describes some of the organizations that supply various kinds of services to employment-based programs. The next section presents a partly real, partly hypothetical case study that attempts to provide a more vivid sense of the policy, technical, and interpersonal challenges that can be involved in offering employees a health benefit program. A subsequent section selectively contrasts this core case with the situations faced by one much smaller organization and one much larger organization in order to illustrate further the diversity of employer and employee situations and the tangled issues of equity that employers and employees confront in considering various options. The final two sections examine how the roles of employees and health care providers in health benefit management are particularly affected by the link between employment and health benefits.

Types of Decisions, Tasks, and Options

In considering the advantages and disadvantages of employment-based health benefits, it is important to understand what responsibilities and tasks may be assumed when an organization decides to offer employee health benefits. Building from the discussion in Chapter 3, Table 4.1 depicts major categories of decisions and options that employers may face once they make the fundamental decision to offer health benefits. As will be made clearer shortly, not all items are relevant for all employers.

Sources of Diversity in Program Design and Management

What information, organizational characteristics (e.g., demographic structure of the work force and site[s] of operations), and principles guide employers' decisions about the design and operation of health benefit programs? How much do employers rely on consultants, brokers, and other outsiders? How are day-to-day matters managed, for example, the monitoring of plan utilization and expenses and handling employee complaints or problems? What tax, antidiscrimination, insurance, liability, and other legal constraints or concerns must be considered? What is involved in changing a health benefit program?

Answers to these questions are far from straightforward—as might be

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

TABLE 4.1 Selected Types of Decisions, Tasks, and Options Faced by Organizations That Choose to Offer Employment-Based Health Benefits

Identification and Analysis of Alternatives

• Employer's staff

• Agents and brokers

• Outside consultants

Definition of Eligible Participants in Health Plan

• Employees, full-time or part-time

• Dependents of employees

• Retirees, under or over age 65

Decisions About Health Plan Options

• Single plan

• Multiple plans, multiple carriers

• Multiple plans, consolidated carrier(s)

• Conventional and/or network plans

• Care directly provided by employer

• Flexible benefit plan

• Other health-related benefits

Determination of Scope and Depth of Coverage

• Generally covered services, providers, sites of care

• Specific technologies (experimental, established, obsolete)

• Amount of individual cost sharing

• Incentives and disincentives for use of particular services or providers

Decisions About Payment and Oversight

• Care reimbursed under auspices of conventional or network health plan(s)

• Care reimbursed under direct contracts with providers

• Method and level of paying providers (may be determined by health plan)

• Utilization review, delegated or internally administered

• Claims auditing, delegated or internally administered

• Analysis of health care financial and utilization data

Choice of Risk Bearing/Funding Mechanism

• Insured, fully or partly

• Self-insured, fully or partly

Options for Claims Administration

• Delegated to one or more insurers or third-party administrators

• Self-administered, fully or partly

Other Tasks

• Enrollment of health plan members

• Payroll deduction of employee share of premium

• Electronic submission of data to carrier

Community Role

• Complying with government regulations (e.g., ERISA, COBRA)

• Participation in communitywide or business-specific activities

• Lobbying for policy change at state or national level

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

TABLE 4.2 Sources of Variation in Employment-Based Health Benefits

Corporate Philosophy on Fringe Benefits

Size of Organization

Single State or Multistate Sites

Demographic Structure of Active Work Force and Retirees

Location of Headquarters and Other Major Operations

• Region

• Size, demographics, and other features of community

• Characteristics of local health care delivery system and health insurance market

Nature of Business

• Prevailing benefits and traditions in key lines of business

• Competitiveness in these lines of business

• Competitiveness and other characteristics of relevant labor markets

• Unionization and other work force characteristics (e.g., education, turnover, and age)

• Profitability, stability

• Health care services or supplies as a line of business, or health care organizations as major customers

Legal Environment

• State and federal statutes, regulations, and enforcement

• State and federal case law

expected given the variability of employment-based benefits related to employer size, location, corporate philosophy, and business sector. Table 4.2 summarizes some of the factors that contribute to diversity in employment-based health benefits.

Table 4.3 suggests how just one factor—organizational size—may affect employer options and involvement in managing health benefits. The simplest function is to enroll employees in a health benefit plan; virtually all employers can do this. Even quite small organizations often have automated payroll systems that allow health plan enrollment, premium deductions, and other information to be entered, updated, and conveyed to others with relative ease—although the smaller the organization and the higher its employee turnover, the more of a problem these tasks become. More complex than these simple administrative activities are those that involve analysis of claims data, active oversight of insurers and administrative agents, offering choices among health plans, and direct negotiations with providers.

Larger employers are likely to have specialized staff responsible for health benefits. They are also more likely to work with outside consultants who offer a variety of technical services, such as audit or analysis of health claims data, advice on benefit plan design, development of requests for proposals from insurers or others interested in competing for the account,

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

TABLE 4.3 How Size May Affect How Employers Manage Health Benefits

Options and Tasks for Employers

<25 employees

25-200 employees

201-999 employees

1,000-4,999 employees

5,000-9,999 employees

10,000+ employees

Offers health benefits

P

L

Y

Y

Y

Y

Has dedicated health benefit staff

N

N

N

P-L

Y

Y

Relies on agents or brokers

Y

Y

P

N

N

N

Uses outside consultants

N

N

P-L

Y

Y

Y

Enrolls health plan members

Y

Y

Y

Y

Y

Y

Uses automated payroll system

P

L

Y

Y

Y

Y

Submits data to carriers electronically

N

N

P

L

Y

Y

Conducts independent audits of claims

N

N

P

P-L

Y

Y

Analyzes detailed financial and utilization data

N

N

P

L

Y

Y

Offers choice among health plans

N

P

P-L

Y

Y

Y

Manages risk selection or risk adjustments among health plan options

NA

N

P

L

Y

Y

Negotiates individually with health care providers

N

N

N

P

P

P

Joins community coalitions to influence health care costs and delivery

N

N

P

P

L-Y

Y

Fully or partly self-insures

N

N

P

Y

Y

Y

NOTE: Y indicates usually yes; L indicates likely; P indicates possibly; N indicates not likely; and NA indicates not applicable.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

financial and other evaluation of proposals received, and advice on design of health promotion and other specialized programs. Some larger employers want to get deeply involved in the details of program design and management, whereas others want, by and large, to hand off the tasks to consultants and others.

Owners or office managers of smaller organizations are likely to rely on insurance agents or brokers for advice and assistance.1 Depending on the health status and claims expense profiles presented by the organization, its financial strength, and its geographic location, finding an insurer may range from simple to impossible.

Suppliers of Health Insurance, Administrative, and Other Services

Even the largest employers rarely carry out internally all the tasks necessary to operate a health benefit program. For the most basic function of claims administration, 9 out of 10 self-insured firms contract with one of the hundreds of independent or insurer-owned third-party administrators (TPAs) (Woolsey, 1992a). Many of the well over 1,000 commercial insurance companies and the 73 Blue Cross and Blue Shield plans offer a broad range of claims and benefit management services in conjunction with or independently of their insurance functions. Businesses in some communities have formed coalitions to provide some of the same services.

In addition to conventional insurers and TPAs, there are approximately 60 staff model health maintenance organizations (HMOs), 75 group model HMOs, 80 network model HMOs, and 360 independent practice associations (IPAs) (GHAA, 1991; Marion Merrell Dow, Inc., 1992). Over 40 percent of HMOs are sponsored by Blue Cross and Blue Shield plans or commercial insurers, but these plans account for just under 30 percent of total HMO enrollments. In addition, specialized networks have been created to cover dental, podiatric, vision, mental health care, and other services.

Employers may purchase services from other organizations, which vary in scope from broad to narrow. They include utilization management organizations that review the necessity or appropriateness of health services; organizations that review the performance of utilization management organizations; case management firms that help manage services and costs for very expensive patients; accounting firms that audit claims and provide consulting and other services; firms that specialize in data analysis; and firms that specialize in health promotion and health risk appraisal.

1  

An agent acts on behalf of an insurer to sell its products to individuals and groups. A broker, in theory, acts on behalf of an employer or other group in placing business with an insurer.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

Cooperative Efforts

Business groups in several dozen communities have cooperated to establish coalitions to help inform employers about health care delivery and financing and, in some cases, provide utilization review, data analysis, and other services. In a few locations, public or private organizations have been created especially to assist employers, especially small employers, with the administrative side of insurance purchasing (Helms, 1992; Sailors, 1992). A frequently cited—and probably the best developed—example is the Council of Smaller Enterprises (COSE) established by Cleveland's Chamber of Commerce. Using the TPA subsidiary of its primary insurer, COSE collects premiums from member firms, makes lump sum payments to health plans on a monthly basis, handles changes in enrollment and questions from enrollees, analyzes utilization data, negotiates with insurers, and takes on the responsibility for marketing its services and products to small businesses (Alpha Center, undated; National Health Policy Forum, 1992). COSE's participating insurers (with the exception of three HMOs) medically underwrite group applicants and reject about 20 percent of business applications on that basis.2 Within groups, individual premiums are adjusted for age but not health status. Chapter 5 discusses this general purchasing concept further.

A fundamentally different and apparently unique kind of employer cooperative action is found in Rochester, New York, where the largest employers in the community have maintained a 50-year commitment to community rating that has allowed small businesses and the self-employed to receive the same Blue Cross and Blue Shield and HMO premiums as such local giants as Eastman Kodak and Xerox (Taylor, 1987; Freudenheim, 1992b; Taylor et al., 1992). In addition, the large employers have supported communitywide health planning since the early 1960s, HMO development since the early 1970s, and innovations in provider payment. Many credit this support as a major reason that Rochester has a low percentage of uninsured individuals, a lower-than-average supply of hospital beds, a higher-than-average hospital occupancy ratio, and relatively low insurance premiums and per capita health care costs.

2  

During its early years of operation in the 1970s, when there was no medical underwriting, COSE attracted older and sicker groups disproportionately. This essentially nullified the discount that had been negotiated with the local Blue Cross and Blue Shield plan. This led the organization to allow medical underwriting. The local Kaiser plan does not medically underwrite, and it expected to suffer from adverse selection. In analyzing its business, however, Kaiser found that it was getting less-risky small groups through COSE than it was securing through its own efforts—perhaps because the other plans were using such strict underwriting that many of the rejected applicants who turned to Kaiser were relatively low risk (National Health Policy Forum, 1992).

