-
https://clinton.presidentiallibraries.us/files/original/e56946507e4f5fcf0796c7332be8dbe5.pdf
a3165101956a19b637b80f8b0e88e429
PDF Text
Text
FOIA Number:
2006-0885-F
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the William J. Clinton
Presidential Library Staff.
Collection/Record Group:
Clinton Presidential Records
Subgroup/Office of Origin:
Health Care Task Force
Series/Staff Member:
Margherio
Subseries:
OA/ID Number:
4809
FolderlD:
Folder Title:
Zelman's Drafts - MC [Managed Competition] [1
Stack:
Row:
Section:
Shelf:
Position:
S
53
3
6
3
�TABLE OF CONTENTS
PART ONE
INTRODUCTION
PART TWO
PROBLEMS AND SOLUTIONS; THE MANAGED
COMPETION PERSPECTIVE
PART THREE
THE EVIDENCIARY CASE FOR MANAGED
COMPETITION
A
INTEGRATED SYSTEMS CAN REDUCE COSTS
- - C u r r e n t market r e a l i t i e s
--Trends
- - Q u a l i t y and S a t i s f a c t i o n
B
REFORM PRINCIPLES I N ACTION
--State Proto-types
--FEHBP
--Corporate P r o t o - t y p e s
--The A l l i a n c e as N e g o t i a t o r
--Cost-conscious Choice
- - S w i t c h i n g Plans
— T h e " S t a r t i n g Gun" R e a l i t y
--CBO S c o r i n g
--The Tax Cap I s s u e
C
ADMINISTRATIVE SAVINGS
D
REDUCTIONS I N CLINICAL UNCERTAINTY
AND INAPPROPRIATE CARE
- - E x t e n t o f t h e Problem
--Causes o f t h e Problem
--The Managed C o m p e t i t i o n F i x
PART FOUR
CONCLUSION
APPENDIX
THE CBO AND MANAGED COMPETITION
�)fry-Q'&Q
fa^tiyiLo
'7
,^7 SZ^\
/
TABLE OF CONTENTS
PART ONE
INTRODUCTION
PART TWO
PROBLEMS AND SOLUTIONS; THE MANAGED
COMPETION PERSPECTIVE
PART THREE
THE EVIDENCIARY CASE FOR MANAGED
COMPETITION
A
INTEGRATED SYSTEMS CAN REDUCE COSTS
- - C u r r e n t market r e a l i t i e s
--Trends
- - Q u a l i t y and S a t i s f a c t i o n
B.
REFORM PRINCIPLES I N ACTION
--State Proto-types
--FEHBP
--Corporate P r o t o - t y p e s
--The A l l i a n c e as N e g o t i a t o r
--Cost-conscious Choice
- - S w i t c h i n g Plans
--The " S t a r t i n g Gun" R e a l i t y
—CBO S c o r i n g
--The Tax Cap I s s u e
C
ADMINISTRATIVE SAVINGS
D
REDUCTIONS I N CLINICAL UNCERTAINTY
AND INAPPROPRIATE CARE
- - E x t e n t o f t h e Problem
--Causes o f t h e Problem
--The Managed C o m p e t i t i o n F i x
PART FOUR
CONCLUSION
APPENDIX
THE CBO AND MANAGED COMPETITION
�Through 1988, the s t a t e o f Minnesota p u b l i c employees
b e n e f i t s plan paid 100% o f the costs o f i t s s e l f - i n s u r e d f e e - f o r service plan. Comneting HMO's had no i n c e n t i v e t o o f f e r premiums
below t h a t o f the^indemnity plan, /because^nrollees had ^IO-"^ ]
f i n a n c i a l i n c e n t i v e s tOyChoose those planfs. Consequerytly, thoge-^
plans were prll p r i c e d afbove theCfee-for-service^plan.
7
I n 1989, f a c i n g huge losses i n the indemnity plan, the s t a t e
began pegging i t s c o n t r i b u t i o n t o 100% o f the lowest cost plan i n
any county. The s t a t e also inaugurated a p o l i c y o f more
aggressive p r i c e n e g o t i a t i o n w i t h p a r t i c i p a t i n g h e a l t h plans.
In 1989, every competing HMO was priced below the fee-forssrvice plan.
^ J a ^ M d Z
By 1993^ two-thirds of those who had been in the fee-forservice plan had switched to HMOs; enrollment in lower cost
health plans had increased by 50%: yearly increases in premiums
were averaging 2% below prevailing market rates: overall health
expenditures were 6% below where they would have been without
reform/pthe state estimates it has saved $23 million^during the
last three years.
iJttJ&Q**
Evalua t iiS^Me
United States health care expenditures represent 14% o f
gross domestic product and are r i s i n g r a p i d l y . At the same time,
nearly 40 m i l l i o n Americans are uninsured or underinsured.
Mereovar, o^er 50,000 people lose t h e i r h e a l t h insurance each
month because i t s cost exceeds t h e i r or t h e i r employers' a b i l i t y
^ Pay.
, ,
hea
re^eGohorr^—is—in L-a^iona^yfor-one—reason-: there are few incentives to find and use medical
practices that produce equivalent health benefits at lower cost.
The existence of wide variations between geographic areas in the
utilization and cost of medical care is strong evidence of the
problems that exist. Why should Medicare beneficiaries be aim t ^- W-^
twice as costly to care for in Boston as in New Haven? Why
should care in Miami cost over twice as much as care in Sam *
Francisco?
/^-iM^~f
1
I n most areas of economic a c t i v i t y , such l a r g e
d i s p a r i t i e s i n cost f o r apparently s i m i l a r products could not
p e r s i s t : producers i n Boston and Miami would e i t h e r change t h e i r -»
�modes of production or go out of b u s i n e s s . / I n med±C%L c a r e
however, resources are used with minimal regard f o r economy.
Mana^d^comp.etition-advoe^tes-sjflgcr<^ir~tR¥1f^ f o r a~
^
varia£Y-.o.f_reasons taday-i-s—he'aTtK~insurance market f u n c t i o n s very
difjferen^y—§3?om-o-thei^-markets: (consumers are not s e n s i t i v e to
p r i c e ; they are fragmented and weak i n the marketplace; they
0
cannot r e l i a b l y a s s e s s the value of products, or the q u a l i t y of
s e r v i c e ; and they cannot, or have no i n c e n t i v e to, s e l e c t h e a l t h J^tXj
plans and p r o v i d e r s t h a t of f e r g r e a j t e r ^ g u a l i ^ y and economy .^These ' *
advocates—f^Hf-ther—suggtest—tha-fTthe o s E o i s i r ' ^ d e l i v e r y system
i n too many circumstances;
s t r u c t u r e d to reward, or a t l e t
encourage, providers to doing more; inadequate i n d e l i
c o s t - e f f e c t i v e preventive care; and marked by high
both c l i n i c a l u n c e r t a i n t y and inappropriate c a r e .
/
Ttttvocate's^f^lfiattaged-eempel^^^
he problems of c o s t , access and s e c u r i t y can be addressed by
comprehensive reforms i n the marketing and purchasing of h e a l t h ^ J T A
insurance and i n the nature of the h e a l t h c a r e d e l i v e r y system. ^ X ^ A I T X * ^ .
They b e l i e v e t h a t market place reforms combined with
CA^SP^^^)
strengthening of consumer purchasing power can promote a consumer
c h o i c e mechanism t h a t b e t t e r rewards providers for producinc
g r e a t e r e q u a l i t y and economy i n the d e l i v e r y of h e a l t h care/
The a n ^ l y s TSi of managed^Qmpeti£ion undettaken-here \
s e t s out to e s t a o l i s h ,Vamong'^other things, two main p o i n t s :
^
1.
Managed competition i s not new.
I t i s being implemented by
employers, i n c l u d i n g governments, and i n geographic region
i n many pacts of the country.^And there i s a t l e a s t some
evidence to suggest t h a t it'producfng a t l e a s t some of the
hoped-for/effects.
2.
Managed Competition may/have considerable c a p a c i t y to
s i g n i f i c a n t l y reduce h e a l t h expenditures.
In/part t h i s
conclus/ion i s based on data and other\ evidence d e r i v e d
a c t u a l / e x p e r i e n c e . Ivy part, i t i s based more/on a n a l y s i s
than on experience, /while managed competition i s
o p e r a t i o n a l i n some/places i t remains d i f f i c u l t , i f not
impossible, to a s s e s s the long-range impact's ( e s p e c i a l l y on
d e l i v e r y systems.)^ of those experiencesVjjoreover, managed
competit^ion-hair, admittedly, never been implemented on the ; /
s c a l e envisioned i n many of today's reform proposals.
Savings from a managed competition system might be
expected to emerge i n two phases. A f i r s t phase occurs as
reforms i n the purchasing and marketing of insurance are enacted,
r e s u l t i n g i n g r e a t e r consumer c o s t consciousness - - s p e c i f i c a l l y
the g r e a t e r c a p a c i t y of the consumer to see and confront the
d i f f e r e n c e between higher cost indemnity plans and lower c o s t ,
more e f f i c i e n t and more integrated plans. Managed competition
-2-
�theory would a n t i c i p a t e that, given a more cost-conscious choice,
and depending on the extent of p r i c e d i f f e r e n t i a l s , i n c r e a s i n g
numbers of consumers w i l l e n r o l l i n the lower c o s f p l a n s ,
reducing o v e r a l l expenditures.
T h i s may be expected to occur^in^more dramatic forms i n
those s t a t e s i n which only modest numbers of i n d i v i d u a l s are
c u r r e n t l y e n r o l l e d i n integrated, managed care plans, and i n
which the p o t e n t i a l f o r p r i c e d i f f e r e n t i a t i o n between indemnity
and managed c a r e plans may be g r e a t e s t . ( T h i s a n a l y s i s ,
s i g n i f i c a n t l y , d i f f e r s from the more common assumption t h a t
managed competition might t>ave l e s s impact i n s t a t e s where there
was a lower penetration of managed care p l a n s ) .
A second wave of savings may emerge, as more i n t e g r a t e d
managed c a r e plans begin to compete with eachother, and as those
i n t e g r a t e d organizations attempt to improve the q u a l i t y of the
h e a l t h c a r e d e l i v e r y system. I t i s t h i s competition t h a t w i l l ,
hopefully, becprne the source of long-term and ongoing savings, as
p r o v i d e r s seeK to achieve greater q u a l i t y and economy by
s i g n i f i c a n t l y reducing l e v e l s of c l i n i c a l u n c e r t a i n t y and
i n a p p r o p r i a t e care, and by achieving greater b e n e f i t s from more
s u b s t a n t i a l l e v e l s of i n t e g r a t i o n and coordination between
h o s p i t a l s , p h s y s i c i a n s and other providers.
The ^Jhfetoric of—competition-in-health care-was'^invoked
throuqhouWthe--l'980s; t h e — r i e a l i t y i s that we have not c r e a t e d an
environment i n which__providers are_r.ew.arded—for— qua-l-l-ty^gnd
2^_
^^ongw»rjPThe h e a l t h care d e l i v e r y system i s s t i l l dornln^tedtrhcTividual doctors and h o s p i t a l s that are paid separate fees f o r
is many s e r v i c e s as p a t i e n t s reguasjL^bv i n t e r m e d i a r i e s w i j j ^ ^ ^
u^:i^-£ed^:i'n~aire~:rar^^
^^^'for-service~~prQy-iders-must-- Tnanaqe the c a r e of t h e i r p a t i e n t s .
As a r e s u l t , th^se providers do not have f i n a n c i a l _ l n c e n t i v e s t o ~
f i g u r e q{it^h6w to d e l i v e r high-quality, economical c a r e .
J
As f o r consumers, t h i r d - p a r t y payment mechanisms and
employer-paid premiums leave them l a r g e l y unaware of the c o s t s or
the b e n e f i t s of the s e r v i c e s they r e c e i v e . Consumers are seldom
able to make cost-conscious choices about h e a l t h coverage. Many
Americans, p a r t i c u l a r l y those i n small and medium-sized
b u s i n e s s e s , work for employers who o f f e r only a t r a d i t i o n a l feef o r - s e r v i c e h e a l t h plan. I t i s c l e a r that economical providers
w i l l be" no more-Likely to gain tfiel patfbnage of-^fhese-consumers
than qfogyiders who use^more resources.
Other Americans are offered a choice of h e a l t h plans.
Sut work f o r an employer who agrees to pay the f u l l p r i c e of
whatever—planet he employee chooses.^—These~coTisumers al'so—have no
i c e n t i v e to choo'se-economical-providers. S t i l l other Americansare r e g u i r e d by t h e i r employers to pay more i f thev choose a more
-3-
�)2
expensive plan, but do not have the information thev need to make
^ a n i n t e l l i g e n t choice. Plans offer very different benefit
packages described i n highly technical terms, making comparison
d i f f i c u l t and reducing consumers' willingness to switch for fear
of losing benefits. Information about guality or consumer
s a t i s f a c t i o n or quality i s absent, again limiting willingness to
witdu-^-And—p-l-ans-have ri-trtTe~in5entive to provide
nformation, because they profit more e a s i l y by avoiding
enrollees who are unfavorable r i s k s than by providing better
care.
j
r
To address employers' cost concerns, indemnity insurers
^introduced u t i l i z a t i o n review procedures to v e r i f y the
'Svw
yappropriateness of services. However, third-party u t i l i z a t i o n
.J^cT*
review processes i n which reviewers rendering payment judgments \
are the adversaries of providers making c l i n i c a l decisions cannot' ^ ^
r e s u l t i n payment only for "medically necessary care." There a r e ^ .
many patients for whom the optimal course of diagnosis and
treatment i s unclear. Unless this c l i n i c a l uncertainty i s
reduced through the cooperative development and implementation of
cost-effective practice strategies by providers and system
H managers, with appropriate recognition of the "art" of medicine.
y^Vjwe w i l l not be able to control our use of resources -- unless we
are w i l l i n g to endanger the health of patients.
c
r
7
)
In order to counter the inflationary pressures i n our
health care economy, we must plan a health care system i n which
providers use available resources as " e f f i c i e n t l y " as possible
meaning in ways that most improve health outcome and patient
satisfaction. There are two potential approaches to the health
planning problem. First, public sector health planning (as is
performed in most Canadian provinces) could determine the
available resources -- how many hospital beds, how many MRI
machines, how many and what types of physicians. The two
problems with public sector health planning are assuring that it
is accountable for meeting consumer needs rather than simply
responding to political pressures, and assuring that it .generate)^
the information and sophistication to plan correctly. / LdiLctl^"
Alternatively, private sector organizations could plan
health care delivery i n response to competitive pressures.
