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4 WHATD DOES EMPLOYER MANAGEMENT OF HEALTH BENEFITS INVOLVE? OVERVIEW AND CASE STUDY
Pages 121-166

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From page 121...
... 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.
From page 122...
... 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.
From page 123...
... · Utilization review, delegated or internally administered · Claims auditing, delegated or internally administered · Analysis of health care financial and utilization data Choice of Risk BearinglFunding 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
From page 124...
... 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.
From page 125...
... 125 V, a, + ~ o ° o o ~ ~ Z ~ ~ ~ ~ ~ ~ ~ cr v: C)
From page 126...
... 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)
From page 127...
... 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, 19921. COSE's participating insurers (with the exception of three HMOs)
From page 128...
... 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.
From page 129...
... 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.)
From page 130...
... 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.
From page 131...
... 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.
From page 132...
... That plan was the one with the 36 percent turnover rate (see Table 4.41. 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.
From page 133...
... 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.
From page 134...
... 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.
From page 135...
... 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.
From page 136...
... 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.
From page 137...
... 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.
From page 138...
... 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 REP, 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)
From page 139...
... 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.
From page 140...
... 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.
From page 141...
... 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.
From page 142...
... 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.
From page 143...
... 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.
From page 144...
... 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.
From page 145...
... 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.
From page 146...
... 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.
From page 147...
... 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 4It should be noted that virtually all employment-based plans, unlike Medicare, cover outpatient prescription drugs.
From page 148...
... , 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.
From page 149...
... 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.
From page 150...
... 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)
From page 151...
... 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.
From page 152...
... . 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.
From page 153...
... 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 LIMO industries are moving toward standard-setting procedures and structures that should be useful to employers in such investigations.
From page 154...
... 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.
From page 155...
... 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]
From page 156...
... . In general, coverage in the various plans is as follows: Individual Family Total Indemnity 375 250625 All HMOs 410 265675 Waived NA NA200 Total Active 1500 Indemnity Retirees Under 65 10 1525 65 and over 150 95245 Current Indemnity Plan Design Carrier Funding Eligible Classes Eligibility Date Deductible Individual Family Coinsurance Inpatient Hospital Charges Inpatient Physician Charges Second Surgical Opinions; Preoperative Testing; Outpatient Surgery; Birthing Center Charges Emergency Accident Company Z Fully insured dividend experience rated Salaried employees regularly scheduled to work half-time or more for at least 6 months Immediate $200 $400 80% (after deductible)
From page 157...
... * $5 $8 $350/$700 75% (50% for outpatient mental and nervous/ substance abuse)
From page 158...
... · 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.
From page 159...
... 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.
From page 160...
... and limitations (e.g., number of home health visits, number of days for hospice)
From page 161...
... 15. 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?
From page 162...
... 35. Is there a charge for utilization review services?
From page 163...
... What is your plan's definition of a primary care physician (general practice, family practice, internal medicine, gynecology, and pediatrics)
From page 164...
... 53. Provide dollar equivalent reimbursements, in and out of network, for the following CPT codes, assuming zip code (xxxxx)
From page 165...
... eluding 57. Describe the effectiveness of your utilization review program in · average days/l,OOO 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.
From page 166...
... 166 EMPLOYMENT AND HEALTH BENEFITS: A CONNECTION AT RISK · availability of a comprehensive range of managed care services providing value, access, quality, and accountability to (the orga .


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