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

CORE CASE STUDY

The following case study is included here for two reasons. First, the diversity of employer activities in health benefit management makes orderly and comprehensive discussion of the topic difficult; the case study is a simplifying device. Second, the case study is intended to make more vivid the demands of responsibly managing an employment-based health benefit program. The case is also designed to illustrate the impact on individual employers and their employees of developments in the larger health care environment such as rising costs, debates about equity and risk sharing, and innovations in health plan design. Although many of the data are adapted from real organizations, the case itself cannot be read as a true or even average story, as an illustration of a perfect process, or as a process or outcome that the committee necessarily endorses. For an organization of the size depicted in the case study, the degree of internal analysis and employee involvement is probably atypical.

The Organization and Its Environment

The organization has about 1500 nonunionized employees, about half professional and half administrative and clerical. Turnover is moderate. The average age of employees is about 40, and the organization has approximately 5 active employees for every retiree. Employees reside over a wide urban, suburban, and rural geographic area surrounding the organization's offices. The organization has a small clinic that provides some routine medical care, such as allergy shots.

The metropolitan area is plentifully supplied with primary care and specialist physicians, hospital beds, tertiary care services, and other health care providers. Several dozen insurers market coverage in the area, and most of the major ones have organized HMOs, PPOs, and other kinds of network health plans that compete with several locally created plans. The business community is not particularly active in health care issues, although there is a nascent purchasing coalition for small and medium-sized firms.

The state has the usual array of mandated benefits but no rate-setting commission, anti-managed-care laws, or state insurance pool for high-risk individuals. Health care providers complain about Medicare and Medicaid payment levels. Nevertheless, the reimbursement formulas for these government programs have left providers better off than their counterparts in many other areas and less likely to seek offsetting revenues from private purchasers of medical services.

History

As with most organizations, the health benefit program has evolved through a combination of marginal year-to-year adjustments punctuated by

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

a few more substantial shifts as costs rose or as the program needed to adapt to changing health care delivery and financing arrangements. The original program was adopted in the 1950s, quite early for an employer whose employees were not represented by a union. It was designed to cover full-time workers, part-time workers working 20 hours or more, spouses and children of these workers, and retirees. Employees were initially required to pay 60 percent of the premium, a contribution that came to $1.50 per month for individual coverage and $3.50 for family coverage; retirees with more than 25 years service paid no premium, and other retirees paid the same share as active employees. Inpatient hospital and physician services were fully covered in the original plan, but outpatient care was more limited. A separate plan to cover catastrophic expenses was added after the first few years. After 10 years (in the early 1960s), the employee contribution to the premium for the basic plan had risen to $2.50 and $5.90 per month for individual and family coverage, respectively.

By the mid-1970s the organization was paying 75 percent of the premium to stay competitive in the local labor market. It added a large staff model HMO as an option for employees and established a yearly open enrollment process. During the first open enrollment, 15 percent of employees opted for the HMO, which cost them $12.50 a month for individual coverage, compared with $5 for the original plan. Shortly thereafter, the organization, which had grown increasingly unhappy with the claims service and the benefit structure provided by the original insurer, switched to a competitor for its indemnity plan. Program changes were communicated to employees through memos and plan booklets.

During the 1980s the organization added four more HMOs as options for employees, all independent practice association (IPA) plans. Four plans were needed to provide sufficient geographic coverage.

Five years earlier, the organization had made substantial changes in some aspects of its health benefit programs, mainly in response to the rapidly rising cost of the indemnity program, especially the cost for retirees. (All the retirees not eligible for Medicare were in the indemnity plan, and 95 percent of the rest had Medicare supplemental coverage under the indemnity plan.) Taking the advice of an outside consultant, the organization changed coverage for Medicare-eligible retirees so that the combination of Medicare and organization benefits would not exceed the benefits available to active employees. It also instituted the same premium cost-sharing requirements for retirees as applied to active workers. For all enrollees in the indemnity plan, the deductible was doubled; first-dollar coverage was eliminated for hospitalization costs but provided for preadmission testing, outpatient laboratory and X-ray services, and outpatient surgery. Hospice benefits and provisions for preadmission and continued stay review and case management were instituted. The organization also established a limited program of flexible benefits that either provided $500 in

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

taxable extra income or provided for a nontaxable reimbursement account for medical care or dependent care.

Considering New Options

In the late 1980s the organization's management became concerned about the continued viability of the indemnity option. That plan's premiums had jumped by increments of 25 percent and more per year, and it was losing younger people to the HMOs while retaining the older and more costly employees. The premiums for the original HMO also were going up about 15 to 20 percent each year, as the average age of its members increased and the IPAs enrolled more new, young employees.

Concerned that the indemnity plan might become prohibitively expensive and that the insurer might on short notice decide to withdraw, the organization's top management took action. It decided that a comprehensive look at the health benefits program was in order and that new ways of structuring the program and stabilizing its costs should be examined. It established several provisional objectives for a new program. The program should

  • continue to be attractive for recruiting high-quality professional and other staff (i.e., be reasonably competitive with the health benefits offered by similar organizations);

  • include at least one network plan and one plan that does not lock employees into a closed provider network;

  • substantially reduce the degree to which higher-and lower-risk employees are segmented into separate risk pools;

  • offer some real potential for limiting future escalation in total costs; and

  • conform with applicable state and federal laws.

The provisional strategy was to consider two major options: (1) a complete replacement program from a single carrier that provided employees with choices among a fee-for-service plan, an HMO, and a PPO; (2) a program that retained the staff model HMO, eliminated the four IPAs, and replaced the indemnity plan with a point-of-service (POS) plan. Another provisional decision was that the mental health benefits offered in the existing indemnity plan should be scaled back. The human resources staff had been advised that the existing benefits were more generous than was typical in the area and might be attracting higher-risk individuals to the organization and the indemnity plan. (A summary of the indemnity plan is included as part of Addendum at the end of this chapter.)

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×
Further Data Analysis

To better understand what had happened with their health benefit program and to inform their evaluation of alternatives, the human resources staff concluded that they needed more data on the current situation. They decided that they needed to examine

  • the profile of enrollments and premiums for the six health plans over the period from 1980 to 1990;

  • the variation in enrollee demographics and utilization of services in the different health plans;

  • the turnover in enrollment experienced by the different plans; and

  • the distribution of very high cost employees and dependents across the plans.

Some of this information was in the organization's files and required no special effort to array, at least for those data collected since personnel records were computerized in 1980. Putting together other information required more effort, and certain data were not available. In particular, the organization did not know the number of dependents covered under each plan, their age or income, and whether they were also covered under another organization's health plan. Even for employee enrollees, the organization had no information on individual health status or satisfaction with the selected health plan. It had some claims data only for the indemnity plan, but those data were difficult to interpret for several reasons. First, the full enrollment of both employees and dependents was not known (thus, the true denominator to calculate utilization and other rates was unavailable); second, the composition of its enrollment had almost certainly changed through selective loss of lower-risk enrollees from the indemnity plan (thus comparisons of utilization and payment rates over time would be distorted); and third, only certain limited inferences were possible for a group of this size.3

Table 4.4 shows some of the results of the analysis of available data. Overall, the indemnity plan had less than 50 percent of all enrollees, down from 70 percent less than a decade earlier. The average age in the indemnity plan was considerably older than for any of the network plans. The analysis showed no appreciable difference in the percentage of female and male employees enrolling in the indemnity plan, about half of each group.

3  

In one respect, however, they had more data than they felt comfortable with. The carrier reported employee names with its monthly listing of claims, so personnel staff knew who the high-use enrollees were and what general types of services they or their family members were using. Given company policies regarding leave for illness and employee requests for some kind of information or assistance, staff were aware of some of these situations, but the claims data made the costs much more visible.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

TABLE 4.4 Selected Comparisons of Existing Health Plans in Case Study Organization

 

 

Share of Total Employee Coverage, %

 

Average Age of Enrollee, years

Monthly Premium Paid by Employee, $

Enrollment Turnover at Last Open Season

 

 

 

Individual

Family

% From Other Plans

% To Other Plans

Indemnity

48

45

56

140

3

4

HMO 1

17

38

39

97

3

3

IPA I

11

34

35

90

10

11

IPA 2

12

33

28

75

14

13

IPA 3

7

35

31

85

12

11

IPA 4

5

32

30

95

18

18

However, 58 percent of all male employees selecting family coverage were in the indemnity plan, compared with only 36 percent of women with such coverage; for individual coverage, the figures were almost the reverse (54 percent for women and 36 percent for men). These latter differences seemed interesting, but no one was exactly sure what to make of them. Perhaps the women selecting family coverage were lower-paid single parents who were choosing the plans with the lowest out-of-pocket costs. Turnover (the number of plan enrollees in the preceding year who left for another health plan or joined from another plan at the year-end open enrollment as a percentage of total plan enrollees in the preceding year) was fairly low for the two oldest plans but considerably higher for the newer plans. On the basis of their informal log of complaints about each plan, staff identified only one plan as a significant source of complaints and difficulties in resolving them. That plan was the one with the 36 percent turnover rate (see Table 4.4).

The human resources staff wanted to know more about the extent to which the differences in premiums across the health plans reflected differences in benefits, in enrollee characteristics, and in plan efficiency. It knew the HMOs had more generous benefits for the most part (e.g., no deductible, no or low copayments, and more coverage of preventive services). On the other hand, the indemnity plan covered all the physicians and hospitals in the community (and outside the community for that matter), including the tertiary care hospital with the best reputation for heart surgery. Overall, the indemnity plan also had substantially more extensive and more flexible coverage for inpatient and outpatient mental health services.

The HMOs did not provide data on high-cost cases that could be compared with data from the indemnity plan. On the basis of employee requests for advice, short-term disability benefits, unpaid leave to care for ill family members, and similar matters, the human resources staff believed that the

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

indemnity plan had most of the high-cost employees, dependents, and early retirees—including several seriously ill with different kinds of cancer, three with AIDS, one with a heart transplant, one very-low-birth-weight baby, several who had undergone coronary artery bypass grafts, and a father and daughter severely injured in an automobile accident. The indemnity plan reported that 1 percent of its enrollees generated 39 percent of all claims expenses in the preceding year.