Planning through competition-eontpegts—w-infeh—the—Ameri-can—v-i-sion of
Qthe3==econ'giff3fe£=Becrt?gfeg^bBfe, depends on the a b i l i t y of a market
mechanism to recognize and reward provider groups that do a good
job of planning and using resources. Structuring these
incentives i s the principal challenge of managed competition.
l
-4-
�PART I I
OVERVIEW OF SYSTEM PROBLEMS AND SOLUTIONS
AS SEEN FROM A MANAGED COMPETITION PERSPECTIVE
The f o l l o w i n g o u t l i n e o f problems and s o l u t i o n s i n o u r
h e a l t h c a r e system i s d i v i d e d i n t o t h r e e c a t e g o r i e s ; m a r k e t i n g
h e a l t h i n s u r a n c e , p u r c h a s i n g h e a l t h i n s u r a n c e , and d e l i v e r y o f
h e a l t h insurance product.
I n t h e managed c o m p e t i t i o n a n a l y s i s
p r o p e r r e s t r u c t u r i n g o f t h e market i s necessary t o enhance t h e
c a p a c i t y o f t h e consumer c h o i c e / p u r c h a s i n g
mechanisms t o work.
Those p u r c h a s i n g mechanisms, i t i s presumed, w i l l encourage
i n d i v i d u a l s t o e n r o l l i n more e f f i c i e n t h e a l t h c a r e d e l i v e r y
systems, r e w a r d i n g p r o v i d e r s i n those systems f o r d e l i v e r i n g
b e t t e r q u a l i t y and economy i n h e a l t h care.
PROBLEMS AND SOLUTIONS IN THE MARKETING OF HEALTH INSURANCE
1. MEDICAL UNDERWRITING: e x p e r i e n c e - r a t i n g , e x c l u s i o n s and
coverage l i m i t a t i o n s a l l o w and encourage i n s u r e r s t o compete f o r
e n r o l l m e n t based r i s k s e l e c t i o n r a t h e r than p r i c e and q u a l i t y .
•
A p p r o x i m a t e l y 10% o f t h e i n s u r e d p o p u l a t i o n g e n e r a t e s
90% o f c o s t s . Under such c i r c u m s t a n c e s t h e r e i s more
p r o f i t t o be made v i a s u c c e s s f u l r i s k s e l e c t i o n t h a n
v i a improvements i n t h e q u a l i t y and c o s t - e f f e c t i v e n e s s
of care provided.
SOLUTIONS: Force p l a n s t o compete on p r i c e and q u a l i t y
Prohibit certain underwriting practices
Mandate t h a t a l l plans must a l l who w i s h t o e n r o l l
Open-'ertirol'lmeht
^
EnfolIii^r^by-a-Heal±h^ATrianc^rat-h.er^than^yl/h^lth
p^/arfs^
Rlsk-a.djusted pWnients\to p l a n s \ t o eliminate\c^onc^rns
s e l e c t i o n i n t o healthVplans
I - L l l ^ 0F"60NSUMERS--T_0^ UNDERSTAND..AND- GOMPARE^PLAN VALUES"^
A. Great v a r i a t i o n s i n standard b e n e f i t s packages
Variations i n benefits — d e n t a l , vision, costs h a r i n g , maximum o u t - o f - p o c k e t s , mental h e a l t h ,
e t c . - - make i t e x t r e m e l y d i f f i c u l t f o r employers
and employees t o understand what t h e y a r e
p u r c h a s i n g and t o compare v a l u e and p r i c e .
Consumers have v e r y l i t t l e concept o f what each
p a r t i c u l a r b e n e f i t i s worth.
-5-
�Insurers a l t e r benefits to encourage or discourage
categories of individuals from enrolling and to
open and close new pools for rating purposes.
Standardize benefits and cost-sharing structures,
forcing competition on price and quality of the same
product.
SOLUTION:
B.vWictespread
usage of balanced b i l l i n g
Ay?
B i l l i n g by providers, above reimbursement paid by
insurers, prevents consumers from understanding
the full costs of the coverage they are
purchasing.
^
C. Employment by insurers of varying reimbursement
dules.
•
Insurers may determine that rates charged by
providers are above "usual and customary" fees,
and thereby pay lower percentages of the b i l l than
consumers may be expecting, making i t s t i l l more
d i f f i c u l t for consumers to judge the value of
their health insurance purchase.
D. Lack of information on plan satisfaction and quality
ratings, or on disenrollment numbers.
Consumer don't have information on how different
health plans are rated by other consumers, on how
many individuals have disenrolled from plans and
why, or on the quality of care provided.
SOLUTIONS:
Establish Health Alliance
c o l l e c t more and better data on health plans
distribute appropriate information to
consumers
•
•
e
2. HIGH ADMINISTRATVE COSTS OF EMPLOYING INSURANCE INTERMEDIARIES
^
(
^ \
jj-j
t:r
K/IA^
1
fragmented purchase and sale of insurance products
generates a need for brokers and other
intermediaries that add substantial administrative
cpsts: such costs are a particular for smaller
mid-sized businesses, management.
Administrative costs for small employers can run
3
SOLUTION:
0
%
0
r
m
o
r
e
*
Establish Health Alliance to aggregate employers, and
perform functions now done, often i n e f f i c i e n t l y , by
-6-
�many i n d i v i d u a l employers.
3.
PROLIFERATION OF INSURANCE ORGANIZATIONS: v e r y l a r g e numbers
o f payors r e i m b u r s i n g p r o v i d e r s imposes h i g h a d m i n i s t r a t i v e c o s t s
on p r o v i d e r s .
Many p r o v i d e r s may be p a i d by dozens o f d i f f e r e n t
i n s u r e r s , u s i n g d i f f e r e n t forms, i n v o k i n g
d i f f e r e n t procedures, and p a y i n g a t d i f f e r e n t
rates.
SOLUTION:
G r e a t e r i n t e g r a t i o n on h e a l t h p l a n s i n which p h y s i c i a n
i s a p a r t i c i p a n t , understands t h e r u l e s and payment
s t r u c t u r e s , and c o l l e c t s from fewer payors. I t i s
g e n e r a l l y assumed t h a t c o m p e t i t i o n on p r i c e and
q u a l i t y w i l l reduce t h e number o f i n s u r e r s / p a y o r s .
PROBLEMS IN THE PURCHASING OF INSURANCE
1. CONSUMERS ARE NOT MADE PRICE-SENSITIVE: Employers s u b s i d i z e
b e n e f i t s h e a v i l y , and o f t e n c o n t r i b u t e i n ways t h a t g i v e
consumers no reason o r sometimes no o p p o r t u n i t y t o choose lower
v ^ c o s t h e a l t h p l a n s . I n f a c t , employer payment mechanisms may o f f e r
^ i n c e n t i v e s f o r employees t o spend more, n o t l e s s , on h e a l t h
^ c o v e r a g e . Consumers do n o t pay t h e f u l l c o s t o f c h o o s i n g h i g h e r
priced plans.
For example, an employer p a y i n g 100% o f a f e e - f o r s e r v i c e p l a n g i v e s t h e employee no i n c e n t i v e t o
choose a l o w e r - c o s t managed c a r e p l a n .
An employer paying 75% o f any p l a n chosen i s
p r o v i d i n g an i n c e n t i v e f o r t h e employee t o chose a
more expensive p l a n .
SOLUTIONS:
S i m p l i f y t h e consumer's c h o i c e by s t a n d a r d i z i n g
t h e b e n e f i t s package
Make consumer see and pay t h e d i f f e r e n c e i n p r i c e
between more and l e s s e f f i c i e n t h e a l t h p l a n s
Improve t h e q u a l i t y o f i n f o r m a t i o n a v a i l a b l e t o
consumers
2.
LACK OF PURCHASING POW
iMPARED TO POWER OF PROVIDERS
a l l / a n d m i d - s i z e d / f i r m s Hnvest^
Most
resources-An b e n e f i t s - m a n a g i n g a n d p u r c h a s i n g .
_
-7-
�Ev^n large ejn^lpyers jdo^ not have lar;ge enough"
pools or
^pive^' ffective bargains i n the
markVt place or produce fhanges i n provider
behavior.
SOLUTION:
Create Health Alliance to consolidate purchasing power
UNLIMITED TAX-DEDUCTIBLE HEALTH BENEFITS:
unlimited Federal tax deductibility leads employers to
overspend of health care
tax-advantaged benefits encourage employees to seek
more health benefits, which are "on sale" r e l a t i v e to
other forms of compensation.
SOLUTION:
6.
Impose some limit on the deductibility of health
benefits, reducing the incentive to spend more on
health care r e l a t i v e to other products and services.
EMPLOYERS, NOT EMPLOYEES,
CHOOSE INSURERS, r e d u c i n g
choice
to consumers and probabilities that lower-cost plans and highquality providers w i l l be rewarded with increased enrollment.
Once employers choose an insurer i t i s hard to
change to a lower-cost plan because many employees
may not wish to change.
Few employers offer employees a choice of more
than a very small selection of plans.
Employer choice limits the a b i l i t y of individuals
to switch plans for better quality or lower cost,
reducing the capacity of the system to reward
improvements i n quality and economy.
While some large employers may make genuine
efforts to select quality plans and offer more
choice, few small or mid-sized employers can do
much i n the way of providing quality assessment or
choice.
SOLUTION:
Create a Health Alliance and establish consumer,
rather than employer choice, of health plan
-8-
�PROBLEMS IN THE HEALTH CARE DELIVERY SYSTEM
1. DOMINANCE OF FEE-FOR-SERVICE MEDICINE: piecework payment f o r
m e d i c a l s e r v i c e s encourages o v e r u t i l i z a t i o n o f i n d i v i d u a l
service.
.
F i f t y - p e r c e n t o f Americans a r e s t i l l e n r o l l e d i n
l a r g e l y unmanaged, f e e - f o r - s e r v i c e systems.
SOLUTIONS:
C a p i t a t e d payments t o h e a l t h p l a n s
R e s t r u c t u r e m a r k e t i n g and p u r c h a s i n g o f h e a l t h
c a r e t o reward p r o v i d e r s who form more e f f i c i e n t ,
i n t e g r a t e d h e a l t h care d e l i v e r y systems.
0
2. LARGE AMOUNTS OF CLINICAL UNCERTAINTY AND INAPPROPRIATE CARE
EXIST.
•
I n t h e f a c e o f u n c e r t a i n t y p r o v i d e r s t e n d t o do
more, e s p e c i a l l y when p a i d f e e - f o r - s e r v i c e .
SOLUTIONS:
•
•
3.
C a p i t a t e d payments t o h e a l t h p l a n s
I n c r e a s e e f f o r t s t o d i s c o v e r new methods o f
p r o v i d i n g c o s t - e f f e c t i v e h e a l t h care d e l i v e r y t h a t
w i l l reduce c l i n i c a l u n c e r t a i n t y
Increase l e v e l s o f i n t e g r a t i o n t o provide greater
o p p o r t u n i t i e s t o share i n f o r m a t i o n , p r o t o c o l s ,
etc..
FEARS OF MALPRACTICE LAWSUITS PROMOTE DEFENSIVE MEDICINE
•
E s p e c i a l l y i n t h e face o f u n c e r t a i n t y , f e a r o f
malpractice l i t i g a t i o n discourages coste f f e c t i v e n e s s d e c i s i o n s , and promotes
o v e r u t i l i z a t i o n o f high i n t e n s i t y services,
including referrals t o specialists.
SOLUTIONS:
M a l p r a c t i c e reforms
Reduce c l i n i c a l u n c e r t a i n t y , improved r e s e a r c h on
p r a c t i c e parameters
I n t e g r a t i o n o f h e a l t h p l a n s w i t h improved use o f
established protocols, appropriate grievance
procedures and d i s p u t e r e s o l u t i o n mechanisms.
-9-
�4.
UNCONTROLLED ADOPTION OF NEW
TECHNOLOGIES:
•
F e e - f o r - s e r v i c e payment mechanisms and l a c k of
systematic methods to a s s e s s new technologies
r e s u l t i n p r o l i f e r a t i o n of expensive, but often
unproved and not c o s t - e f f e c t i v e t h e r a p i e s .
•
Managed care plans that might otherwise employ
such technologies more prudently, f e e l consumer
pressure to i n c r e a s e t h e i r u t i l i z a t i o n and may
f e a r that s i g n i f i c a n t l y reduced usage w i l l r e s u l t
i n consumer d i s s a t i s f a c t i o n .
•
Capitated payment to health plans to i n c r e a s e
i n c e n t i v e s for j u d i c i o u s use of e x i s t i n g and new
technologies
Increased n a t i o n a l investment i n medical
i n f o r m a t i c s , evaluations r e s e a r c h and technology
assessment, assessment
SOLUTIONS:
•
5.