Financial and Legal Questions

The vice president for human resources and the chief financial officer also wanted to look at the organization's financial arrangements with the different health plans and consider whether they might be changed to the organization's advantage. The HMO options were all insured and charged the same premium to all groups in the community. The HMOs received premiums on a monthly basis and kept any excess over their costs but also absorbed any losses (at least for the year in question).

One question was whether to ask the HMOs to quote premiums by age class because the younger employees were concentrated in the HMOs. This would be legal. It would not, however, have been legal for these plans, which were all federally qualified HMOs, to base their rates on the claims experience of any single employer group (that is, to fully experience rate the group).

The financing arrangement for the indemnity plan was more complicated. The plan was experience rated, so that last year's claims expenses determined next year's premium adjusted for the estimated trend (always upward) in medical care costs. In addition to claims expenses, the premium included a ''retention" factor (primarily to cover administrative costs and profit) plus a premium for stop-loss coverage for any individual whose claims reached $80,000 in one year. Premiums were paid on a monthly basis. The insurer had a substantial reserve accumulated over several earlier periods of favorable claims experience.

The vice president and chief financial officer of the organization knew that many organizations its size were self-insured, that its state's premium tax was costing it an extra 1.5 percent of premium costs per year (not paid by self-insured organizations), and that any carrier it chose could probably provide the necessary administrative services for a self-insured program. On the other hand, a self-insurance arrangement would have its own burdens and risks. In particular, the organization would have to manage the financial reserves such an arrangement would require. Overall, the case for self-insurance was not as strong for this organization as it might have been for one with multiple sites and multiple sets of state-mandated benefits with which to contend.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

A final concern of legal counsel related to the potential tort liability that might arise from the organization's adoption of a health benefit program that limited employee choice of provider and applied utilization management techniques to control health care utilization. The counsel's concern was not acute, but she urged that the organization make a point of examining—and documenting—how candidate health plans selected and monitored providers, how they arrived at and applied judgments of medical necessity, and what processes they used to determine when to cover experimental procedures. The chief financial officer pointed out that such an examination would also give the organization a firmer sense of how effective and efficient the plans might be at managing costs.

Preliminary Discussion of Alternatives

Because the organization had a basically good relationship with its indemnity carrier, the staff called the service representative to arrange a meeting to discuss the organization's concerns and plans and the carrier's assessment of problems and possible solutions. The service representative acknowledged the undesirable premium trends and openly recommended that the organization should aggressively explore options to the current indemnity plan, in particular, a POS plan. At the same time, staff began to contact the service representatives of their HMOs to explain what was happening and to ask what options those plans might be able to offer. On the basis of informal consultation with colleagues in other organizations in the community, they also asked for meetings with three large insurers not currently represented in the organization's health benefit program. They wanted to get acquainted with the different insurers and their programs before arranging for any formal consulting services.

Over a period of three months, staff scheduled meetings with seven insurers, all of whom had POS or similar replacement options to discuss. Their conclusions based on these meetings were as follows:

  • All of the options being proposed by the carriers were new or very recently developed products (e.g., PPOs or POS plans), so that none had much of a history in the community.

  • The companies were thought to be making excessive and sometimes misleading claims for their plans.

  • Some carriers appeared much more flexible in their underwriting policies, in particular, their tolerance for other HMOs continuing as options and their lack of insistence on preexisting condition clauses for new employees.

One major issue that needed careful thought was what to do for participants in existing HMOs that would no longer be available to employees.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

Their alternatives would be to enroll in a staff model HMO or in the new POS plan, both of which would almost certainly be more expensive than the least expensive of the existing HMOs.

The group decided to formalize its planning in several respects. First, it would create an employee advisory group. Second, it would develop an explicit request for proposals (RFP) from various carriers. Third, it would bring in its own benefit consultants to review the draft RFP and to help evaluate responses. Fourth, each carrier would be asked to provide a list of references from community organizations that have had experience with the carrier.

Employee Advisory Group

The employee advisory group was constructed to serve two purposes. One was to represent the range of employee interests within the various departments within the organization. The other was to take advantage of employee expertise in two areas: communications strategies and information evaluation. The advisory group had no formal decisionmaking power. Putting the advisory group together, arranging a meeting, and preparing background materials on the current health benefit program, organization objectives, terminology, and alternative programs took several weeks.

During the first meeting, the group broke into three work teams: one to draft key features of the RFP (with final preparation by the benefit consultant), one to consider carrier selection, and one to develop a plan for ongoing communication with employees. The entire advisory group would participate in a series of meetings with the six insurance organizations that would be invited to bid on the new health program.

The first work team started with information about the existing health plan benefits plus the materials that potential bidders presented about their POS, PPO, or similar products. They divided their task into four parts or questions: (1) how many options of what type should employees be offered; (2) what level of cost sharing should be required for in-network services and what level for use of out-of-network providers; (3) what kinds of providers and services should be covered; and (4) what other limits or features should be included? They presented two major alternatives to the rest of the advisory group plus a number of points for further discussion. The alternatives reflected their concern about the overall levels of benefits as they related to the plan premium and the relationship between the new plan premium and the premiums of the HMOs that would be canceled.

In discussing options and alternatives, the advisory group got into a number of questions about equity. For example, some members expressed concern that if all the stand-alone IPA options were dropped as tentatively recommended, monthly premiums for some employees would go up. Oth-

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

ers countered that these people appeared to be the youngest and probably the healthiest employees and that their choice of the most inexpensive IPA plans fractured the sharing of risk among well and ill. This point, in turn, was countered by the argument that the younger employees probably earn less and they would be subsidizing older, richer employees in a combined risk pool. The debate prompted one employee to ask whether premiums or deductibles could be varied by employee income. This encouraged another employee to complain that she as a single mother with one child paid the same premium as a married coworker with four children. A worker with no dependents then asked why the total pool of benefit dollars subsidized family coverage in general and thus provided others like himself with lower total compensation. Someone else then returned to the question of dropping the stand-alone IPAs and argued that some people in those options would have to change their physicians and pay more to boot. After some discussion, the group concluded that such changes probably would not be a major problem because the relatively young IPA members (in these relatively young IPAs) probably did not have strong physician relationships. Furthermore, many of the IPA physicians probably took patients on a fee-for-service basis, so—at worst—a patient might have to pay somewhat more to avoid changing physicians.

Someone observed that with a PPO or POS plan, most enrollees in the current indemnity plan would either have to switch doctors or pay more. Clearly, gains and losses would not be distributed uniformly among all employees, but no single group would be getting all the benefit or all the loss.

Related but somewhat different questions arose about specific benefits, particularly the reduced coverage for mental health care. Staff knew that one advisory group member was worried about her adolescent son who had undergone expensive inpatient, outpatient, and drug therapy for depression. Other questions were relayed by the advisory group from other employees. They involved requests that Christian Science healers, acupuncture, and herbal medicine be covered. The discussion dealt in part with whether such services are effective and whether the new health plan should have to offer them when the HMO option did not.

Yet another question was raised about technology assessment. An employee said he had read in the newspaper that one of the plans that would likely submit a bid on the organization's health program had been sued to force it to cover a bone marrow transplant for a breast cancer patient. Shouldn't that plan be rejected out of hand as denying care to the very ill even if the care was still experimental? Another employee said that he read the newspapers, too, and thought medical technology and costs were out of control and the plan was right not to pay for unproven new procedures. The issue in his mind was how good the plan was at assessing new medical technologies and identifying effective medical practices.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

A final point of some debate was whether the organization should start setting higher premiums for smokers. One employee said because smoking was no longer permitted at work many people were trying to quit; why put more stress on these individuals? Someone else pointed out that verification of information about individual health behavior could be a problem, either tempting employees to lie if there were no verification process or embroiling the organization in blood testing and other intrusive activities if they did seek to verify information.

The discussion of all these issues of fairness was not acrimonious, but all participants came away with a new understanding of how complicated and potentially divisive are arguments over risk sharing, subsidies, and coverage options. The work team on communications realized that it must deal with these issues carefully and in some depth.

The advisory group accepted the recommendations of the benefit design work team with a few changes. The organization's senior management also accepted the recommendations.

Request for Proposals

The next step was to bring the benefit consultant into the process to review the proposed program design and draft an RFP. The consultant's primary recommendations were that the prescription drug coverage should include a network of preferred pharmacies, a mail-order service, reduced cost sharing for generic drugs, and a program of drug utilization review to promote both cost containment and quality. Legal counsel had already said that the initially proposed mental health benefit had to be raised to be consistent with state laws.

Excerpts from the RFP are reproduced in Addendum 4. Because the advisory group still had a lot of questions remaining from its preliminary discussions with the carriers, the consultant recommended that it should formulate a set of questions for bidders. Most of the financial questions came from the consultant. Carriers were told they should assume in their bids that the group would continue to offer one staff model HMO as an enrollment option. They were given six weeks to respond.

Evaluating Responses and References

When the responses to the RFP arrived, the consultant began to analyze them, concentrating in particular on the rates quoted for individual and family premiums. On the basis of the detailed information accompanying the rates, the consultant came to the following conclusions: the lowest rates for individual and family coverage, which came from the carrier for the old indemnity plan, may have been underbid and probably assumed that some

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

of the excess reserves in the old plan could be applied to reduce initial rates; the second-lowest rates looked sound and apparently reflected some optimism that this network plan could attract a lot of the younger employees and thereby achieve a less adverse risk pool than that of the current indemnity plan; and the highest premiums (which were 50 percent higher than the lowest premiums) were quoted for a program that had more restricted benefits and apparently reflected a conservative strategy on the part of that carrier.

The work team focusing on carrier selection developed a list of questions to ask the references submitted by each carrier. That list focused on specific plan features (e.g., coinsurance for out-of-network care), employee reactions, quality of plan administration, and similar matters. As soon as the carriers' responses to the RFP arrived, two members of this team began to contact the references.

By the time the consultant reported, the carrier selection group had contacted all the references. It found the exercise useful not only in assessing the bidders but also in learning about possible employee reactions and helpful strategies for implementing a new program. At that stage the major remaining challenge was how to evaluate the networks of physicians, hospitals, and other health care providers offered by each health plan. As part of the RFP, the bidders were asked to submit information on the characteristics of their panels (e.g., geographic coverage by zip code of the employer's work force, board certification) and their procedures for evaluating and improving provider performance.