INADEQUATE EVALUATIONS RESEARCH;
Given acknowledged l e v e l s of c l i n i c a l u n c e r t a i n t y
and inappropriate care there i s a need f o r
increased funding of evaluations r e s e a r c h t h a t
w i l l improve knowledge about outcomes and
appropriate p r a c t i c e patterns.
SOLUTION:
6.
Increased investment, see (4) above.
INSUFFICIENT ATTENTION TO PREVENTIVE CARE:
Large ($250-500) deductibles and 20% co-payments
discourage many from seeking a r e c e i v i n g appropriate,
c o s t - e f f e c t i v e preventive care.
•
F e e - f o r - s e r v i c e providers have inadequate i n c e n t i v e s to
maintain h e a l t h r a t h e r than t r e a t i l l n e s s .
The uninsured get almost nothing i n the way
preventive c a r e .
of
SOLUTIONS:
Include c o s t - e f f e c t i v e preventive care, with no or very
l i t t l e cost-sharing, i n b e n e f i t s package
Capitated payment to h e a l t h plans to encourage plans to
provide high q u a l i t y preventive care
Consumer, r a t h e r than employer, choice of h e a l t h plan,
-10-
�so t h a t plans b e t t e r recognize the value of long-term
investment i n preventive c a r e .
7.
OVERUTILIZATION OF SPECIALISTS
•
S p e c i a l i s t p h y s i c i a n s have more expensive p r a c t i c e
p a t t e r n s and command higher fees.
F e e - f o r - s e r v i c e medicine places no r e s t r a i n t on access
to higher p r i c e d s p e c i a l i s t s e r v i c e s
•
America has a much higher s p e c i a l i s t to primary c a r e
physician ratio (
) than e x i s t s i n other c o u n t r i e s .
SOLUTIONS:
•
8.
Capitated payment to integrated h e a l t h plans to provide
i n c e n t i v e s to make more j u d i c i o u s use of s p e c i a l i s t s .
Change f e d e r a l funding patterns i n h e a l t h education to
encourage t r a i n i n g of more primary care p h y s i c i a n s .
UNDERUTILIZATION OF COST-EFFECTIVE, NON-PHYSICIAN PROVIDERS.
•
Legal and i n s t i t u t i o n a l b a r r i e r s , combined with
reimbursement patterns that favor p h y s i c i a n s and o f f e r
few i n c e n t i v e s to seek l e s s c o s t l y d e l i v e r y of
s e r v i c e s , r e s u l t i n an undersupply and u n d e r u t i l i z a t i o n
of nurse p r a c t i t i o n e r s , p h y s i c i a n a s s i s t a n t s and other
non-physician providers
SOLUTIONS:
•
Capitated payment to integrated h e a l t h plans to
encourage c o s t - e f f e c t i v e use of non-physician
providers.
Enact u n i v e r s a l enrollment to i n c r e a s e the demand f o r
nurse p r a c t i t i o n e r s and other primary and community
c a r e providers.
Preempt s t a t e laws r e s t r i c t i n g i n t e g r a t i o n of h e a l t h
plans or use of c o s t - e f f e c t i v e , q u a l i f i e d providers
9. STATE BARRIERS TO THE DEVELOPMENT OF INTEGRATED DELIVERY
SYSTEMS
•
Anti-managed care (any w i l l i n g provider) laws, laws
r e s t r i c t i n g the corporate p r a c t i c e of medicine and laws
u n f a i r l y l i m i t i n g the scope of nurse and a l l i e d h e a l t h
p r a c t i c e prevent the formation of integrated, managed
c a r e d e l i v e r y systems that are b e t t e r able t o c o n t a i n
-11-
�costs.
SOLUTION:
10.
O v e r r i d e s t a t e anti-managed c a r e laws.
One a d d i t i o n a l p o i n t t o be added
Summary: Problems and S o l u t i o n s
The a t t a c h e d c h a r t l i s t s managed c o m p e t i t i o n s o l u t i o n s , t h e
means by which t h e may achieved, and t h e time-frame i n which t h e y
may be expected t o t a k e e f f e c t . The c h a r t suggests t h e two-phase
n a t u r e o f managed c o m p e t i t i o n approach. Problems r e l a t i n g
p r i m a r i l y t o t h e m a r k e t i n g and p u r c h a s i n g o f i n s u r a n c e can be
addressed p r i m a r i l y by l e g i s l a t i v e means and t h e s o l u t i o n s
proposed may y i e l d r e s u l t s i n t h e s h o r t term.
Problems, on t h e o t h e r hand, r e l a t i n g t o t h e l a c k o f
i n t e g r a t i o n i n h e a l t h c a r e p l a n s and t h e need t o reduce c l i n i c a l
u n c e r t a i n t y and i n a p p r o p r i a t e c a r e w i l l occur o n l y over a l o n g e r
t e r m , as t h e r e s u l t o f a more complex mix o r l e g i s l a t i v e changes
and m a r k e t p l a c e a d j u s t m e n t s .
(box t h i s next s e c t i o n )
THE CONGRESSIONAL BUDGET OFFICE ANALYSIS OF MANAGED COMPETITION
For some t i m e i s has\been assumed .that t h e C o n g r e s s i o n a l
Budget O f f i c e (CBO) would k o t l o o k v e ^ f a v o r a b l y on managed
c o m p e t i t i o n , a t l e a s t w i t h r e g a r d t c y i t s c a p a c i t y t o reduce
n a t i o n a l spending on h e a l t h ^ c a r e ^ /
T h i s assumption
considerations.
stemmed\largely,
I t h i n k , from two
1.
The CBO has been/very\conservative in attributing
savings to managed carl
2.
An i n a b i l i t y / t o p r e d i c t o k "score" t h e s a v i n g s t h a t
m i g h t r e s u l t from i m p l e m e n t a t i o n o f managed c o m p e t i t i o n
c o n s t r u c t s ^ i n l a r g e p a r t because a v a i l a b l e d a t a i s
e i t h e r i n c o n c l u s i v e o r , i n many cases, n o n - e x i s t e n t .
I n i t s r e p o r t , i s s u e d i n May, t h e CBO s t i l l d e c l i n e s t o
e s t i m a t e s a v i n g s a s s o c i a t e d w i t h major changes^, t h e e f f e c t s o f
which c a n n o t / a c c u r a t e l y be c a l c u l a t e d . I t s t i l l speaks o n l y i n
the most c a p t i o u s terms about t h e a b i l i t y o f managed c o m p e t i t i o n
t o "over t i m e .. . [ r e d u c e ] t h e r a t e o f i n c r e a s e i n n a t i o n a l
h e a l t h c a r e spending."
\
-12-
�f
However' an i n a b i l i t y to score managed competition doe.s-^mot
lead, i n the>,CBO a n a l y s i s , to a negative of managed cgmpe'€ition.
Quite the c o n t r a r y i s t r u e . The/feport ^ t l ^ e g ^ i n a c l e a r l y \
p o s i t i v e fashion, a d e t a i l e d s e t of managed Competition concepts.
The implied i f not the expr^^s conclusion of the report, i s t h a t
a comprehensive managed cpmpetition proposal c r a f t e d along the \
l i n e s CBO advocates copia exert s i g n i f i c a n t downward p r e s s u r e on
h e a l t h c a r e spendlhgT
The l o g i c of the CBO report i ^ v e f ^ s i m i J a r ^ n j [ n o s t _ r ^ ^
to the three p a r t --purchasing, marketing, d e l i v e r y system-a n a l y s i s o f f e r e d above, an^jaiglvt be summarized as f o l l o w s .
:
\si ^Managed competition has p o t e n t i a l f o r reducing h e a l t h c a r e
c o s t s by:
Strengthening consumer purchasing power by
c r e a t i n g Health A l l i a n c e s , enabling to see p r i c e
d i f f e r e n t i a l between competing h e a l t h c a r e plans,
and improving the consumers a b i l i t y to choose
between those plans on t h e " b a s i s of p r i c e , q u a l i t y
and s e r v i c e .
R e s t r u c t u r i n g the insurance market p l a c e to reduce
the a b i l i t y of h e a l t h i n s u r e r s to compete on r i s k
s e l e c t i o n and encourage them to compete on t h e i r
a b i l i t y to d e l i v e r more q u a l i t y a t a lower p r i c e .
•
Encouraging providers to form more i n t e g r a t e d
d e l i v e r y systems that can more e f f e c t i v e l y manage
care, reduce the incidence of inappropriate care,
and improve e f f i c i e n c y and q u a l i t y i n the d e l i v e r y
of h e a l t h care.
(For a f u l l a n a l y s i s of the CBO's report on managed
competition see Appendix One).
(end box)
-13-
�PART THREE;
COMPETITION
THE EVIDENTIARY CASE FOR MANAGED
A p p l y i n g managed c o m p e t i t i o n t h e o r y t o t h e problems i n
m a r k e t i n g , p u r c h a s i n g and d e l i v e r i n g h e a l t h c a r e l e a d s t o a f o c u s
on s e v e r a l c o r e assumptions and c o n s t r u c t s .
For t h e purposes o f a n a l y z i n g data t h a t may o r may n o t prove
t h e p o t e n t i a l f o r managed c o m p e t i t i o n t o lower h e a l t h c a r e
e x p e n d i t u r e s , t h e s e fundamental c o n s t r u c t s and assumptions may be
b e s t summarized as f o l l o w s .
I n t e g r a t e d h e a l t h c a r e p l a n s can produce q u a l i t y c a r e —
a t l o w e r , o f t e n s u b s t a n t i a l l y lower c o s t . As m a r k e t i n g
and p u r c h a s i n g forms t a k e e f f e c t t h e p r i c e d i f f e r e n c e s
between these and l e s s e f f i c i e n t p l a n s may i n c r e a s e .
I f i n s u r a n c e markets weire reformed, ~purchasi-ng_power i s
Gohsol-ida-ted-^ and consumers are f o r c e d t o pay the~~fuTl
d i f f e r e n c e between more and l e s s e f f i c i e n t h e a l t h p l a n s
p r o v i d i n g t h e same b e n e f i t s , many consumers w i l l choose
(and t h u s reward) lower c o s t , more e f f i c i e n t p l a n s , and
s a v i n g s /Wrf-il be attained..
?he c o n s o l i d a t i o n o f purchasers and o f h e a l t h p l a n s can
reduce a d m i n i s t r a t i v e c o s t s ^^pr^imaxi-l-y^tO"7|sma33r"ai5d"
mid7=T5lzea_businesses, /antl^tpT-providersT
1
The' c u r r e n t systeWi i s marked by h i g h l e v e l s o f c l i n i c a l
u n c e r t a i n t y and i n a p p r o p r i a t e c a r e . Over t i m e ,
^ o m p e t i t i o n - b e t w e e n i n t e g r a t e d h e a l t h plans/ o f f e r s t h e
b e s t hope o f g e n e r a t i n g ongoilm~savThgs~by r e d u c i n g
l e v e l s of c l i n i c a l uncertainty\and i n a p p r o p r i a t e care
and i m p r o v i n g t h e o v e r a l l qualir-y and economy o f t h e
h e a l t h c a r e d e l i v e r y system.
5^
The f o l l o w i n g a n a l y s i s p r e s e n t s t h e
t h a t t h e s e p r o p o s i t i o n s are a c c u r a t e .
11
-14-
C
vailable
U|L
9K^+ - ^
evidence
�PART I I I A. Integrated h e a l t h care plans can produce q u a l i t y care
at lower, and often s u b s t a n t i a l l y lower c o s t .
•
An employer survey r e l e a s e d i n A p r i l by F o s t e r - H i g g i n s
concludes t h a t , on average HMO premiums n a t i o n w i d e a r e
23% below i n d e m n i t y p l a n s .
•
I n each o f 13 major m e t r o p o l i t a n markets l i s t e d ,
average premiums charged by HMOs were lower t h a n those
charged by i n d e m n i t y p l a n s : t h e d i f f e r e n c e was more
t h a n 10% i n 10 o f t h e 13 markets and was more t h a n 20%
i n s i x markets.
•
Some o f t h e l a r g e s t markets had t h e g r e a t e s t p r i c e
d i f f e r e n t i a l s : New York M e t r o p o l i t a n Area ( 2 8 . 9 % ) , Los
Angeles ( 2 6 . 7 % ) , Chicago ( 2 7 . 3 % ) .
•
I f these f i g u r e s a r e a d j u s t e d f o r t h e i n c r e a s e d v a l u e
o f HMOs ( l o w e r c o s t - s h a r i n g , more s e r v i c e s ) , and f o r
t h e p o s s i b i l i t y t h a t HMOs may b e n e f i t from b e t t e r r i s k
s e l e c t i o n , t h e 23% d i f f e r e n c e between i n d e m n i t y and HMO
p l a n s may grow w i d e r , approaching 30%.
(Based on an
i n c r e a s e o f 5-10% i n HMO premiums f o r r i s k a d j u s t m e n t ,
and a 10-15% i n c r e a s e i n f e e - f o r - s e r v i c e premiums f o r
lower v a l u e ) .
•
(The i s s u e o f p l a n "value" becomes p a r t i c u l a r l y
r e l e v a n t i f t h e b e n e f i t s package i n t h e
A d m i n i s t r a t i o n ' s proposal includes p r e v e n t i v e care
s e r v i c e s w i t h no d e d u c t i b l e s o r co-pays. HMO's
g e n e r a l l y p r o v i d e those s e r v i c e s w i t h no d e d u c t i b l e s
and minimal co-pays. Indemnity p l a n s do n o t . Adding
such a requirement might r a i s e t h e i n d e m n i t y p l a n
p r i c e , r e l a t i v e t o HMO p r i c e s by about 3-4%).
•
These d i f f e r e n t i a l s a r e averages. F o s t e r H i g g i n s
r e p o r t s t h a t i n most r e g i o n s t h e r e a r e HMOs p r i c e d
about 20% below t h e average. I n terms o f an impact on
a managed c o m p e t i t i o n system t h i s suggests t h a t t h e
d i f f e r e n c e i n premium between an i n d e m n i t y p l a n and a
l o w - c o s t managed care p l a n c o u l d be w e l l above t h e
average d i f f e r e n c e between t h e model t y p e s .
•
As s i g n i f i c a n t as these d i f f e r e n c e s i n premiums may
appear i n today's marketplace, a case can be made t h a t
i n a p r o p e r l y s t r u c t u r e d managed c o m p e t i t i o n
m a r k e t p l a c e , those d i f f e r e n c e s would be s u b s t a n t i a l l y
g r e a t e r . As o u t l i n e d above ("Problems and S o l u t i o n s " )
and as d e t a i l e d below ( P r o p o s i t i o n 2) many HMO's today
respond t o employer c o n t r i b u t i o n s t r a t e g i e s by shadow-15-
�7
p r i c i n g indemnity plans. I f an employer i s paying 100%
of indemnity plan c o s t s , or evei'^0^90% of any plan the
employee chooses, there i s l i t t l e — i n c e n t i v e f o r an HMO
to lower i t s p r i c e to the lowest p o s s i b l e point.
Employees have no, or l i t t l e , i n c e n t i v e to choose a
lower, l e t alone lowest, c o s t plan. Under such
circumstances HMOs compete by o f f e r i n g more b e n e f i t s
and lower c o s t - s h a r i n g , but not a lower premium..
The F o s t e r Higgins survey i n c l u d e s many forms of HMOs
--Independent P r a c t i c e A s s o c i a t i o n s (IPAs) and Point of
S e r v i c e p l a n s - - other than s t a f f and group model HMO's.
T h i s i s s i g n i f i c a n t i n l i g h t of. the assumption (by CBO
and o t h e r s ) that only the more h i g h l y i n t e g r a t e d s t a f f
and group models (which comprise j u s t 10% of the
market) may reduce c o s t s , and then only by about 15%.
The F o s t e r Higgins data suggest that, on average, a l l
HMOs (comprising 26% of the market) are p r i c e d
approximately 23% below indemnity plans, and more so i f
value i s considered.
The F o s t e r Higgins data suggest that these newer, more
open-ended forms of HMOs are a l s o experiencing slower
r a t e s of i n c r e a s e s than indemnity plans
Evidence that a t l e a s t some of these HMO products, as
w e l l a s a g g r e s s i v e l y managed p r e f e r r e d provider
networks,
may be capable of s i g n i f i c a n t l y reducing
c o s t s can a l s o be seen i n premiums being charged by
such plans i n p u b l i c employee managed competition-type
systems.
I n the CalPERS program many IPA premiums
are lower than those charged by the w e l l - e s t a b l i s h e d
s t a f f and group models. The same i s t r u e i n the new
C a l i f o r n i a HIPC, a voluntary pool f o r small employers.
I n many regions of the Federal Employees system (FEHBP)
IPA's are a l s o competitive with s t a f f and group model
HMOs. ( T h i s evidence i s not c o n c l u s i v e . I t i s very
p o s s i b l e that some h e a l t h plans are bidding low f o r
such pools of employees and c o s t - s h i f t i n g onto other
payors. Lower p r i c e s , i n t h i s case, may not always
r e f l e c t lower c o s t s ) .
The i m p l i c a t i o n that HMO forms other than s t a f f and
group models may, or at l e a s t may have the p o t e n t i a l to
produce savings, may be p a r t i c u l a r l y s i g n i f i c a n t , a s
these more "open-ended" products are the f a s t e s t
growing HMO products. According t o the Group Health
A s s o c i a t i o n of America, i n 1993 76% of HMOs w i l l be
o f f e r i n g open-ended products, up from j u s t 29% i n 1991.
The r a t e of i n c r e a s e i n these products i s estimated (by
GHAA) t o be 9.1%.
-16-
�Further evidence that IPAs, a t l e a s t , may be capable of
generating savings can be seen i n a recent study on Medicare
r i s k - c o n t r a c t i n g undertaken by Mathmatica P o l i c y Research, I n c . .
That study concluded that "projections of the l i k e l y e f f e c t s of
i n c r e a s e d HMO enrollment on the u t i l i z a t i o n of h e a l t h c a r e
s e r v i c e s should not be based on the assumption t h a t IPAs a r e any
l e s s e f f e c t i v e than other (HMO) model types i n c o n t r o l l i n g
s e r v i c e use. The a n a l y s e s . . . . provide s t a t i s t i c a l evidence t h a t
IPAs a r e a s e f f e c t i v e a s other model types i n c o n t r o l l i n g the use
of any s e r v i c e covered by Medicare, except perhaps the use of
s k i l l e d nursing f a c i l i t i e s . "
With regard t o the use of p h y s i c i a n s e r v i c e s , t h e
Mathematica study concluded that s t a f f models a c t u a l l y had higher
l e v e l s of u t i l i z a t i o n that IPAs.
I t i s c e r t a i n l y p l a u s i b l e to argue that c o n c l u s i o n s drawn
from Medicare experiences may not apply t o non-Medicare
populations. Conceivably, IPAs that c o n t r a c t with Medicare are
more t i g h t l y organized, and more capable of c o n t r o l l i n g
u t i l i z a t i o n and other c o s t s . However, as Mathematica r e s e a r c h e r s
suggested ( i n t e r v i e w ) the evidence at l e a s t suggests t h a t IPAs
can, when properly c o n s t i t u t e d , c o n t r o l u t i l i z a t i o n a s
e f f e c t i v e l y a s s t a f f and group models, and thus, perhaps, compete
on c o s t and p r i c e with those models.
A d d i t i o n a l evidence that IPAs may reduce expenditures can be
found i n the Medical Outcomes Study ( G r e e n f i e l d , e t . a l . JAMA,
Mar. 25, 1992). That r e s e a r c h found that, a d j u s t i n g f o r c a s e mix, h o s p i t a l u t i l i z a t i o n r a t e s f o r s o l o - p r a c t i t i o n e r s or s i n g l e
s p e c i a l t y groups i n IPA model HMOs were approximately 30% below
the u t i l i z a t i o n r a t e s f o r solo p r a c t i t i o n e r s and s i n g l e s p e c i a l t y
groups i n the f e e - f o r - s e r v i c e system.
TRENDS IN HMO PREMIUMS
The F o s t e r Higgins survey a l s o suggests that the r a t e of
i n c r e a s e i n HMO premiums ( f o r a l l types of HMO) i s s i g n i f i c a n t l y
lower than t h a t being experienced by indemnity p l a n s : (See c h a r t
#11.
T h i s evidence may be r e l e v a n t t o the long-term c a p a c i t y of
managed c a r e and managed competition to reduce s a v i n g s . I t has
been c l e a r f o r some time that managed c a r e can lower c o s t s , t o
some e x t e n t . However, i t has been pointed out t h a t managed c a r e
plans have been experiencing ( a t l e a s t i n the l a t e 1970's and
1980's) r a t e s of i n c r e a s e s i n premiums s i m i l a r t o those of f e e f o r - s e r v i c e systems. Thus, i t has been argued, HMOs may be
capable of producing one-time savings, but not much more. They
have not, i n other words, demonstrated a c a p a c i t y t o generate
ongoing and continuing savings. (Newhouse, e t a l , c i t e d i n LewinVHI).
-17-
�4V 4^
H
in
The data ihdib&tiri^ a c o n s i s t e n t l y lower r a t e of growth
HMO premiums over the past 4-5 years may suggest (although
be
c e r t a i n l y not d e f i n i t i v e l y ) that these o r g a n i z a t i o n s may now of
a c h i e v i n g higher l e v e l s of e f f i c i e n c y and thus may be capable
generating more than one-time savings.
v
Between 1988 and 1992, HMO plan charges ( i n c l u d i n g a l l
model types) increased by 66.4%, while indemnity plan
charges increased by 88.9%. I n each of the past four
y e a r s (except 1991), the r a t e of i n c r e a s e f o r HMOs has
been 4-6% below t h a t of indemnity plans ( i n c r e a s e s i n
1991 were about the same).
—
A survey conducted by Business Insurance Magazine in—"^-^
December 1992 concluded that the "proliferation of
J
managed c a r e and heavy competition among h e a l t h
maintenance organizations w i l l keep average premium
h i k e s for HMOs to 6-12%" i n 1993.
Point of s e r v i c e
HMOs were projected to have premium i n c r e a s e s of 1316%. The survey concluded that "unmanaged or moderately
managed indemnity programs" would experience i n c r e a s e s
of 18-22%.
MANAGED CARE, QUALITY AND SATISFACTION LEVELS
I f t h e r e was considerable evidence t h a t managed c a r e plans,
e s p e c i a l l y HMO's were d e l i v e r i n g poorer q u a l i t y c a r e , o r t h a t
l a r g e numbers of e n r o l l e s were d i s s a t i s f i e d with the c a r e o r
i V JJU^
s e r v i c e they r e c e i v e d , the argument that managed competition and
could generate movement t o lower-cost h e a l t h plans would l o s e
much of i t s f o r c e . However, l i t t l e such evidence e x i s t s .
v
Experience with s i n g l e employers suggests t h a t , although
some consumers may be r e l u c t a n t to switch to lower-cost HMO-mod^
plans, most i n d i v i d u a l s who e n r o l l i n managed care/HMO plans are
s a t i s f i e d . For example:
•
A survey of 90,000 h e a l t h care consumers conducted by
the National Research Corp. ( L i n c o l n , NE) found t h a t
HMO e n r o l l e s , on average, were more s a t i s f i e d with
t h e i r h e a l t h plans than those with indemnity or PPO
coverage.
Nationwide enrollment i n managed care plans continues
to i n c r e a s e , i n c l u d i n g a four percent i n c r e a s e i n HMO
enrollment i n 1991.
Less than 25% of employers now o f f e r only an indemnity
option. (Data from GHAA)
-18-
(
�However, as evidenced by the Chevron experience^ (see Part
I I I b), some --especially older-- individuals w i l l ^ r e s i s t
enrollment i n managed care plans and w i l l continu^ to; pay
substantially higher premiums to remain i n indemnity plans.
SUMMARY: LOWER-COST DELIVERY SYSTEMS AND SYSTEM SAVINGS
The data outlined above do not d i r e c t l y indicate that
managed competition w i l l reduce health expenditures --only that
there are health plans, mostly more integrated health plans, that
are, i n fact, delivering health care at s i g n i f i c a n t l y lower
prices than other, mostly non-integrated/ indemnity-type plans.
The data, and the logic of current market r e a l i t i e s ,
also suggest that the real and potential price d i f f e r e n t i a l s
between these more and less integrated systems may somewhat
masked by a variety of factors, including: contribution
strategies of employers, shadow pricing, and plan value
assessments.
/
This evidence thus suggests that, i n a managed
competition environment, consumers may see significant variations
in price, and that those plans/offering the lower price may be
more integrated systems which/--in the view of many analysts-have the best potential to generate ongoing savings.
I f consumers, faced with these choices, are w i l l i n g to
enroll, or "switch" to these lower-cost, more integrated systems,
then the potential for managed competition to generate savings,
over both the short and long term, w i l l be enhanced.
I t i s to this/issue that we now turn.
-19-
�PART I I I B.
REFORM P R I N C I P L E S I N A C T I O N :
H e a l t h A l l i a n c e s a t Work
The m a r k e t i n g , p u r c h a s i n g and d e l i v e r y system r e f o r m
p r i n c i p l e s o u t l i n e d above are n o t as u n t e s t e d as'^is sometimes
assumed. I n f a c t , many employers -- e s p e c i a l l y government
e n t i t i e s -- have been u s i n g many o f them for^some t i m e .
The b e s t evidence t h a t managed/competition may prove a
s u c c e s s f u l c o s t containment s t r a t e g y i s t h a t , where p r o p e r l y
a p p l i e d , i t i s already working.
/
O u t l i n e d below are d e s c r i p t i o n s o f some " h e a l t h
a l l i a n c e " p r o t o t y p e systems and ^he r e s u l t s t h e y a r e a c h i e v i n g .
The f o c u s here w i l l be on t h e e x t e n t t o which t h e y a r e p r a c t i c i n g
managed c o m p e t i t i o n , i n c l u d i n g ; o f f e r i n g a c h o i c e o f p l a n s ,
s t a n d a r d i z i n g b e n e f i t s , s e l e c t i n g p l a n s w i t h which t o c o n t r a c t ,
n e g o t i a t i n g w i t h p l a n s over/premiums t o be charged, and p r o v i d i n g
employees a c o s t - c o n s c i o u s / c h o i c e by pegging t h e employer's
c o n t r i b u t i o n t o a low o r / l o w e s t c o s t p l a n . A l s o reviewed a r e t h e
e x t e n t t o which i n d i v i d u a l s chose o r moved t o , lower c o s t p l a n s
and t h e s a v i n g s , i f any, r e p o r t e d by each system.
While some/employers have a l s o i n i t i a t e d s i g n i f i c a n t
programs r e l a t i n g t o q u a l i t y assessment, d a t a c o l l e c t i o n and
o t h e r a s p e c t s o f managed c o m p e t i t i o n and managed c a r e , these
e f f o r t s a r e n o t d e t a i l e d i n t h i s paper.