The advisory group's assessment of the responses produced mixed findings. The most expensive plan appeared to have the best program for selecting participating providers and monitoring and improving their performance, but it also had the smallest numbers of network physicians and hospitals and was particularly short on coverage of the central city. The second least expensive plan had a much larger panel of participating providers and covered the geographic area much better, but it appeared to be less far along in its network management and quality assurance procedures. The other bidders had relatively small networks, geographic coverage problems, middling network management procedures, and, for three out of four bids, higher premiums.

The group discerned a trade-off between better access and tight panel management, but it noted that the smaller, more tightly managed panel still was the most expensive and offered less extensive benefits. The vice president felt that a significant convergence in group attitudes had occurred as the proposals came in and were evaluated. It helped that one proposal offered a higher level of benefits at a lower prospective cost than expected. Members of the advisory group who had previously seemed skeptical appeared to be "buying in" more fully to the switch from an indemnity to a

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
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TABLE 4.5 Summary Evaluation of Responses to RFP

 

Total Monthly Premium

 

Size of Physician Panel

 

Geographic Coverage

 

Benefits as Specified in RFP

 

References

 

Individual

Family

 

 

 

 

Bid 1

160

410

450

=

+

Bid 2

185

465

1,000

+

+

++

Bid 3

215

550

600

=

+

Bid 4

225

565

400

+

Bid 5

210

530

500

=

Bid 6

206

520

450

++

NOTE: + indicates proposal is more attractive than other proposals; = indicates proposal is acceptable; and – indicates proposal is deficient on this dimension.

POS health plan. On the basis of the references and other analysis (e.g., geographic coverage), the group identified two bidders with particularly favorable reports and proposals, three with acceptable proposals and reports, and one that was essentially unsatisfactory (Table 4.5).

These results were discussed with senior management, which expressed satisfaction with the progress that had been made and with the way the options were being evaluated. It looked as if a new health benefit program could be instituted in conjunction with the next open enrollment, although it would be a squeeze to undertake an adequate employee communication program and to complete all the administrative steps.

The final step was to go back to the bidders with questions about various details of their responses and with a request for a best and final offer to be delivered within 10 days. Each bidder had submitted an original response that was in some way unacceptable to the working group, but the vice president for human resources and the consultant expected that most or all could be successfully negotiated. The organization, in particular, challenged requirements that the organization drop all other plans and impose preexisting condition limitations on new employees.

The Final Decision and Its Implementation

Weighing Alternatives

After the final bids arrived, the advisory group met to hear the consultant's appraisal and to decide what to recommend to senior management. It felt that no option was free from defects and worrisome uncertainties, but, nonetheless, one option was substantially more attractive than the others. The determining factors were that (1) one proposal offered the second-lowest premium

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

and the lowest one that the consultant considered reasonably sound; (2) the rate for that proposal included more benefits than did most of the more costly alternatives; (3) the plan also offered the broadest panel of participating providers with the best geographic coverage; (4) the references consulted spoke highly of the plan's service capacity and ability to deal effectively with problems as they arose and reported high employee satisfaction; and (5) the carrier backed off all of its underwriting restrictions (thus, for example, permitting the organization to continue to offer one staff model HMO), dropped a preexisting condition provision for new employees, and adjusted its original premium very modestly upward to reflect the greater risk it expected to assume as a result.

The major worries about the option were twofold. First, did the rate—despite the consultant's statement that the carrier had reasonably estimated prospective claims—represent a "low ball" estimate, making the organization vulnerable to a big rate increase the next year? Second, was the plan's program to evaluate and manage provider performance as strong as it should be? In many respects, the specific capacities of the health plan remained a black box despite the advisory group's best efforts to evaluate it.

Another crucial question was how attractive the POS plan would be to employees generally and how its benefits would be perceived in relation to its higher premium for the 25 percent of all employees whose current health plans would be canceled. The vice president had received estimates of renewal rates from all of the current HMO options. The news was generally encouraging. Of the four plans to be canceled, two were very close in premium to the new option; however, the other plan would have remained a substantially cheaper option. In the new year, an employee switching from that particular option to the staff model HMO would have to pay $4 (individual) or $12 (family) more per month; switching to the new POS plan would cost such an employee $9 (individual) or $20 (family) more in monthly premiums. Would this be a burden on the lower-paid staff? Which option would the participants in the canceled plans pick? Would the results help ease the adverse selection problems?

After considering these issues, the advisory group stayed with its preliminary evaluation and recommended that that option be adopted. The organization's senior management agreed.

Implementation

Once the decision was made, both the organization's staff and the staff of the selected health plan went to work to meet the tight time table for informing employees, conducting the yearly open enrollment period, processing the results, and delivering membership identification cards and other

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

necessary materials needed to make sure benefits would be available January 1. In developing information for employees about the new program, the communications work team posed all the hard questions they could imagine. Human resources staff then drafted answers. The work team also came up with the initial format for the main communications document. When it had produced a complete draft, the team convened a focus group to critique the document. The revised document was reviewed by the new carrier, revised again, and distributed to employees.

Over 30 employee education sessions were scheduled after employees had a chance to read the information on the new program. Approximately 75 percent of the total employee group attended one or another of the sessions. The questions they asked were generally straightforward. The most frequent questions were about how the primary care gatekeeper arrangement really worked, what the extra cost sharing for out-of-network services would be in various cases, and how the preventive dental benefits and mail-order prescription drug program worked.

In general, employee response was more positive than expected. Most sessions produced one or two "loaded" questions that individuals clearly expected to be awkward but that were, in fact, based on misunderstandings of the new plan and were easily addressed. However, in one session, several participants were openly hostile and prepared to be disruptive with questions about coverage restrictions that particularly affected them. Even that session concluded smoothly enough because the justification for the coverage restrictions had been carefully considered early in the planning process and could be clearly explained. Following the education sessions, the human resources and insurer staff thought employees understood the basics of the program but would undoubtedly be calling with many further questions as the program was implemented.

The results of the open enrollment were encouraging given the objective of reconstructing the risk pool. The new POS plan attracted about 75 percent of employees who chose coverage (18 percent declined coverage, about the same as previously), with the remaining 25 percent in the staff model HMO. Analysis of the decisions by the former IPA members showed that 90 percent elected the new option instead of switching to the somewhat less costly staff model HMO or to a family member's plan.

One of the first major challenges the organization faced once the enrollment process was completed involved individuals hospitalized when the change in health benefits occurred. The new insurer and the organization's human resources staff had agreed in advance to negotiate benefits for these individuals so that they received the benefits that would have applied under their old plan. The new plan was surprisingly accommodating, and a total of 11 cases were handled in this way. All the affected employees were satisfied with the decisions.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

During the first three months after the new plan went into effect, the human resources staff fielded a lot of questions, most of which they referred to the health plan's service representatives. Only a few employees complained that the responses to their questions or complaints were not satisfactory.

The most serious early problem resulted from changes in the network of primary care physicians that occurred after the directory of participating physicians had been published. Twelve employees had designated physicians who were not accepting new patients or had dropped out of the network entirely. Even worse, some of the latter physicians or their staffs made disparaging comments about the network, apparently as their "parting shots." Other early complaints involved slow claims payment, the complexity of the prescription drug program (which was administered separately), and the fact that enrollees did not get their own copies of the list of participating specialists to consult if they wanted to approach their primary care physician for referral to a specific specialist.

Informal feedback on the new plan is now generally good, with more positive than negative comments. The new plan is also proving attractive to new staff. Having passed the initial shakedown period, the organization is waiting for its first reports on plan utilization and claims expenses. For the first year the switch to the new health benefit program has meant a slightly lower yearly increase in the organization's health benefit costs than would have occurred if the previous plans had been retained. Whether the program will stabilize rates over the long term (and keep them lower than they were in the late 1980s) is more a question than a clear expectation.

The human resources staff has not undertaken an explicit analysis of the costs involved in revising the health benefit program but has estimated that other organization staff had contributed about 100 hours of their time and that the greatest demand on their own time came during the 30 employee education sessions. If the new program proves satisfactory and stable, these costs will not be soon repeated.

CONTRASTING CASES

For contrast with the case just presented, two very short cases are presented below. One describes the experience and circumstances of a small employer; the other, the experience and circumstances of a large, multistate employer. Both are based on a combination of news stories, personal experiences, and analyses in health policy journals. Again, the cases are illustrative but not in any sense statistically representative of the variety of environments and challenges facing different kinds of employers and employees.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
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A Small Employer

In marked contrast to the case of the preceding organization is the case of a small business in an adjacent state. It employs 13 people, experiences little turnover, has no retirees, and relies primarily on its office manager to deal with all of its employee benefits. Four years ago, the company's previous insurer—citing changes in its business strategy—declined to renew coverage for the group. Other insurers said they would cover the group only if it excluded one employee's daughter, who was born with serious birth defects. Her care had cost the previous insurer over $400,000 the previous year. Fortunately, with a considerable amount of time and effort, the firm's owner and office manager were able to arrange for the child to be covered under the state's high-risk pool and thus were able to obtain coverage for the rest of the group. Insurer rejection of particular individuals in a group is a problem rarely if ever faced by large insured groups such as the one described in the preceding case.

Over the past five years, the health benefit costs for the small business have increased by 40 percent overall even though it has markedly reduced benefits, shifted the high-risk child to a state pool, and substantially increased employee contributions to premiums, deductibles, coinsurance, and other cost sharing. In addition, employees have been encouraged to seek coverage under a spouse's health plan if possible, but none have been able to do so. No employee—not even the youngest and lowest paid—has dropped out of the health plan, even though the out-of-pocket costs are high in relation to wages.

The time and emotional energy spent on efforts to arrange and maintain the new health plan have constituted a significant drain on the small organization. Particularly given the paucity of alternatives, it has been infeasible to invest more time to investigate whether the organization's insurer was doing anything (beyond recommending higher employee cost sharing and avoiding sick individuals) to contain health care costs, much less monitor quality of care. Likewise, except for trying to answer employees' most basic questions about their health coverage, the office manager has had neither the time nor the skills to help employees become more informed users of health care services.

Some competitors in the area do not offer health benefits and think this business is foolish for doing so. Moreover, there is the worry that health benefit costs might make the difference between surviving and failing if the recession persists or worsens. Nonetheless, after balancing the advantages and disadvantages of offering health benefits, the owner has concluded once again that these benefits have helped to attract and keep the productive and committed employees who have maintained the firm's reputation for quality. She has resolved to continue her efforts to maintain employee health coverage.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

A Large, Multistate Employer

Yet another contrast can be found in the experience of a large and mature manufacturing company with headquarters in an adjoining county. It has 71,000 employees and worksites in 17 states with from 6 to 6,000 workers at each site. The ratio of active workers to retirees is about 2.5 to 1, which makes the cost of retiree benefits a major issue, particularly compared to more recently established competitors who have few retirees.

The company is completely self-insured—primarily for financial reasons, but partly to avoid the complexities of dealing with 17 different sets of state-mandated benefits and providers and other requirements. Thirty percent of the work force is unionized, and the company has separate health plans for its union and nonunion work forces. Across all its worksites, it has 51 HMOs, down from 67 two years ago, and the company has been interested in consolidating the number and management of the remaining plans insofar as possible. The company operates on-site clinics at six sites that provide routine physical examinations and care for some injuries and illnesses. It has considered expanding the clinics' role but has put that question aside for now.

The company has several full-time staff involved in managing the company's program, and various senior executives also must devote some of their time to program review and decisionmaking. Staff rely heavily on outside consultants for a wide range of advice and analytic services. Company executives or union leaders participate in business coalitions in seven communities or states. Bargaining with unionized employees over characteristics of the last major health program changes took 11 months, and the changes provoked considerable contention. The company's unionized competitors in its major line of business were offering comparable benefits, but its nonunionized competitors had plans with much more employee cost sharing.

In locales where the company has several thousand employees, its utilization and cost data can be more extensively and reliably analyzed than in locales with a few dozen or a few hundred employees. One characteristic of its work force is clear: the average age of employees has risen because of layoffs that hit harder among younger workers. Age also figures in another finding: the company's indemnity plan has a higher average age at all work sites than do the available HMOs.

The company's interest in programs tailored to its complex characteristics was reflected in the size of the RFP for the health program just instituted. The RFP was four times the thickness of the document for the organization described in the core case study. The RFP went into great detail on the data reports the company wanted. In addition, the request asked for a nurse hotline, centers of excellence for heart transplants, a high-risk pregnancy program, and a mail-order prescription drug benefit as well

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

as other special programs. The RFP also described how the new indemnity plan would have to relate to several programs that were contracted for separately, in particular, a separate mental health PPO. Although staff believe they may be able to document the cost and some other consequences of the new drug and pregnancy programs, they suspect that many of the strategies they have adopted have redistributed rather than saved expenditures. Some programs have, they believe, cut inappropriate hospital care, but they wonder whether that reduction, too, has been offset by more inappropriate out-of-hospital care.

The company has not yet formally considered comprehensively revamping its offerings of HMOs and other network-based health plans, but it plans to assess various options, including a reduction in the number of HMOs, contracts with one or more HMO networks that could cover most company locations, and conversion of the basic indemnity plan into a POS plan. Such changes would, however, involve another set of negotiations with the unions and would also require coordination with the companywide plan just instituted.

The company's human resources staff sees its current activities as part of a continuing process of evaluation, action, reassessment, and adjustment—a process that has grown decidedly more complex and demanding over the last decade and promises to become more so. When these activities periodically come to the attention of the chief executive officer he usually expresses dismay, complaining that ''widget builders shouldn't try to be health care managers" and that other employers—and his staff—are "fooling themselves if they think they can contain health care costs." Still, for the time being, he is not willing to join the business leaders who have endorsed one or another of the health care reforms that would limit or eliminate the employer role in health benefit management.

CONSEQUENCES FOR EMPLOYEES

As is obvious from the above discussion, the role of the employee in health benefit management is shaped by employers' decisions about the overall design of health benefit programs. Still, employees often have an array of important decisions to make and responsibilities to manage. They may need to adhere to managed care requirements, understand complex coverage rules, and choose among competing health plans with different features and rules.

Such tasks, of course, are not limited to health coverage that is employment based, although they can be made more variable by employers' decisions. To cite a foreign case in point, the Netherlands is adopting a "managed competition" program that would provide Dutch citizens with structured choices among health plans but would require little if any involvement from

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

employers. To illustrate with a domestic example, Medicare coverage policy is far from simple, and claims filing can be a tedious and complex chore, particularly because the elderly use more services than the nonelderly and therefore have more details to track. Also, Medicare beneficiaries in many areas can choose to enroll in selected network health plans (mainly HMOs) and thus may face the same benefits and burdens of choice as do those covered by employment-based benefits.

If employees can choose among health plans, they, in principle, would evaluate which option appears the most financially advantageous given their expected need for health care in the coming year. From year to year, employees can take strategic advantage of health plan differences, for example, selecting a plan with good vision benefits one year and a plan with restorative as well as preventive dental services the next year. A planned baby or the onset of a serious illness could change the calculus considerably. Chapter 5 discusses the consequences of such choices for health plan risk pools.

Table 4.6 lists tasks, responsibilities, and decisions that commonly face U.S. workers who receive health benefits through their employment. Again, none is unique to an employment-based system, but the overall complexity and variability are almost certainly greater than what faces workers in other advanced industrial nations. That variability can have positive or negative consequences.

The case studies in this chapter suggest the kinds of experiences that distinguish employment-based health benefits from most health benefit systems. For example, all employees working for the organization featured in the core case study except those enrolled in the staff model HMO had to switch from one of four different health plans to a new plan with coverage, procedures, and responsibilities either entirely new to them or similar but not identical to rules under their previous plan. Some had to look for new physicians and to cope with a plan change in the midst of an illness. If any of the case study organizations hired someone from one of the other organizations, that employee would find some—maybe a great many—changes in his or her health benefit program. One of the advantages of some union plans covering multiple employers is that they maintain common as well as continuous benefits for members switching from one participating employer to another.

To facilitate informed decisionmaking by employees and to assist them with questions and problems, employers such as the one described in the core case study may invest considerable resources in explaining health plan features and intervening with health plans when workers run into difficulties with claims and other matters. To the degree they do this, they serve as a kind of support and advocacy mechanism for health plan enrollees that Medicare beneficiaries and individual purchasers of insurance typically lack.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

TABLE 4.6 Possible Tasks, Responsibilities, and Decisions for Employees

Understanding Health Benefit Program Offered by Employer

• Before making an employment decision

• After starting work

• Before using health care services

• Keeping track of program changes

Evaluating Health Plan Options If Employer Offers a Choice

• Reading plan descriptions

• Identifying differences and trade-offs related to scope and depth of coverage, restrictions on access to health care providers, quality of network health plan providers, premium and out-of-pocket costs, convenience

• Weighing the value of choice of provider in light of individual and family circumstances (e.g., health status, residence, other family coverage, tolerance for risk, existing physician relationships)

• Determining whether to change plans at next opportunity based on satisfaction with the quality of service, need for care, and other factors

Using Health Services in Accord with Plan Requirements

• Understanding restrictions on choice of physician or other provider

• Selecting primary care or gatekeeper physician, if required

• Obtaining referrals or approval for selected services, through primary care or gatekeeper physician or through direct contact with plan utilization review entity

• Negotiating with gatekeeper or plan in event of disagreement or error

• Seeking employer assistance with problems, providing feedback

Filing Claims If Required by Health Plan

• Determining what services are covered under what conditions

• Tracking expenses and services

• Completing and submitting claims forms with required documentation

• Monitoring plan payments for submitted claims

• Following up on denied claims, problems, or questions

• Seeking employer assistance with problems, providing feedback

The willingness and capacity of employers to provide such assistance vary considerably.

For many workers a positive consequence of employment-based benefits may be health plans that are better tailored to fit variations in work force characteristics and community resources than would be likely under a simpler, more uniform system. Some plans are undoubtedly more generous and others less generous than a national plan would likely be.4

The link between health benefits and employment also extends—for

4  

It should be noted that virtually all employment-based plans, unlike Medicare, cover outpatient prescription drugs.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

good and ill—the potential scope of employer interest and involvement in the personal lives and health status of employees, potential employees, and employees' family members. On the positive side, employers may be motivated to take constructive steps to influence worker health status because they believe the result will be lower health benefit costs as well as improved productivity, reduced workers' compensation claims, and advantages in retaining and recruiting workers. As summarized in Chapter 3, the steps they take may include health education, screening, fitness, nutrition, and other programs.

Less positively, employees may worry that employers might misuse information about their health status (or that of their family members) in making layoff decisions or by otherwise discriminating against them because of the economic burden they pose to the company health plan. Employees may, in some cases, be reluctant to seek needed health services for fear of such misuse or may pressure physicians to list nonthreatening diagnoses on insurance records. The Americans with Disabilities Act is supposed to protect workers with disabilities from discrimination, but how the act will be interpreted and enforced is not yet clear. In addition, proving that health benefit costs were a factor in, say, a layoff could be difficult. Chapter 5 discusses this legislation further.

Although not directed narrowly at employment-based health benefits, the survey designed by the committee and the Employee Benefit Research Institute to explore questions of interest in this study provides some useful perspectives on individual experiences with and attitudes about health benefits generally and the employers' role specifically. Key points are summarized below, and a fuller report is provided in Appendix A.

  • People rated their current health benefits positively, with 27 percent describing them as excellent, 46 percent good, 20 percent fair, and 6 percent poor. Only 7 percent said they would rather have more cash and fewer health benefits, whereas 20 percent would prefer more benefits to cash.

  • For 60 percent of those surveyed, their health benefits had not changed in the preceding few years. For 24 percent, they had gotten worse, but for 16 percent they had improved.

  • Of those who had access to employment-based benefits (nearly three-quarters of respondents), about half had a choice among health plans and half did not.

  • A substantial majority expressed confidence that their employer was contracting with the best available health plan.

  • One in 10 respondents thought that the employer is in the best position to influence the cost of care or make decisions about quality of care. Over half thought individuals could best make such quality decisions, with one-third citing government. In contrast, 28 percent thought government is

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

in the best position to influence costs, 23 percent cited doctors, 20 percent nominated insurers, and only 14 percent mentioned individuals.

  • Eleven percent of respondents said that they or a family member had foregone a job opportunity or stayed in a job because of health benefits. Those reporting such "job lock" said that another employer either did not offer health benefits, provided less generous benefits, offered a plan that would be too costly, or restricted coverage for preexisting conditions. The young, less educated, and middle class were the most likely to be affected.