None o f t h e models reviewed has a p p l i e d a l l t h e
elements o f managed c o m p e t i t i o n as d e t a i l e d above. However, as
i s c l e a r f r o m / t h e a t t a c h e d c h a r t (# ) those t h a t have a p p l i e d
more o f those/elements r e p o r t h i g h e r r a t e s o f " s w i t c h i n g " t o
lower c o s t p l a n s , lower r a t e s o f i n c r e a s e s i n o v e r a l l premiums,
and g r e a t e r / o v e r a l l s a v i n g s .
HEALTH ALLIANCE PROTOTYPES IN THE
STATES
The Health Insurance Plan of C a l i f o r n i a (HIPC)
The HIPC was e s t a b l i s h e d by s t a t u t e i n 1992 as a
v o l u n t a r y h e a l t h i n s u r a n c e p o o l f o r employers o f f i v e t o 50
employees. Any employer group o f t h a t s i z e may e n r o l l a t f i x e d
r a t e s o f f e r e d by h e a l t h p l a n s c o n t r a c t i n g w i t h t h e HIPC. Payment
s t r u c t u r e s a r e up t o t h e employer and employees -- t h e employer
may pay p a r t o r a l l o f t h e premium charged t o t h e employee.
The
c h o i c e o f h e a l t h p l a n i s made by t h e employee.
-20-
�While the l i m i t on group s i z e and the f l e x i b i l i t y i n
f i n a n c i n g d i f f e r from c u r r e n t Administration reform c o n s t r u c t s ,
most a s p e c t s of the HIPC's operation are c o n s i s t e n t with
p r i n c i p l e s embodied i n the Administration proposal.
These
include:
A.
Employee choice of plan.
B.
S t a n d a r d i z a t i o n of b e n e f i t s .
Modified community r a t i n g . Plans may vary p r i c e by age
of e n r o l l e , region, and family s i z e . No experience
r a t i n g i s allowed.
A l l p a r t i c i p a t i n g plans must accept any e n r o l l e .
(There i s no mechanism i n place for r i s k - a d j u s t m e n t ) .
The HIPC may s e l e c t the plans with which i t c o n t r a c t s .
The HIPC r e q u i r e s a l l plans wishing t o p a r t i c i p a t e t o
do so i n a l l regions i n which they hold a l i c e n s e .
Negotiating Premium Bids
HIPC s t a f f s o l i c i t e d bids from h e a l t h plans but did not
negotiate p r i c e s . Upon r e c e i p t of the bids, the s t a f f informed
bidders, i n general terms, how t h e i r bids compared t o others
r e c e i v e d i n v a r i o u s c a t e g o r i e s (age, region, family s i z e ) .
Plans
were then allowed to submit second bids.
No plan r a i s e d i t s bid i n the second round. About 30%
of the plans submitted bids that were lower i n at l e a s t some
c a t e g o r i e s . Those t h a t lowered bids were those who were t o l d
they were e i t h e r "high" i n c e r t a i n c a t e g o r i e s or about average.
The HIPC contracted with 15 HMOs and 3 PPOs, and
premium r a t e s v a r i e d widely, with a few HMOs or PPOs c l e a r l y on
the very high or very low s i d e . For the most part, however,
d i f f e r e n c e s between p r i c e s offered by HMOs i n the same region did
not vary by more than about 20%. According to the s t a f f of the
HIPC, the C a l i f o r n i a P u b l i c Employees Retirement System (PERS)
and an independent a n a l y s t from Mercer Consulting, the bids were
s u r p r i s i n g l y low.
The low-cost HMO for a 40-49 year-old employee was
about $110/month i n most of the s t a t e . Many HMO plans were i n
the $120-$140 range. Such r a t e s compare favorably with the FEHBP
Blue Cross/Blue S h i e l d standard plan PPO nationwide r a t e of $181,
and with HMO r a t e s o f f e r e d i n FEHBP. They a l s o compare very
favorably with the premium r a t e being used by Administration
a n a l y s t s i n p r o j e c t i n g new system c o s t s . (That r a t e , estimated
at $115/month nationwide, would d e l i v e r a b e n e f i t s package t h a t
-21-
�may be l e s s comprehensive t h a n t h e HIPC's and r e q u i r e s f a r
g r e a t e r c o s t - s h a r i n g ) . According t o some a n a l y s t s , t h e r a t e s
b e i n g o f f e r e d i n t h e HIPC are more l i k e r a t e s c u r r e n t l y o f f e r e d
t o l a r g e employers t h a n t o s m a l l employers.
Analysis: Bidding
Low
The low b i d s r e c e i v e d by t h e HIPC appear t o o f f e r
s u p p o r t f o r t h e managed c o m p e t i t i o n case. T h i s may seem
e s p e c i a l l y t r u e i n l i g h t of c e r t a i n s p e c i a l circumstances.
F i r s t , C a l i f o r n i a i s a h i g h - c o s t s t a t e . Second, t h e t a r g e t e d
market i n c l u d e s employers o f f i v e t o 50, many o f whom may n o t be
i n s u r e d today.
T h i r d , t h e b i d s were made i n a "guaranteed i s s u e "
environment, p r o h i b i t i n g p l a n s from e x c l u d i n g h i g h - r i s k
i n d i v i d u a l s . F o u r t h , t h e r e i s no r i s k - a d j u s t m e n t mechanism t o
p r o t e c t p l a n s a g a i n s t adverse s e l e c t i o n . F i n a l l y , t h e l o w e s t
b i d d e r s i n most r e g i o n s are n o t s t a f f o r group model HMOs b u t
IPAs and PPOs. T h i s suggests t h a t forms o f managed c a r e t h a t can
be e s t a b l i s h e d reasonably q u i c k l y , and w i t h o u t t h e c a p i t a l
i n v e s t m e n t o f a s t a f f model HMO, can compete e f f e c t i v e l y .
W h i l e t h e HIPC seems t o be s u c c e s s f u l i n implementing
many aspects o f managed c o m p e t i t i o n , i t i s expected t o a t t r a c t
o n l y a v e r y s m a l l market share, a t l e a s t i n i t s e a r l y s t a g e s . I t
i s v e r y p o s s i b l e , i f n o t l i k e l y , t h a t some c a r r i e r s may be
b i d d i n g low t o g a i n market e n t r y , o r t o make i t l o o k l i k e
v o l u n t a r y p o o l i n g arrangements w i l l work. T h i s i s made e a s i e r
because, g i v e n t h e s m a l l e n r o l l m e n t , t h e r i s k t o a p l a n o f
b i d d i n g t o o low i s m i n i m a l . Bids should n o t be expected t o be as
low i n a h e a l t h a l l i a n c e e n v i s i o n e d i n c u r r e n t A d m i n i s t r a t i o n
models.
The Minnesota P u b l i c Employees Retirement Plan
The Minnesota P u b l i c Employees Retirement (144,000
i n d i v i d u a l s ) may be t h e c l o s e s t t h i n g t o an e x i s t i n g managed
c o m p e t i t i o n system. I t operates a community-rated system i n
which t h e government c o n t r i b u t e s a f i x e d amount equal t o t h e lowc o s t p l a n i n any county, w i t h e n r o l l e s paying t h e d i f f e r e n c e
between t h a t p l a n and t h e p l a n t h e y choose. HMO o f f e r i n g s have
been c o n s o l i d a t e d from t e n t o s i x , and t h e f e e - f o r - s e r v i c e
o p t i o n , w h i c h proved t o be f a r t o o expensive, has been r e p l a c e d
w i t h a PPO.
There i s r e g u l a r d i s t r i b u t i o n o f i n f o r m a t i o n t o
employees on p r i c e , q u a l i t y and consumer s a t i s f a c t i o n w i t h
p a r t i c i p a t i n g p l a n s . S t a t e p l a n managers use u t i l i z a t i o n and
e x p e r i e n c e d a t a t o n e g o t i a t e premiums w i t h h e a l t h p l a n s . The one
c r i t e r i o n on which Minnesota does not f i t t h e managed c o m p e t i t i o n
model i s t h a t b e n e f i t s are n o t s t a n d a r d i z e d .
Since 1988,
when Minnesota adopted t h e
-22-
pay-to-the-low-
�c o s t plan s t r a t e g y , there has been a s i g n i f i c a n t s h i f t i n
enrollment from the indemnity plan to HMO plans. (See Tables 1,
2 and 2 a ) . I n 1988, the year before the c o n t r i b u t i o n s t r a t e g y
was implemented, 43% of e n r o l l e s were i n the PPO indemnity plan,
while 57% were i n HMOs. By 1993, only 14% were e n r o l l e d i n the
PPO, while 84% were i n HMOs. I n t h e i r comprehensive a n a l y s i s of
s w i t c h i n g behavior by p a r t i c i p a n t s , Feldman and Dowd (1993) found
t h a t s w i t c h i n g to lower-priced plans reduced h e a l t h expenditures
by approximately s i x percent between 1988 and 1993 .
1
The percentage of i n d i v i d u a l s e n r o l l i n g i n Group
Health, t h e low-cost plan, for which the employee premium was $0,
doubled between 1989 and 1993.
Enrollment i n the s t a t e PPO
d e c l i n e d between 1988 and 1990, as monthly employee premiums
<
i n c r e a s e d from $9.96 to $79.82 between 1988 and 1989, and t o
l/t^'i
$97.28 i n 1990.
Since the new c o n t r i b u t i o n s t r a t e g y was adopted,^ ' <
Group Health a l s o appears to be doing a b e t t e r j o b of c o n t r o l l i n g j
c o s t s . Annual r a t e s of i n c r e a s e s i n premiums have d e c l i n e d from
14% i n 1990 t o 9% i n 1991 and to 6% i n 1992 and 1993,
s i g n i f i c a n t l y below the s t a t e ' s HMO r a t e of 9%. Since 1991,
premium i n c r e a s e s f o r the system as a whole have averaged a t
l e a s t two percent below p r e v a i l i n g market r a t e s f o r comparable
coverage.
Estimated savings over the three-year period a r e $23
m i l l i o n , with $12 m i l l i o n of savings i n 1993 alone.
y
A n a l y s i s : "Mature" Markets
An assessment of the Minnesota experience needs t o
emphasize t h a t Minnesota i s a "mature" HMO s t a t e . As a r e s u l t ,
some might suggest t h a t the e x i s t e n c e of competing HMOs made
switching more l i k e l y and r e s u l t a n t savings more s u b s t a n t i a l .
On the other hand, Minnesota's f e e - f o r - s e r v i c e market
had a l r e a d y adjusted to HMO competition, and the p r i c e d i f f e r e n c e
between f e e - f o r - s e r v i c e and HMOs i n Minnesota may have been l e s s
than would e x i s t i n l e s s mature HMO markets. Thus, i t could j u s t
as e a s i l y be argued t h a t the e f f e c t s of switching were l e s s i n
Minnesota than they might be elsewhere.
The a n a l y s i s of the Cost Audit Group, and data on FEHBP
o f f e r i n g s i n d i f f e r e n t markets, would appear to support such a
c o n c l u s i o n . T h i s information suggests that, c o n t r a r y t o common
perception, managed competition c o n s t r u c t s may have a g r e a t e r
c a p a c i t y t o generate savings i n areas where managed c a r e markets
are only p a r t i a l l y developed. I n those areas, the v a r i a t i o n i n
premiums charged by d i f f e r e n t HMOs i s greater, and d i f f e r e n c e s
between HMO and indemnity premiums greater s t i l l .
For example.
Zeldman and Dowd, "The S t a t e of Minnesota's Experience
with the Managed Competition Approach to Insurance
Purchasing" 1988.
-23-
�d i f f e r e n c e s i n premiums o f f e r e d by FEHBP HMOs i n Chicago are
s u b s t a n t i a l l y greater than i n Minnesota and C a l i f o r n i a .
As HMO p e n e t r a t i o n l e v e l s increase t o 25% o r more,
indemnity plans may be forced t o lower rates o r lose market
share, and d i f f e r e n c e s i n HMO premiums are l i k e l y t o decrease.
I n such mature HMO markets, competition may, as the Cost Audit
Group suggests, a r i s e mainly between HMOs, p r o v i d i n g even
stronger i n c e n t i v e s t o improve the q u a l i t y and c o s t - e f f e c t i v e n e s s
of the managed care d e l i v e r y system.
The Wisconsin Public Employee Benefits Plan
Wisconsin also runs a community-rated managed
competition-type system f o r i t s s t a t e and l o c a l government
employees and r e t i r e e s (188,000 i n d i v i d u a l s ) . B e n e f i t s are
l a r g e l y , but not f u l l y , standardized. Plan managers do not
negotiate w i t h h e a l t h plans over premiums.
P r i o r t o 1984 the s t a t e c o n t r i b u t e d 90% o f a
conventional indemnity plan. I n 1984 the s t a t e i n s t i t u t e d a
managed competition-type payment system i n which i t pegged i t s
c o n t r i b u t i o n t o the lowest-cost plan.
Rather than f i x i n g i t s percentage t o 100% ( o r
something l e s s ) o f the low-cost plan, however, Wisconsin agreed
t o c o n t r i b u t e 105% o f the lowest cost plan i n any county (not t o
exceed—100%~-of-^the premium o f the plan chosen by the^employee-)-.
Thus^ i n t h i s systemT~choosing_ a plan_-f.iv-e-pereen€~Higher than \
the lowest cost plan costs the employee no more money
The 105% r u l e undermines the i n c e n t i v e f o r plans t o be
the low-cost bidder. Rather, the r u l e penalizes the low-cost
bidder and i s l i k e l y t o r e s t r a i n plans from aggressively
attempting t o reduce premiums. I n f a c t , plans are encouraged t o
attempt t o o f f e r bids a t 5% over what they/expect the low-cost
plan t o be.
The numbers below, d e t a i l i n g / b i d s f o r f a m i l y coverage
by the f i v e o f f e r e d HMOs i n Dane county (Madison) r e v e a l the flaw
i n the 105% approach.
HMO 1
$407 x 105%
HMO 2
HMO 3
HMO 4
HMO 5
Low/bid
i t e w i l l 100% o f t h i s amount
I n t h i s scenario HMO 1 i s punished f o r b i d d i n g too low.
HMO's 2,3, and 4 may be d e l i v e r i n g the i d e n t i c a l product w i t h the
-24-
�same l e v e l of service. Yet they are being paid an additional
amount for doing so. As for the employee, he or she has no more
reason to choose the low-cost plan than they do to choose any, of
3 higher priced plans.
This kind of bidding mechanism forces plans^to think
l e s s about how to gain market share by reducing^cdsts and bidding
low and more about gaming the 105% mechanism^and reaping the f u l l
benefit of the state's payment schedule. ^Ln describing the bids
outlined above, one state benefits manager commented, "one plan
guessed wrong, and four guessed right.> The high bidder,
presumably was following a differer^rnarketing strategy.
Managers of the prografh have advocated reducing the
105% payment to 100%, but that/reform has been successfully
opposed by labor groups. In/keeping with managed competition
theory, managers have also/advocated that the system move from
one i n which benefits are/almost f u l l y standardized to one i n
which they are f u l l y standardized. Additionally those managers
plan to move i n 1994 to a more aggressive negotiating posture.
Unlike managers i n Minnesota or i n California's public employee
system (see below) Wno now bargain aggressively with health
plans, managers in/the Wisconsin system simply accept the bids of
competing p l a n s . / i n 1994, i t i s anticipated, the Wisconsin
system w i l l beoin demanding new u t i l i z a t i o n data and w i l l employ
that data i n ijfegotiating premiums.
^
^_In_spi-te'^of system flaws, the__Wi scons in system appears
experience has been similar to Minnesdta's ^it-promoting a
moveifi^t~t^~low§r^cost health ca.T&/^ Employees ^ p e ^ r ^ t o ^ r ^ a c t to
silonifleant price differences by^switching coverage Csee~~"Table
^)^and~^there' has--'biBen a slgrr-lfl-eantjjicr^se„in_HM0_e.nra3Jjnejit^
Prior to the new system's inauguration i n 1984, 15% of enrolles
were i n HMOs. In the f i r s t year of the new system, enrollment i n
HMOs grew to 60%. As of 1993, 85% of individuals were enrolled
in HMOs.
:
The Wisconsin system has also, according to state
analysis, reduced health care expenditures for both the state and
i t s employees. Wisconsin plan managers report that i n 1984, when
the state began contributing 105% of the low-cost plan as opposed
to 90% of an indemnity plan, estimated savings were approximately
almost $12 million. (The $12 million figure i s based on an
anticipated expenditure increase of 17% under the old system and
an actual expenditure increase of 2% under the new system).
Estimated savings per enrolle were $500.
Individuals saved money as well, paying less i n premium
(usually nothing as opposed to 10% of the indemnity plan) and
l e s s i n out-of-pocket payments.
-25-
�The C a l i f o r n i a
P u b l i c Employee Retirement System (CalPERS).
CalPERS i s perhaps t h e best known h e a l t h a l l i a n c e p r o t o t y p e system, b u t i t i s o n l y i n t h e l a s t few y e a r s t h a t i t
has begun t o a c t as such. CalPERS has been i n e x i s t e n c e s i n c e
1962, and c u r r e n t l y p o o l s a l l s t a t e and many l o c a l government
employees i n t o a community-rated system o f over 890,000
individuals.
L o c a l government agencies c o n t i n u e t o j o i n t h e
program i n s i g n i f i c a n t numbers, w i t h 80 agencies j o i n i n g i n 1992.
The program c o n s i s t s o f 22 HMOs and two s e l f - f u n d e d PPOs.
L i k e t h ^ C a l i f o r n i a H^PC7~and l i k e FEHBP, CalPERS does
not o f f e r a t r a d i t i o n a l f e ^ f o r - s e r v i c e plan.
Ind^dT^virtually
a l l e m p l o y e r s ^ p e a ^ t i j n g ^ m ^ a g e ^ s o m p e t i ^ i ^ - t ^ e ^ ^ s t e m s have
found t t t a t t i ' a d i t i f m a l fee-for-s€ r v i c e p l a h s ^ d p ^ n o t s u r y i v e whfen
employees/are asked t o pay/the dilf f e r e n c ^ b e W e e n t h o s e planar and
lowers-cost HMOs. /As a r e s u l t , these employers h a v e / e i t h e r
abanopned f e e - f o r l s e r v i d e p l a n s o r c o n v e r d f e d them
PPOS.
I n r e c e n t y e a r s , CalPERS has made s i g n i f i c a n t changes
i n i t s approach t o consumer c h o i c e mechanisms, p r i c i n g s t r a t e g i e s
and b a r g a i n i n g . One change has been t o s i m p l i f y c h o i c e s f o r
e n r o l l e s by s t a n d a r d i z i n g b e n e f i t s .
Prior t o standardization,
t h e CalPERS b r o c h u r e , l i s t i n g 22 p l a n s o f f e r i n g v a r y i n g b e n e f i t s ,
c o n t a i n e d over 1000 " c e l l s " o f i n f o r m a t i o n .
T\
CalPERS has a l s o moved t o a more consumer c o s t J^/v^? c o n s c i o u s c o n t r i b u t i o n s t r a t e g y .
U n t i l 1991, t h e s t a t e ' s
c o n t r i b u t i o n was based on t h e weighted average c o s t o f t h e f o u r
l a r g e s t plans offered.
Since t h e s t a t e - r u n PPO was t h e most
h e a v i l y e n r o l l e d and most expensive p l a n , t h i s c o n t r i b u t i o n
s t r a t e g y r e s u l t e d i n a s t a t e payment t h a t was, u n t i l 1992, above
what most HMOs were c h a r g i n g t h e s t a t e . The s t a t e c o n t r i b u t i o n
s t r a t e g y was t h u s s u b s i d i z i n g t h e PPO, and o f f e r i n g no i n c e n t i v e
f o r HMOs t o lower t h e i r p r i c e s .
Under p r e s s u r e from t h e s t a t e ' s budget c r i s i s , CalPERS
moved -- l i k e Minnesota and Wisconsin -- t o a f i x e d c o n t r i b u t i o n
strategy.
That c o n t r i b u t i o n , t h r o u g h c o l l e c t i v e b a r g a i n i n g , has
been f r o z e n f o r f i v e y e a r s , so t h a t about 70% o f t h e s t a t e ' s
competing HMOs were p r i c e d above t h e s t a t e ' s f i x e d c o n t r i b u t i o n
i n 1993.
CalPERS has a l s o become more a g g r e s s i v e i n n e g o t i a t i n g
w i t h i t s h e a l t h p l a n s . I n 1992, f o r example, when K a i s e r Permanente i n s i s t e d on a premium i n c r e a s e o f t e n p e r c e n t , CalPERS
r e f u s e d t o a l l o w K a i s e r t o e n r o l l any a d d i t i o n a l i n d i v i d u a l s .
CalPERS a l s o sought, v i a an a g g r e s s i v e b a r g a i n i n g s t r a t e g y , t o
h o l d 1993 premium charges t o 1992 l e v e l s . ( I t achieved t h e g o a l ,
b u t i n p a r t by i n c r e a s i n g employee c o s t - s h a r i n g ) .
CalPERS a l s o
mandates t h a t a l l competing p l a n s submit d e t a i l e d c o s t and
-26-
�u t i l i z a t i o n data, which i t employs i n negotiating premiums with
those plans.
Even though i t s new contribution and benefitsstandardization strategies are j u s t now being implemented,
^CalPERS' more aggressive approach i s reflected i n improvements i n
i
i t s premium rates as compared to those of FEHBP, which has not
/^followed the same aggressive strategy. Between 1989 and 1993,
CalPERS' HMO rates moved from being five percent higher than
FEHBP's to being five to ten percent lower . Premium increases
have declined from 16.9% i n 1990 to 11.3% i n 1991 to 6.1% i n 1992
-- and to 1.4% i n 1993. These rate increases are s i g n i f i c a n t l y
below average for California employers. Even the CalPERS-run PPO
i s experiencing only modest price increases: 4.9% i n 1992-93 and
7.9% i n 1993-94. CalPERS estimates that by negotiating more
aggressively, i t may have reduced total expenditures by as much
as $108 million i n 1993-1994 . (This estimate i s probably high,
as i t i s based on -what Cal PERS costs wptlld—may have been i f
costs had r i s e n atyoverall California trends, i>e., Jiad—the
organization, with\its larae-^uimBfer-o/ enrolles, received no
r e l a t i v e price advahtage ifi the marketplace). (See chart #8).
V
2
3
V
In negotiating with plans over premiums to be charged,
CalPERS employs data on baseline levels for the price,
u t i l i z a t i o n and quality of services. I t also assesses the
age/sex/dependent r i s k of the enrolles i n each plan, and the
p r o f i t a b i l i t y of each plan. Data on each s p e c i f i c plan i s
compared to averages for a l l plans. CalPERS then determines
premium targets for the rate negotiation process.
CalPERS s t a f f tare pleased with current—trendy and
r e s u l t s , but continue to believe that the^numbers of HMOs
participating i n the program i s excessive. They suggest \ h a t the
large number of participating plans inhibits CalPERS' a b i l i t y - t o
implement and monitor/quality improvement programs, c o l l e c t
performance and quality data and negotiate favorable rates. For
example, 12 HMOs are/contracting/trom the same hospitals and
providers i n Sacramento, limiting the extent of integration that
might be obtained.
There has/been some/concern that HMOs have quoted lowrates to CalPERS and shifted/costs to other purchasers. This may
be true. But neither the existence nor the absence of costsharing has been documented i n formal studies.
Analysis: Successful IPAs
2
3
Cost Audit Report
based on HMO Premium trends i n California
-27-
�W h i l e i t may be apparent t h a t CalPERS has e x p e r i e n c e d
some success i n "managing c o m p e t i t i o n " and b a r g a i n i n g
a g g r e s s i v e l y on b e h a l f o f b e n e f i c i a r i e s , i t i s t o o e a r l y t o
d e t e r m i n e t h e e f f e c t s o f i t s new b e n e f i t s s t a n d a r d i z a t i o n p o l i c y
and c o n t r i b u t i o n s t r a t e g y . These two changes s h o u l d , a c c o r d i n g
t o managed c o m p e t i t i o n advocates,- s i g n i f i c a n t l y i n c r e a s e cosjbconsciousness among enroll£S<-~ In 1993, for^example, with th^Tz
s t a t e ' s c o n t r iLbution_f-i-x6d
bution
at $410/mopt^fdr~the family p^aff;
individuals choosing Kaiser South wirHnave to\pay almost
$40/month while other HMOs would^nroll them at. no additional
charge.
^
^
One o t h e r ^ a s f e c t o f t h e CalPERS program may
p a r t i c u l a r r e l e v a n c e i r assessing t h e ppteh
I t is^wide
c o m p e t i t i o n t o achieve savings.
and
o t h e r s ) t h a t forms o f managed care e t h e r t h a
oup
modelHMOs a r e n o t capable o f a c h i e v i n g subs
savings,
li'hi-s^aoes—not^eem to^.be-Gai'PBR^exp.erience "the f i v e l o w e s t
c o s t p l a n s i n t h e CalPERS program a r e IPSs7 n o t s t a f f o r group
models.
1
-
\
The Federal Employees Health B e n e f i t s Plan
Managed Competition with Flaws
(FEHBP):
L i k e t h e s t a t e systems d e s c r i b e d above, t h e FEHBP runs
a community-rated managed c o m p e t i t i o n - t y p e system i n w h i c h
employees choose among competing h e a l t h p l a n s -- a l a r g e number
o f HMOs, a Blue Cross/Blue S h i e l d PPO, and a few o t h e r much
s m a l l e r i n d e m n i t y p l a n s . The system serves f e d e r a l employees and
dependents and, l i k e t h e s t a t e programs d e s c r i b e d above, p r o v i d e s
e n r o l l e s w i t h a c o n s i d e r a b l e amount o f i n f o r m a t i o n on p l a n p r i c e
and v a l u e .
However, t h e FEHBP system l a c k s many o f t h e f e a t u r e s o f
managed c o m p e t i t i o n now b e i n g p r a c t i c e d by o t h e r " h e a l t h a l l i a n c e
p r o t o t y p e " models. Indeed, s t a f f e r s a t t h e FEHBP advocate a
number changes t h a t would move t h e system more i n t h e d i r e c t i o n
t a k e n by Minnesota, Wisconsin and C a l i f o r n i a . These changes
include:
1.
Standardizing benefits (including standardizing costs h a r i n g between HMO and PPO p l a n s , something t h a t i s
n o t done i n t h e s t a t e systems).
2.
Changing t h e government's c u r r e n t c o n t r i b u t i o n f o r m u l a :
l i k e t h e o l d CalPERS f o r m u l a , t h e FEHBP c u r r e n t l y t i e s
government payments t o 60% o f t h e s i m p l e average o f t h e
" b i g s i x " p l a n s , capped a t 75% o f any p l a n ' s premium.
3.
P r i c i n g t h e Blue Cross/Blue S h i e l d Plan on a r e g i o n a l
r a t h e r t h a n n a t i o n a l b a s i s : n a t i o n a l p r i c i n g makes t h e
-28-
�indemnity plan appear r e l a t i v e l y inexpensive i n highcost areas.