  • A minority of respondents reported one or more negative experiences with cost management programs. Seventeen percent thought they had experienced unreasonable hassles or delays, 16 percent said they had to receive care from a physician they would not have chosen, and 9 percent thought they had been denied needed care.

  • About 1 respondent in 10 said most of their health plan was hard to understand, over one-third said some of it was hard to understand, and half said it was easy.

A system that links health benefits and employment clearly adds an additional layer of complexity and variability for both employer and employee over that which would exist with a unified national health insurance system. In comparison with the current market for individually purchased insurance, the employment-based system increases the burden on employers. However, it almost certainly reduces the decisionmaking and monitoring burden on most employees, although it can increase complexity or pose problems under some circumstances (e.g., part-time work and change of employment). The consequences for employees of employment-based health benefits may be both positive and negative, depending on the circumstances, philosophies, and choices of specific employers and on the leverage employees have within different organizations.

CONSEQUENCES FOR PRACTITIONERS AND PROVIDERS

Twenty years ago, or even 10 years ago, most physicians, hospitals, and other health care providers might have kept track of Medicare, Medicaid, and Blue Cross and Blue Shield plan requirements, filed information on the specific health benefit plans of dominant local employers (e.g., steel or auto companies), and—less commonly—contracted with one or two network health plans. These arrangements were not necessarily simple. They might involve complicated cost reimbursement or usual, customary, and prevailing reimbursement methodologies, auditing requirements, variations in coverage, and utilization review requirements. In 1959, even before Medicare, an official with the Kaiser Foundation Health Plan could note that "'it may be fashionable in some quarters to speak of the third party in medical care

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

as if it were a social disease"' (Weissman, quoted in Somers and Somers, 1961, p. 218).

Now, however, the rapid growth of network health plans, managed care indemnity plans, community coalitions, and employer-specific programs means that a health care practitioner or provider may have to deal with hundreds of different health plans and related organizations with different requirements and administrative procedures (IOM, 1989, 1992a). In addition, as large, multistate employers seek benefit uniformity for their employees, they may unintentionally disrupt uniformity within particular communities and complicate the administration of local medical practice and the relationships between patient and practitioner.

No other nation appears to have a system that is as complex for health care providers as that of the United States. Although many features of employment-based health benefits have been significantly shaped by insurers, public programs, and other factors, pressure from employers for action—particularly for cost containment—has been an important stimulus with respect to the intensity of effort, the pursuit of new strategies, and their tailoring to fit employers' preferences and circumstances. What the distinctive pluralism of the U.S. health care financing and delivery system appears to do is to

  • multiply both the number and the variety of parties with which providers have to deal;

  • expand the diversity of (1) payment procedures and levels, (2) criteria for assessing appropriate care, and (3) information demands and formats for providing that information;

  • increase the probability that the office and other staff of physicians will be confused about different plan requirements and that they will encounter health plan, review organization, or other staff who do not interpret or apply these requirements appropriately;

  • add further pressure for detailed oversight and questioning of practitioners' judgment and increase the opportunity for friction between patients and health care practitioners or providers;

  • complicate efforts to maintain continuity of care for chronically ill and other patients; and

  • intensify practitioners' concerns about the confidentiality of patients' medical information and the consequences of breaches in confidentiality.

The following set of complaints from an internist is typical, although not as colorfully phrased as the earlier quote from the Kaiser executive:

Almost every day, our office receives missives from several of [the 450 plans they deal with], dictating new regulations, guidelines or procedures. We're expected to digest and follow them immediately. . . . At 8:00 a.m., I asked our office manager to obtain urgent referrals for [two managed care

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
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patients with arm fractures requiring orthopedic referrals]. She made 20 calls to the HMO, the patients, and several orthopedists before finding one with the requisite affiliation who could see the patients that day. . . . Pacific HMO patients with hyperlipidemia will be treated one way; PruNet hyperlipidemics, another. And if those same patients switch to Blue Cross California Care HMO, they'll get plugged into yet a third protocol. (Bodenheimer, 1992, pp. 29, 30)

Their bitter and understandable complaints notwithstanding, most U.S. medical organizations do not favor adoption of such simpler systems as those found in England and Canada, where network health plans and managed care requirements have not proliferated. One fear is that any system dominated by a single payer will be able to more effectively limit the resources going to the health sector, thus reducing incomes, investments in new technology, opportunities for specialized practice, and other advantages experienced by U.S. health care practitioners and providers. The ever-increasing level of complexity, growing restrictions on consumer choice, and the decreasing reliance on professional judgment may, however, be causing many practitioners to change their outlook. On balance, complexity and diversity may be viewed by others as a lesser burden—and one more susceptible to provider influence—than uniform government dictates about payment methodologies, appropriate care, and similar matters.

Public and private insurers have periodically been pressed by health care providers to agree on simpler and more uniform administrative procedures. In addition, some supporters of health care reform have argued vigorously that the nonuniformity of the current system wastes as much as $100 billion per year that could be saved under a single public program (Woolhandler and Himmelstein, 1991), although others have questioned these assumptions (Danzon, 1992, but see also Barer and Evans, 1992, and the discussion in Chapter 3 of this report). The most recent simplification initiative involved a summit called by the Secretary of the U.S. Department of Health and Human Services. Agreements were reached among some large payers, and legislation was proposed to reduce paperwork and increase consistency of claims administration rules (McIlrath, 1992).

Furthermore, an increasing number of physicians are simplifying their practice by abandoning fee-for-service medical practice and contracts with multiple health plans and going to work for prepaid group practices and other integrated systems. By virtue of their recruitment processes, their use of salaried or similar reimbursement methods, peer influence, and other characteristics, these organizations may use less intrusive means of constraining discretion and costs.

In any event, an end to employment-based health benefits in the United States would almost certainly not mean an end to all oversight. This seems ensured by the public interest in accountability, performance and outcome

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

assessment, and cost containment. Depending on the particular course taken, however, health care reform might greatly reduce the volume and variability of demands made on practitioners.

A NOTE ON EMPLOYERS' LEGAL LIABILITY FOR MANAGED CARE

When employers adopt programs to review the necessity and appropriateness of medical services provided to specific patients or to direct employees to specific health care providers, they may expose themselves to claims that their programs have caused medical harm to individuals (APPWP, 1991; Holoweiko, 1992; Kent, 1992a). To date, the claims of medical harm or negligence that have been raised against insurers, utilization management organizations, HMOs, and similar arrangements have not yet directly involved employers, but as the degree of direct employer involvement in managing health benefits increases so does the potential for litigation.

Although case law is limited, it seems reasonably clear that a utilization review firm, an HMO, or even an employer—depending on applicability and interpretation of the Employee Retirement Income Security Act of 1974 (ERISA)—could be "held legally accountable when medically inappropriate decisions result from defects in the design or implementation of cost containment mechanisms" (Wickline v. California, 228 Cal. Rptr. 661 [1986], p. 670). For a particular party involved in a utilization management program to be held liable for medical harm to a patient, legal experts say that four questions must be answered positively (Miller, 1991). Does the party have a duty of care to patients? Has that duty been breached? Was there injury? Was the breach of duty a proximate cause of the injury? Litigation has, to date, raised more questions than answers about how the second and fourth questions will be evaluated and answered (Gosfield, 1991; Miller, 1991; IOM, 1992a).

An employer that purchases utilization management services from an insurer or independent vendor would seem to be less directly linked to individual medical care decisions than one that engages in such activities directly. Conversely, an employer that directly evaluates and contracts with health care providers for services to employees may be viewed as more proximately involved than one that contracts with an HMO. In any case, the more directly involved employers become in influencing patient care and choice of provider, the more they risk liability if they fail to exercise "good management, good judgment, good faith, and good documentation" (IOM, 1989).

ERISA, however, is a major barrier to legal claims of corporate negligence even if the criteria for negligence described above are met (Costich, 1990-1991; Holoweiko, 1992; Moses, 1992; and Appendix B to this report).

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

This legislation has discouraged suits arising from retrospective denial of claims because it precludes the award of punitive damages and limits compensation to the amount of benefits denied, which tends to be relatively small compared with amounts typically sought for punitive damages or physical harm.

Recently, a federal circuit court held that ERISA preempted a negligence claim against a utilization review company on grounds that the firm's activities related to an ERISA-covered employee benefit plan (Corcoran v. United Healthcare, Inc. and Blue Cross and Blue Shield of Alabama, Inc., 1992 U.S. App. LEXIS 14621). The court noted, however, that it was troubled by the result, which involved a fatal case of fetal distress. The court went on to suggest that congressional review of ERISA was warranted to see whether it continued to safeguard the interests of employees in this area.

In the event that an employer is sued for financial losses (e.g., loss of income) resulting from medical harm attributable to employer imprudence, it is possible that a court could be persuaded that certain employer actions might be treated as a breach of fiduciary responsibility for which some compensation for the financial losses would be possible. A federal appellate court affirmed that a self-insured employer's decision to terminate benefits for hospital care (following a judgment by an outside utilization management firm) constituted an abuse of its discretion as a fiduciary because the case review was inadequate (Salley v. E.I. DuPont de Nemours & Co., 966 F.2d 1011, 1992 U.S. App. LEXIS 16850). In this case, the patient's parents kept the child in the hospital until proper alternative care could be arranged and sued only to recover the cost of the hospital stay. No medical harm or costs for care resulting from such harm were involved. If they had been, a precedent for recovery of these costs might be found in an earlier decision by a federal appeals court to uphold monetary damages under ERISA for an individual who suffered financial losses after his pension fund trustee had ignored an order regarding the treatment of certain assets (Warren v. Society National Bank, 905 F.2d 9975 [6th Cir. 1990]).

The Department of Labor has sued the fiduciaries of a pension plan for not investigating the soundness of the company it selected to provide annuities for plan participants (Moses, 1992). This action suggests that it is prudent for self-insured organizations to investigate the soundness of firms they use to administer their health benefit program. Both the utilization management and HMO industries are moving toward standard-setting procedures and structures that should be useful to employers in such investigations.