4.
Eliminating the requirement that employees pay at least
25% of any plan's premium: with t h i s rule i n effect,
HMOs have l e s s incentive to lower prices because doing
so w i l l not greatly reduce the payment to be made by
the employee and w i l l not enhance the competitive
position of the plan.
5.
Allow the system to contract s e l e c t i v e l y with health
plans.
/
The attached charts reveal the gravity of these flaws,
and demonstrate the ways i n which FEHBP contribution mechanisms
d i f f e r from strategies applies in Minnesota, C a l i f o r n i a and
Wisconsin. Rather than contribute the same amount per
individual, the FEHBP contribution formula w i l l frequently lead
to paying $3 dollars more for each additional dollar spent by an
employee. This approach i n effect rewards enrolles for choosing
higher-cost plans.
By contrast, i f the FEHBP w<4re to contribute a fixed
percentage of the cost of the lowest-Ycost plan and require the
employee to pay the difference between that contribution and the
cost of the chosen plan, cost-conscl/ous behavior by employees
should increase. For example, (see/Table 4) i f the government
paid 75% of the low-cost plan in the Boston area (Fallon), i t s
fixed contribution would be $116.48. Employees would then have
to pay between $38.83 (Fallon) and $82.46 (Bay State). Highercost plans would appear more expensive to the enrolle, ($82 for
as opposed to $67 for Bay StateY and the government would save
the difference between $116.48/and the amount i t currently pays
for the great majority of enrolles (usually $123-$131).
(NOTE: Fallon i s , i n fact, a plan that i s located outside of
Boston and may not serve tjtfe Boston area. I t i s used here for
i l l u s t r a t i v e purposes on^y).
Obviously, such a radical s h i f t i n policy would create
a huge c o s t - s h i f t from employer to employee. Moreover, low-cost
plans may often have capacity problems, so hafsing payment on the
cost of a single inexpensive plan may be misguided. Nonetheless,
the f i n a n c i a l effect of such different com:ribution strategies i s
enormous. While state programs i n Minnefsota, Wisconsin and
C a l i f o r n i a make individuals pay the f u l l cost of enrolling i n
higher-cost plans, the FEHBP system Rewards them for doing so.
The FEHBP i s also generally regarded as a r e l a t i v e l y
passive "price-taker. " Perhaps tiecause the FEHBP does not
negotiate with plans, i t s premiums i n C a l i f o r n i a are
s i g n i f i c a n t l y above those negotiated by CALPERS for a s i m i l a r
/
-29-
�b e n e f i t s package and e n r o l l e d p o p u l a t i o n .
I n p a r t , perhaps, bec^dse i t does n o t n e g o t i a t e as
a g g r e s s i v e l y as o t h e r A l l i a n c e / p r o t o - t y p e employers, FEHBP does
n o t appear t o have had as mudn success a t h o l d i n g down premium
c o s t s . S t a f f e s t i m a t e s a r e / t h a t premium i n c r e a s e s i n p l a n s
o f f e r e d p r o b a b l y do n o t v e r y v e r y much from n a t i o n a l t r e n d s .
Analysis:
"Switching"
The a b i l i t y o f managed c o m p e t i t i o n t o reduce c o s t s i n
depends on t h e w i l l i n g n e s s o f i n d i v i d u a l s t o " s w i t c h " t o l o w e r c o s t p l a n s . How many i n d i v i d u a l s s w i t c h depends i n p a r t on t h e
p r i c e d i f f e r e n c e between p l a n s .
p
The FEHBP data o f f e r some i n s i g h t i n t o t h e magnitude o f
t h e s e d i f f e r e n c e s from r e g i o n t o r e g i o n . Those d a t a suggest t h a t
t h e r e a r e wide d i f f e r e n t i a l s i n most markets: f o r example, t h e
d i f f e r e n c e between h i g h e s t and lowest c o s t p l a n s i s 30% i n
C h i c a g o ( T a b l e 5 ) , 20% i n P h i l a d e l p h i a , 3 1 % i n San F r a n c i s c o and
^37%~~~iriAtlanta.
As m i g h t be a n t i c i p a t e d from t h e e x p e r i e n c e i n
Minnesota, d i f f e r e n t i a l s between h i g h and l o w - c o s t FEHBP p l a n s
t e n d t o be g r e a t e r i n areas where HMO p e n e t r a t i o n i s l i m i t e d .
T h i s would suggest t h a t p o t e n t i a l savings from managed
c o m p e t i t i o n - t y p e systems may be g r e a t e r i n those areas, a t l e a s t
i n t h e e a r l y years.
Moreover, FEHBP data may u n d e r s t a t e t h e e x t e n t o f p r i c e
d i f f e r e n t i a l s and t h e r e f o r e t h e p o t e n t i a l f o r s w i t c h i n g and c o s t r e d u c t i o n . The FEHBP does n o t o f f e r a c o n v e n t i o n a l f e e - f o r s e r v i c e p l a n , which i s g e n e r a l l y t h e most expensive p l a n i n any
market. The l e a s t i n t e g r a t e d p l a n o f f e r e d by t h e FEHBP i s a PPO;
i n f a c t , one t h a t , i n many r e g i o n s , manages c a r e a g g r e s s i v e l y .
Were FEHBP HMO p r i c e s t o be compared t o f e e - f o r - s e r v i c e systems,
p r i c e ranges would be f a r g r e a t e r .
The FEHBP data a l s o suggest, l i k e t h e CalPERS d a t a ,
t h a t s t a f f and group model HMOs a r e n o t n e c e s s a r i l y the. l e a s t
e x p e n s i v e managed c a r e p r o d u c t s .
I n many FEHBP r e g i o n s , IPA
models a r e p r i c e d lower than s t a f f and group model HMOs.
HEALTH ALLIANCE PROTOTYPES IN THE CORPORATE WORLD
W h i l e publiCNHemployee systems have been recognized—as"
l e a d e r s i n t h e developmfeint o f managed competition=-type~1reform
models, many businesses nave a l s o been c h a n g i n g ^ t h e i r employee
b e n e f i t s programs t o adoplNmanaged—competition c o n c e p t s . While
most c o r p o r a t e models do not;~-standardize b e n e f i t s , many a r e
-30-
�p r o v i d i n g employees w i t h appropriate i n f o r m a t i o n on q u a l i t y ,
consumer s a t i s f a c t i o n and p r i c e .
Many are also beginning j^o^bargain more aggressively
w i t h p r o v i d e r s , and t o grow more/Selective - - o n the basis o f
both q u a l i t y and p r i c e -- i n t h e i r choice of p a r t i c i p a t i n g h e a l t h
plans. And, most i m p o r t a n t l y , many are beginning t o adopt
managed competition prip-ing s t r a t e g i e s by c o n t r i b u t i n g a f i x e d
amount towards the ouichase of e f f i c i e n t "benchmark" plans and
a l l o w i n g employeesrro buy more expensive plans w i t h t h e i r own
money.
Memphis Business Group on Health (MBGH)
I n 1987, eleven Memphis employers -- l e d by Federal
Express -- commissioned a study t h a t found t h a t some h o s p i t a l s
charged as much as 80% more f o r the same service. The group
published the f i n d i n g s and announced i t s i n t e n t i o n t o seek
competitive bids f o r the group's business (25,000 employees).
HMOs were a t t h a t time non-existent i n Memphis, and most o f the
h o s p i t a l s i n the region -- some o f the l a r g e s t i n the world -ignored t h e MBGH's e f f o r t s .
One h o s p i t a l . B a p t i s t , responded, o f f e r i n g discounts o f
up t o 20% i n r e t u r n f o r the promised higher volume. I t also
provided an a f f i l i a t e d network of physicians. The h o s p i t a l was
awarded a c o n t r a c t , and employees were steered t o the network by
being r e q u i r e d t o pay more i f they used u n a f f i l i a t e d providers.
I n 1987, when the contract was signed. B a p t i s t had
about 50% o f the c o a l i t i o n members' i n p a t i e n t business.
By 1993
i t has 80%, and the MBGH c o a l i t i o n has grown t o include 30
companies w i t h over 100,000 employees and dependents (about 20%
of the Memphis market). C o a l i t i o n members believe t h a t they have
saved tens o f m i l l i o n s of d o l l a r s because o f the B a p t i s t c o n t r a c t
alone.
Since 1989, every Memphis area hospital has responded
r—to the MBGH's request for bids. Methodist Hospital, whose costs
'/I \ were 15-20% higher than Baptist's, implemented systems that
/J ,
^ 1 \ revealed wide v a r i a t i o n i n the use of resources by d o c t o ^ ^
.„ d i f f e r e n c e s i n c l i«n i c a l r e s u l ...
4)
Lwirthout noticeable
t s ..^Memphis fl<afcx3*
H o s p i t a l has held i t s prices steady f o r three years, and irr~1992
won a c o n t r a c t f o r C i t y o f Memphis employees.
The MBGH i s c u r r e n t l y working w i t h area h o s p i t a l s t o
develop a system t h a t w i l l process and record every h e a l t h care
t r a n s a c t i o n i n Memphis. The system w i l l be used t o create a
database o f p u b l i c l y a v a i l a b l e cost and quality-based performance
-31-
�r e p o r t s on a l l
4
h o s p i t a l s and doctors .
Xerox
P r i o r t o 1991, Xerox based i t s health care b e n e f i t
c o n t r i b u t i o n on the f e e - f o r - s e r v i c e plan i t o f f e r e d t o employees.
Cost increases were, however, unacceptable. Moreover, Xerox
believed t h a t HMOs were "shadow-pricing" the f e e - f o r - s e r v i c e
plan. Because the^company's
ent was based-n on very generous
featjer bene
fee-for- service--cost£ , HMOs
-- t h
the same ppi-de and pocket
l i t t l e irtcentive t o reduc
ompete w i
>
In 1991, Xerox moved t o a managed c o m p e t i t i o n - s t y l e
payment mechanism t h a t bases the company's h e a l t h care
c o n t r i b u t i o n on the most " e f f i c i e n t , " lowest-cost HMO i n a
region. With some exceptions, employees pay the d i f f e r e n c e ^
between Xerox' s payment - (cl ose tQ__100%_of the_llhenchmafTr"~plan)
and the plan they choose. Xerox screens HMOs f o r performance and
q u a l i t y , and negotiates w i t h them over premium l e v e l s . Only
approved HMOs are allowed t o compete f o r e n r o l l e s .
CP^
-
Xerox has not.
however^ f u l l y abandoned i t s subsidy o f
f e e - f o r - s e r v i c e . m fact";—bha-t—subsidy—is—s-til'r'^uHstahti'al.
Employees pay a maximum of $6 per month f o r the ^Ketichmark" HMO
and about $45 per month f o r the f e e - f o r - s e r v i c e plan. The f u l l
a d d i t i o n a l cost o f the f e e - f o r - s e r v i c e plan i s about twice as
much -- $90. Thus, f e e - f o r - s e r v i c e i s s t i l l "on sale" r e l a t i v e
to HMOs.
Nevertheless, under Xerox' s new pricing_s_tr.ateg.y-,—the—
movement^-o'r i n d i v l d a a l s from fee"="for-service t o HMOs has been
s i g n i f i c a n t . I n 1991, about 50% o f Xerox plan e n r o l l e s were i n
f e e - f o r - s e r v i c e and 50% were i n HMOs. I n 1993, 35% were i n feef o r - s e r v i c e , 65% were i n HMOs and 5% have elected an "opt-out."
These data suggest t h a t the new p r i c i n g strategy (which s t i l l
o f f e r s a s u b s t a n t i a l subsidy t o f e e - f o r - s e r v i c e ) may have
encouraged about 15% of t o t a l e n r o l l e s (30% o f f e e - f o r - s e r v i c e
enroJ-les) t o switch from f e e - f o r - s e r v i c e t o HMOs.
3
Xerox i s confident that the new contribution strategy
:.s helping to hold costs down. Per employee costs rose j u s t 10%
:.n 1992, from $3,090 to $3,400, and increased by 11% to $3,750 i n
1993. The company also believes that i t s benchmark pricing
strategy i s producing lower bids from participating health plans,
especially i t s benchmark plans. Increases i n premium rates of
benchmark plans were j u s t 7.7% i n 1992 and 5.5% i n 1993. (See
4
AEI presentation by Sean S u l l i v a n , National Business
C o a l i t i o n Forum on Health, Ap. 21-22, 1993
-32-
�chart #9).
F i n a l l y , t h e company b e l i e v e s t h a t i f i t were t o end
i t s s u b s i d y o f f e e - f o r - s e r v i c e and pay o n l y t h e c o s t o f t h e
benchmark p l a n , i t would reduce i t s c o s t s by $24 m i l l i o n p e r
year.
D i g i t a l Equipment Corporation
L i k e Xerox, D i g i t a l (50,000 a c t i v e employees) s w i t c h e d
t o a l o w - c o s t , "benchmark" p r i c i n g p l a n i n 1991. U n l i k e Xerox,
however. D i g i t a l stopped s u b s i d i z i n g i t s f e e - f o r - s e r v i c e p l a n -as a r e s u l t , t h e change i n p r i c e and e n r o l l m e n t between i n d e m n i t y
p l a n s and HMOs has been f a r more d r a m a t i c . I n f a c t . D i g i t a l goes
a s t e p f a r t h e r t h a n Xerox ( o r most managed c o m p e t i t i o n advocates)
i n i t s c o n t r i b u t i o n s t r a t e g y , c o n t r i b u t i n g h i g h e r amounts t o t h e
most e f f i c i e n t o r "benchmark" p l a n , based on t h e company's
assessment o f q u a l i t y , even i f i t i s n o t t h e l o w e s t c o s t p l a n .