CONCLUSION

In the United States, diversity is a fundamental feature of employment-based health benefits and health insurance markets, one that brings a mix of

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

benefits and burdens to employers, employees, and health care providers. Within broadly typical patterns, differences in region, industry, philosophy, and other factors can contribute to significant variation in the number and types of health plans offered, the extent of coverage, the role of employees in decisionmaking, and other factors. The three hypothetical organizations featured in this chapter illustrate what can be involved in managing health benefits and highlight the importance of company size as a variable affecting needs, resources, and options for health benefit management.

Certain proposals for health care reform would undoubtedly reduce diversity by establishing a single national health plan, creating highly regulated competitive systems with fewer approved health plans, or moving decisionmaking responsibilities from the employer to the individual. Most proposals retain a financing role for employers, and some would permit employers a supplemental or facilitating role. In examining how individual and organizational decisions in a market-based system can create problems of biased risk selection and risk segmentation, the next chapter provides further perspective on diversity in health benefits and its consequences.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
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ADDENDUM

Excerpt from the Request for Proposal, ''Contract for Managed Health Care Plan," Issued by the Office of Human Resources

Issuance Date: August 09, 199-

Closing Date: August 30, 199-

(The organization) is seeking proposals from qualified firms interested in providing the services detailed in the attached solicitation. The objective of this solicitation is to replace the current comprehensive medical plan maintained by (the organization) with a new high-quality, cost-effective managed health care program for its employees and their dependents. The solicitation consists of this cover letter and the following documents:

Section No.

Title

I

RFP Instructions and Conditions [omitted here]

II

Current Health Plan Coverage/Rate and Claims History [second part omitted here]

III

Proposed Plan Design

IV

Questionnaire

V

Selection Criteria

Attachment A

Appendix [omitted here]

Attachment B

Representations and Certifications [omitted here]

If a proposal is submitted by your organization, it must be presented in accordance with the attached solicitation and received no later than 4:00 p.m. local time on the closing date indicated above. All proposals must be submitted in sealed envelopes and addressed as follows: (organization address).

The material presented in this solicitation represents the complete set of proposal specifications that will be needed by your company to underwrite and administer the benefit program for (the organization). Included is information that describes the current and proposed plan design, historical claims data, rate history, and census information. Also included are a zip code listing, specific questions regarding your provider network, and complete instructions for responding to this proposal request.

Issuance of this solicitation does not constitute an award commitment, nor does it obligate (the organization) to pay for costs incurred in the preparation and submission of a proposal. Any award resulting from this solicitation shall be construed under the laws of (state). Offerors should retain for their records one copy of any and all enclosures that accompany their pro-

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

posals. If there are any questions concerning this solicitation, please call (staff contacts) at (phone number).

Section II
Current Health Plan Coverage

I. A census of plan participants with zip codes is included in the appendix of this RFP [not included in this excerpt]. In general, coverage in the various plans is as follows:

 

Individual

Family

Total

Indemnity

375

250

625

All HMOs

410

265

675

Waived

NA

NA

200

Total Active

 

 

1500

Indemnity Retirees

 

 

 

Under 65

10

15

25

65 and over

150

95

245

Current Indemnity Plan Design

Carrier

Company Z

Funding

Fully insured—dividend experience rated

Eligible Classes

Salaried employees regularly scheduled to work half-time or more for at least 6 months

Eligibility Date

Immediate

Deductible

 

Individual

$200

Family

$400

Coinsurance

 

Inpatient Hospital Charges

80% (after deductible)

Inpatient Physician Charges

80% (after deductible)

Second Surgical Opinions; Preoperative Testing; Outpatient Surgery; Birthing Center Charges

100% (no deductible)

Emergency Accident

100% (no deductible) for outpatient expenses incurred due to an accident

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

Convalescent Facility

100% (no deductible)

Inpatient Surgical

80% (after deductible)

Lab and X-ray

100% (no deductible)

Home Health Care

100% (no deductible)

Other Medical Expenses

80% (after deductible)

Mental/Nervous & Substance Abuse*

Inpatient

Same as covered medical expense

Outpatient

50% (after deductible); $50,000 lifetime maximum

Out-of-Pocket Maximum (including the deductible)

 

Individual

$1,000

Family

$1,500

Lifetime Maximum

None

Section III
Proposed Plan Design

 

ALTERNATIVE:

 

I

II

In Network

 

 

Copay (office visits)

$10

$5

Coinsurance (outpatient surgery, hospital inpatient, X-ray & lab)

90%

100%

Out-of-Pocket Maximum

$1,000/$2,000

$750/$1,500

Coinsurance (mental and nervous/ substance abuse)**

90% (50% for outpatient)**

100% (50% for outpatient)**

Prescription Drug Card

 

 

Generic

$5

$5

Brand name

$8

$8

Out of Network

 

 

Deductible

$400/$800

$350/$700

Coinsurance

70% (50% for outpatient mental and nervous/ substance abuse)**

75% (50% for outpatient mental and nervous/ substance abuse)**

* Expenses do not count toward out-of-pocket maximum.

** No expenses for mental and nervous/substance abuse count toward the out-of-pocket. Outpatient mental and nervous/substance abuse subject to a $50,000 lifetime maximum.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

Out-of-Pocket Maximum (including deductible)

$2,500/$5,000

$2,000/$4,000

Outside Service Area

 

 

Deductible

$200/$400

$200/$400

Coinsurance

80% (50% for outpatient mental and nervous/ substance abuse)*

80% (50% for outpatient mental and nervous/ substance abuse)*

Out-of-Pocket Maximum (including deductible)

$1,000/$2,000

$1,000/$2,000

In preparing your proposal, please note/provide the following:

  • Only a point-of-service PPO will be considered; (the organization) wants employees to choose in-network versus out-of-network benefits at the time health services are needed as opposed to choosing one or the other at open enrollment.

  • Retiree coverage is on a Medicare carve-out basis.

  • Current pregnant IPA participants will be allowed to continue receiving care from their IPA obstetrician.

  • For alternative I, provide the cost impact of decreasing the in-network out-of-pocket maximum to $750/$1,500.

  • For each alternative, provide the cost impact of changing the prescription drug benefit to

  • $8 generic/$10 brand name co-pays with card.

  • a card with a $100 deductible and 80 percent coinsurance.

  • no prescription drug card; benefits will be paid at the coinsurance level after a $100 deductible has been satisfied (this counts against the out-of-network deductible).

  • For each alternative and for all plan designs (in-network, out-of-network, outside service area), provide the cost impact of limiting the mental and nervous inpatient benefit to 30 days per confinement and the outpatient benefit to $2,600 per year. Will either of these alternatives be in conflict with your interpretation of the (state) law?

  • State which, if any, preventive dental services (routine cleanings and exams once every 6 months) are offered through your standard network benefits. If preventive dental services are not standard, provide the cost to add this coverage and outline the design.

*  

No expenses for mental and nervous/substance abuse count toward the out-of-pocket. Outpatient mental and nervous/substance abuse subject to a $50,000 lifetime maximum.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

Assumptions and Exhibits

Please note that the attached exhibits [omitted here] are to be completed for each of the following funding approaches and alternatives below:

  1.  Fully insured—dividend experience rated.

  2. Minimum premium.

The assumptions to be used:

  1. Cash flow exhibits are to be completed for each line of coverage separately.

  2. Rate all options on a zero dividend basis, net of commissions.

  3. Quote fully insured dividend experience-rated coverages with IBNR reserves. Minimum premium should be quoted with (the organization) holding the reserves and alternatively with your company holding the reserves.

  4. Provide costs for $85,000, $100,000, and $115,000 specific stop-loss levels with 110 percent and 120 percent aggregate stop-loss. Also provide costs for aggregate stop-loss only.

  5. Assume that the effective date of coverage is January 1, 199-, and that the existing carrier will administer IBNR liability.

  6. Use the present enrollment from the census as the average number of employees for the bid.

  7. Assume that there will be direct claims administration and certification of eligibility.

  8. A separate zip code listing of employees is included in the census, which must be matched to determine the viability of your provider network. Provide a comparison chart showing where your network(s) matches our population.

  9. Quote two-tier medical rates.

  10. Indicate any start-up costs, network access fees, and capitation fees separately.

[exhibits omitted]

Section IV Questionnaire

Although your proposal may contain much of the following information, please prepare answers to the following questions, in the order in which they are asked. Please restate the question when providing your response.

General
  1. Describe any variation in the proposed benefits that you would require. Please give the reason(s) for any variations.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×
  1. From what office(s) will the general administration of this case be handled? Who would be assigned to service the account? Would a dedicated claims payer be assigned to the group? Provide names, titles, addresses, and phone numbers.

  2. Please confirm in writing that no employee or covered dependent will lose benefits in switching to your program and that the actively-at-work requirement will be waived for all participants covered under the prior plan, including HMO participants and COBRA's. Also, please indicate how you would propose to handle "deductible credits" during the implementation phase if the change in carrier were made off anniversary.

  3. What are the applicable conversion privileges for medical benefits? What is the cost to the policyholder for each conversion? Describe the provisions of the proposed conversion coverage.

  4. How much advance notice would you require before taking over this account? Describe how you would handle implementation, and detail any additional expenses involved and indicate whether these expenses are included on your bid sheets. It is expected that individuals from your company will be available to aid in implementing the program.

  5. (The organization) must have the plan booklets by (date). If you are notified of your selection by (date), can you meet this deadline?

  6. Please provide a detailed list of your standard coverage exclusions (e.g., injuries sustained while committing a felony) and limitations (e.g., number of home health visits, number of days for hospice). Specifically identify your standard coverage for

  • transplant benefits (heart, kidney, cornea) 

  • hospice and home health care 

  • durable medical equipment.

Financial
  1. How long will you guarantee your proposal rates before implementation? The first renewal will be January 1, 199-.

  2. What is the maximum period for which you guarantee rates?

  3. In the event of a master policy termination, either on or off anniversary, what are the penalties (if any) to the policyholder?

Claims Administration
  1. From what office(s) will claims be paid? How many processors would be involved in servicing this account? Is a toll-free phone number available for claims questions? What is the average wait time for the month of June at the proposed claims office?

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×
  1. Please provide a sample of the statistical claims data that are normally provided as part of the "standard fee." What additional types of management reports are available and at what cost?

  2. What is your turnaround time in the claims office(s) that would be used by this client for non-coordination of benefits (COB) or otherwise "clean" claims? What percentage of claims would you expect to fall into this category?

  3. What are your companywide COB and subrogation savings as a percentage of incurred claims? Detail these savings by type of coverage, i.e., Medicare, workers compensation, other carrier liability, etc.

  4. Please list those services provided as part of your "standard fee." Do you provide complete Form 5500 information, as well as assistance with other governmental forms?

  5. To what extent is your claims payment system computerized? How long has the current system been in operation?

  6. Does your database maintain eligibility records and family history files?

  7. What levels of payment authority have been established for claims examiners? Can an examiner override the claims payment system? If so, is there a review by a second claims examiner (or supervisor)?

  8. What methods do you have to ensure that payments are being made to "legitimate providers"? What security safeguards do you have to prevent "in-house'' or "out-of-house" fraud?

  9. Who is assigned to handle quality control procedures?

  10. What percentage of claims are reviewed for accuracy, both before and after payment? Does the dollar level of the claim affect the review process?

  11. What types of external audits do you use to check large hospital and medical bills? Do you charge the client for the use of outside audit services? If so, how much do you charge?

  12. We may be required to have an outside auditor review your claims-paying procedures. Will this present any problems?

  13. Please furnish a copy of the payment explanation form and claims form used by the claimant. Does your adjudication system produce freeform memos requesting additional information? What special procedures are followed when a claim is denied in whole or in part?

  14. Will you accept financial responsibility for errors and overpayments made by company personnel in processing claims? Is there a separate charge for this? If so, how much?

  15. If employees identify erroneous charges in hospital bills, we would like to share some percentage of the savings with employees. Will this present a problem under the dividend funding arrangement?

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×
Managed Care Features
  1. Indicate the total number of individuals enrolled in your network in the metropolitan area. Provide information on all your networks nationally.

  2. How do you determine your service area (distance from residence zip code?)? Do you allow employees residing outside the service area to use network physicians and hospitals?

  3. Please explain your gatekeeper procedures, particularly in light of in-network versus out-of-network plan usage. Are any specific services not included in the network? What benefits are paid if the gatekeeper refers an employee to a specialist who is not in the network?

  4. How do you measure patient satisfaction with your providers? How do you handle inquiries and complaints?

  5. What goals have you established for the turnaround time from when information reaches you from the provider until a check is cut? What percent of the time do you achieve these goals? Would you consider guaranteeing this service level?

  6. How often do you provide employees with updated lists of network providers?

  7. What communication materials are available for employees?

  8. Are there separate fees for the hospital and/or physician network (network access fee)? Do the access fees vary by size of employer?

  9. Is there a charge for utilization review services?

  10. In the event of the termination of the plan contract, (the organization) would require access to and the right of ownership of all records. Will this requirement pose a problem for you? If so, how would you propose to resolve that problem?

  11. Please include the following documents with your proposal and a brief summary of each:

    • sample of the contract that you would want (the organization) to sign 

    • standard contract with a hospital 

    • standard contract with a physician 

    • standard contract (if any) with other health care providers, such as skilled nursing facilities, podiatrists, chiropractors, and urgent care facilities 

    • physician application form 

    • samples of standard reports prepared for employers 

    • samples of custom reports that you have been able to produce for other employers and would be willing to produce for (the organization) 

    • samples of any feedback reports that you routinely send to your providers

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×
  • samples of material that you will use to communicate with your network 

  • a copy of your most recent financial statement.

Provider
  1. Is your network hospital or physician based or both? On average, how long are your contracts with each provider (i.e., hospital and physician differentiated)? Are there inflation caps?

  2. How many physicians do you have under contract? What is your plan's definition of a primary care physician (general practice, family practice, internal medicine, gynecology, and pediatrics)? How many PCPs do you currently have? How many in your network are specialists? How many are Board certified? Board eligible?

  3. What criteria are used to select physicians?

    • Board certification 

    • Board eligible 

    • Licensed 

    • Graduate of U.S. medical school 

    • Credentialing done by practicing physicians in community 

    • Hospital admitting privileges 

    • Other

  1. Are the physicians (segregate primary care and specialists) paid on a discounted fee-for-service basis, negotiated fees based on a specific diagnosis or service, or on a capitated basis? How often do these levels change? Be specific.

  2. What other health care providers do you have under contract? How are these other health care providers reimbursed?

  3. Please provide a current directory of all hospitals and physicians under contract.

  4. In which additional areas do you expect to have hospitals and physicians under contract by January 1, 199-?

  5. What criteria are used to select hospitals? What is the average discount available? How is it determined? Indicate the reimbursement system(s) under which you contract with physicians, specialists, and hospitals to provide services to the covered network population. For each hospital, indicate specific payment arrangement; and for each, estimate percentage reduction from charges:

    • full charges only 

    • discounted charges (specify percentage) 

    • per diem (specify dollar amount) 

    • DRGs (specify weights and the dollar amount to be applied to each case)

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×
  • capitated rate (specify monthly per individual dollar amount) 

  • other (please specify method and rate).

In addition, if you propose special consideration for "outlier" patients, show how you propose to define an outlier under each payment system checked and specify the payment amounts proposed.

  1. How are lab, X-ray, and mental health services provided by your network?

  2. Do you agree not to bill any network patient or his individual guarantor for amounts deemed inappropriate by your plan?

  3. What is the average length of participation of your physicians (separately identify PCPs and specialists)? What percent of physicians have left your plan in the last three calendar years? Please complete the following chart:

 

PCPs

 

1988

1989

1990

New

 

 

 

Left

 

 

 

Net

 

 

 

  1. What are the criteria that hospitals and physicians must meet to continue in your network?

  2. What risk (i.e., financial liability) do the providers assume in contracting with your network? Is there a "withhold" provision, and, if so, how does this arrangement work?

  3. How much advance notice must the physician or hospital give you if they wish to cancel their contract with you?

  4. Do your physician and hospital contracts have a "continuation of care" clause that says that if a physician or hospital cancels or fails to renew their contract, care begun while a network provider will continue to be provided and reimbursed as if a network provider?

  5. Provide dollar equivalent reimbursements, in and out of network, for the following CPT codes, assuming zip code (xxxxx):

CPT-4

90020

Office Visit—Complete

90060

Office Visit—Initial

70450

Computerized Axial Tomography—Head

10121

Incision and Removal of Foreign Body—Complicated

12013

Repair of Superficial Facial Wounds

25600

Radial Fracture

31625

Bronchoscopy

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×

42820

Tonsillectomy/Adenoidectomy

44950

Appendectomy

49505

Inguinal Hernia

71270

Computerized Axial Tomography—Thorax

71550

Magnetic Resonance Imaging (MRI)—Chest

  1. Please describe your utilization review (UR) process, including hospital precertification, concurrent review, and large-case management. Do any of these procedures differ for in-network claimants versus out-of-network claimants; for example, who is responsible for handling the precertification in each situation—the physician or the patient?

  2. How do you set your criteria to ensure quality of care?

  3. What UR procedures do you apply to outpatient care, particularly outpatient surgery and office visits?

  4. Describe the effectiveness of your utilization review program including

    • average days/1,000 admissions for medical, surgical, maternity, and mental/nervous admissions 

    • demographics of the book of business supporting these data 

    • statistical effectiveness of your outpatient review programs.

  1. How long do you store utilization data?

  2. What normative factors do you use when evaluating a hospital admission or length of stay?

  3. How do you control the number of referrals made by your physicians, and how do you encourage them to refer to other network providers?

  4. How do you identify providers that are overutilizers or underutilizers, and what do you do once you have identified them?

  5. Do providers bear any risk for overutilization? Does the network bear any risk for overutilization?

  6. Do you have any programs that specifically address mental health or substance abuse utilization? Please describe these programs.

  7. What percent of participating physicians do not accept new patients?

  8. What do you do to manage prescription drug charges?

Section V Selection Criteria

Information relevant to these criteria may be presented within the normal format of your proposal in response to this RFP. The criteria will be uniformly applied in the evaluation of the proposals.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×
  • availability of a comprehensive range of managed care services providing value, access, quality, and accountability to (the organization) 

  • ability and efficiency of the administrator to provide quality administrative and claims-processing services 

  • net cost (cost of services, management of claim cost, retention) 

  • maximum cost liability 

  • overall response to the specifications as presented 

  • the character, reputation, financial condition, and experience of the bidding company.

Determination of Competitive Range and Contractor Selection

The competitive range will be determined on the basis of the above evaluation factors and will be made up of all offerors whose proposal has a reasonable chance of being selected for award considering such factors. Award will be made to the responsible offeror whose proposal, conforming to the solicitation, is most advantageous to (the organization), the above factors considered.

Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
×
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×
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Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
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Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
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Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
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Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
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Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
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Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
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Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
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Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
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Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
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Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
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Suggested Citation:"4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY." Institute of Medicine. 1993. Employment and Health Benefits: A Connection at Risk. Washington, DC: The National Academies Press. doi: 10.17226/2044.
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Employment and Health Benefits: A Connection at Risk Get This Book
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The United States is unique among economically advanced nations in its reliance on employers to provide health benefits voluntarily for workers and their families. Although it is well known that this system fails to reach millions of these individuals as well as others who have no connection to the work place, the system has other weaknesses. It also has many advantages.

Because most proposals for health care reform assume some continued role for employers, this book makes an important contribution by describing the strength and limitations of the current system of employment-based health benefits. It provides the data and analysis needed to understand the historical, social, and economic dynamics that have shaped present-day arrangements and outlines what might be done to overcome some of the access, value, and equity problems associated with current employer, insurer, and government policies and practices.

Health insurance terminology is often perplexing, and this volume defines essential concepts clearly and carefully. Using an array of primary sources, it provides a store of information on who is covered for what services at what costs, on how programs vary by employer size and industry, and on what governments do—and do not do—to oversee employment-based health programs.

A case study adapted from real organizations' experiences illustrates some of the practical challenges in designing, managing, and revising benefit programs. The sometimes unintended and unwanted consequences of employer practices for workers and health care providers are explored.

Understanding the concepts of risk, biased risk selection, and risk segmentation is fundamental to sound health care reform. This volume thoroughly examines these key concepts and how they complicate efforts to achieve efficiency and equity in health coverage and health care.

With health care reform at the forefront of public attention, this volume will be important to policymakers and regulators, employee benefit managers and other executives, trade associations, and decisionmakers in the health insurance industry, as well as analysts, researchers, and students of health policy.

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