As a r e s u l t o f D i g i t a l ' s approach, c o s t s f o r f a m i l i e s
choosing i n d e m n i t y o p t i o n s rose from $650 per year i n 1990, t h e
year p r i o r t o t h e change i n c o n t r i b u t i o n s t r a t e g y , t o $1,449 p e r
year i n 1991. By c o n t r a s t , average f a m i l y c o n t r i b u t i o n s f o r
employees e n r o l l i n g i n HMOs decreased from $923 i n 1990 t o $515
i n 1991.
Not s u r p r i s i n g l y , such l a r g e changes i n employee c o s t s
r e s u l t e d i n d r a m a t i c changes i n e n r o l l m e n t c h o i c e s . I n 1990, 7 1 %
o f D i g i t a l p l a n b e n e f i c i a r i e s were i n i n d e m n i t y p l a n s .
E n r o l l m e n t i n i n d e m n i t y p l a n s decreased by 34% i n 1991, by
a n o t h e r 50% i n 1992 and by an a d d i t i o n a l 4 1 % i n 1993 — l e a v i n g
j u s t 18% i n i n d e m n i t y p l a n s . E n r o l l m e n t i n HMOs, by c o n t r a s t ,
i n c r e a s e d from 29% i n 1990 t o 7 1 % i n 1993. Eleven p e r c e n t o f
employees chose t o o p t o u t o f h e a l t h b e n e f i t s .
S w i t c h i n g t o HMOs: E n r o l l m e n t
% o f a l l A c t i v e Employees (Data from D i g i t a l Graph 1)
Plans
Indent
j HMO
%
90-91
%ch.
%
91-92
%ch.
%
92-93
%ch.
%
90-93
%ch.
71
-34
50
-51
23
-41
18
-81
29
+39
43
+ 26
62
+4
71
+82
'90
'91
•92
'93
D i g i t a l e s t i m a t e s t h a t t h e new p r i c i n g s t r a t e g y has
reduced 1993 p e r employee c o s t s by a p p r o x i m a t e l y $360. They
f u r t h e r e s t i m a t e t h a t , by 1997, c o s t s per employee w i l l be $1,400
below what t h e y would have been w i t h o u t t h e new s t r a t e g y . The
company e s t i m a t e s i t s savings i n 1993 t o be a p p r o x i m a t e l y $20
m i l l i o n , r i s i n g t o 63.5 m i l l i o n i n 1997.
-33-
�Analysis:
Adverse S e l e c t i o n
L i k e Xerox, D i g i t a l has e x p e r i e n c e d - r a p i d i n c r e a s e s i n
p r i c e and decreases i n e n r o l l m e n t i n i t s ^ f ^ e - f o r - s e r v i c e p l a n s .
I n l a r g e p a r t , t h i s r e f l e c t s the f a c t / t h a t p r i m a r i l y h i g h - r i s k
i n d i v i d u a l s choose f e e - f o r - s e r v i c e wKen HMOs a r e o f f e r e d a t
c o m p e t i t i v e p r i c e s . As a r e s u l t s / t h e f e e - f o r - s e r v i c e system
s u f f e r s i n c r e a s i n g l y from adlverse s e l e c t i o n , w i t h c o s t s growing
w e l l above average r a t e s . D i g i t a l does n o t r i s k - a d j u s t premiums.
I f i t d i d , i t would be expected t h a t t h e d i f f e r e n c e s between
i n d e m n i t y and HMO p l a n p r i c e s would decrease, l e a d i n g t o l e s s
d r a m a t i c r e s u l t s i n employee s w i t c h i n g .
GTE
For y e a r s , GTE c o n t r i b u t e d 100% o f i t s employees' c o s t s
i n a s e l f - i n s u r e d i n d e m n i t y p l a n . Employees were o f f e r e d t h e
o p p o r t u n i t y t o e n r o l l i n HMOs. U n t i l t h e 1990's, however, t h e
HMOs o f f e r e d by GTE had h i g h e r premiums t h a n t h e i n d e m n i t y p l a n
and i n d i v i d u a l s were r e q u i r e d t o pay t h e d i f f e r e n c e between GTE's
c o n t r i b u t i o n and t h e HMO premium.
I n 1991, i n p a r t because t h e c o s t s o f t h e i n d e m n i t y
p l a n were growing much f a s t e r t h a n t h e c o s t s o f HMOs, and i n p a r t
because GTE began t o r e c o g n i z e HMOs as b e t t e r v a l u e s , GTE
s w i t c h e d t o a "value p r i c i n g " s t r a t e g y . The company s t i l l pays
100% o f t h e c o s t o f i t s "benchmark" p l a n , b u t i n t h e g r e a t
m a j o r i t y o f cases t h a t p l a n i s now an HMO. GTE f e e l s t h a t i t has
been s u c c e s s f u l as w e l l i n h o l d i n g down t h e c o s t s o f i t s
i n d e m n i t y p l a n -- t h e expected i n c r e a s e f o r 1994 i s t e n p e r c e n t .
The expected i n c r e a s e i n c o s t s f o r p a r t i c i p a t i n g HMOs i s j u s t 1%.
A n a l y s i s : Employee COst-Consciousness ,—.
Xerox, D i g i t a l and GTE are /but a\few o f many l a r g e
c o r p o r a t i o n s t h a t a r e b e g i n n i n g t o employ managed c o m p e t i t i o n
s t r a t e g i e s t o reduce costs\and, h o p e f u l l y , achieve b e t t e r v a l u e
i n h e a l t h p l a n s . The evidence from these e x p e r i e n c e s , w h i l e
a n e c d o t a l , suggests t h a t wher\faced L i t h changihg employer ''
c o n t r i b u t i o n p o l i c i e s and/or i n c r e a s i n g i n d e m n i t y ^ p l a r t ^ r i c e s .
l a r g e numbers o f b e n e f i c i a r i e s choojSe t o e n r o l l i n l o w e r - p r i c e
i n t e g r a t e d h e a l t h care systems.
Chevron: A S l i g h t l y D i f f e r e n t Approach
For s e v e r a l years. Chevron has pursued a f i x e d
c o n t r i b u t i o n p o l i c y . Chevron o f f e r e d each b e n e f i c i a r y t h e same
amount -- pegged t o a percentage o f t h e company's i n d e m n i t y p l a n
-- r e g a r d l e s s o f which p l a n t h e b e n e f i c i a r y chose. That
c o n t r i b u t i o n has r i s e n s t e a d i l y , from $232.50/month f o r a f a m i l y
p l a n i n 1990 t o $344/month i n 1993, an i n c r e a s e o f 48%.
-34-
�Premiums
1990
1991
1992
1993
Chevron F i x e d C o n t r i b u t i o n
$232
$270
$320
$344
189
56
108
113
224
70
107
115
263
51
109
100
285
33
94
88
Employee C o n t r i b u t i o n s :
Chevron FFS
HMO A:
HMO B:
HMO C:
Chevron's c o n t r i b u t i o n does n o t cover t h e f u l l c o s t o f
any p l a n . Employees pay t h e d i f f e r e n c e between Chevron's
c o n t r i b u t i o n and t h e p l a n t h e y choose. Chevron o f f e r s 3 HMOs and
a s e l f - i n s u r e d indemnity plan.
Chevron's c o n t r i b u t i o n s t r a t e g y , u n i n t e n t i o n a l l y
perhaps, has r e s u l t e d i n d r a m a t i c decreases i n i n d e m n i t y p l a n
e n r o l l m e n t and e q u a l l y d r a m a t i c i n c r e a s e s i n HMO e n r o l l m e n t .
Over t h e l a s t f o u r y e a r s , employee c o s t s f o r t h e i n d e m n i t y p l a n
i n c r e a s e d by s u b s t a n t i a l amounts ($50 a month between 1991-92)
w h i l e employee c o s t s f o r HMOs remained c o n s t a n t o r decreased, i n
one case from $56 t o $32 per month f o r t h e f a m i l y p l a n . I n 1993,
employees e n r o l l i n g f a m i l i e s i n t h e i n d e m n i t y p l a n have t o pay
$284 a month, whereas employees e n r o l l i n g f a m i l i e s i n t h e t h r e e
HMOs pay o n l y $32 t o $94 a month. As a r e s u l t , HMOs have become
i n c r e a s i n g l y a t t r a c t i v e t o b e n e f i c i a r i e s . Indemnity p l a n
e n r o l l m e n t has f a l l e n by 24%; HMO e n r o l l m e n t has i n c r e a s e d by a
s i m i l a r percentage.
Analysis:
A l t h o u g h Chevron has n o t pursued a l o w - c o s t p l a n
s t r a t e g y and bases i t s c o n t r i b u t i o n t o an i n d e m n i t y p l a n , a f i x e d
d o l l a r c o n t r i b u t i o n o f l e s s t h a n 100% f o r c e s b e n e f i c i a r i e s t o
r e c o g n i z e t h e l a r g e d i f f e r e n c e i n c o s t between i n d e m n i t y and HMO
p l a n s . A t f i r s t glance, " s w i t c h i n g " by Chevron employees would
appear s m a l l , g i v e n t h e magnitude o f t h e d i f f e r e n c e i n c o s t
i n c r e a s e s between HMOs and f e e - f o r - s e r v i c e . However, t h e g r e a t
m a j o r i t y o f Chevron b e n e f i c i a r i e s had l o n g been e n r o l l e d i n HMOs,
^__and t h o s e r e m a i n i n g i n t h e i n d e m n i t y p l a n had l o n g been p a y i n g
s u b s t a n t i a l l y h i g h e r c o s t s . The Chevron e x p e r i e n c e may t h e r e f o r e
i n d i c a t e t h a t s w i t c h i n g may have o c c u r r e d even among "hard c o r e "
employees who had v e r y s t r o n g l y p r e f e r r e d t h e i n d e m n i t y o p t i o n ,
\ i n s p i t e o f i t s s u b s t a n t i a l l y higher p r i c e .
( A g a i n , as i s the\case w i t h o t h e r A l l i a n c e p r o t o - t y p e s
analyzed above, r i s k - s e l e c t i o n undoubtedly p l a y s a p r o m i n e n t — r o l e
i n m a g n i f y i n g d i f f e r e n c e s v b e t w e e n HMO and'-indemnity premiums).
The Los Angeles Department of Water and Power: Doing i t Wrong
The DWP (11,300 employees, dependents and r e t i r e e s )
-35-
�/
o f f e r s three HMOs and one PPO.
The DWP pays up tp ^474.05/month
f o r an a c t i v e employee or dependent, regardless/Of the plan i n
which the employee e n r o l l s . For example, the/DWP w i l l pay
$288.02 f o r an e n r o l l e i n the PPO (Selectcarfe), or $143.68 f o r
same e n r o l l e i n the low-cost HMO (see Tables 6 and 7 ) .
Under these circumstances, the e n r o l l e has no i n c e n t i v e
t o choose a less expensive plan. If/we assume t h a t the d o l l a r s
paid by the DWP f o r health b e n e f i t s could be used f o r higher
s a l a r i e s or a r i c h e r retirement plan, the e n r o l l e s i n the HMOs
are paying an enormous subsidv/to the e n r o l l e s i n the PPO.
I f the DWP were t o /adopt a f i x e d c o n t r i b u t i o n s t r a t e g y ,
and base i t s c o n t r i b u t i o n on lower-cost plans, i t and i t s
employees would save over ^ISO/month f o r each .PPO e n r o l l e and $10
a month f o r each Kaiser e n r o l l e (the highest/priced HMO).
SUMMARY AND ANALYSIS: PART I I I B. MANAGED COMPETITION PRINCIPLES
AND SYSTEM SAVINGS
The experiences of the Alliance/proto-types o u t l i n e d above
suggest t h a t managed-competition systems might generate savings
i n several d i f f e r e n t ways.
•
By consolidating/purchasers and thus reducing
administrative/Costs, e s p e c i a l l y f o r smaller and
mid-sized employers. (The extent of those
p o t e n t i a l sas/ings i s discussed i n Part I I I C. )
By c o n s o l i a a t i n g purchasing power and n e g o t i a t i n g
lower prices w i t h health plans.
By o f f e r i n g consumers a/cost-conscious choice t h a t
encourages them t o choose lower cost, more
e f ^f iicc i e n t providers.
The A l l i a n c e as Negotiator
D i r e c t o r s of some of/the systems o u t l i n e d above are
confident t h a t t h e i r organizing the n e g o t i a t i n g e f f o r t s have l e d ,
d i r e c t l y t o lower p r i c e s . They believe t h a t the r i g h t t o o f f e r or
not o f f e r a plan, the a b i l i t y t o analyze health plan u t i l i z a t i o n
and other data, and the numbers of p o t e n t i a l e n r o l l e s involved
give them t r u e market leverage.
The CalPERS jprogram, the new C a l i f o r n i a HIPC, the
Minnesota s t a t e program, and a number of the corporate A l l i a n c e
proto-types are conylnced they have reduced costs through
n e g o t i a t i o n s t r a t e g i e s and e f f o r t s . (add s p e c i f i c s )
What i s less c l e a r i s whether or not the savings
-36-
�a t t r i b u t e d to these e f f o r t s have been c o s t s h i f t e d onto other
payors, r e s u l t i n g i n no o v e r a l l d e c l i n e i n h e a l t h c a r e
expenditures.
To the extent that A l l i a n c e s a r e t r u l y smart, and not
j u s t l a r g e purchasers, to the extent t h a t they a r e able t o t r u l y
s e l e c t and reward more e f f i c i e n t providers, and to the extent
t h a t t h e i r s c r u t i n y of provider behavior a s s i s t s i n making those
p r o v i d e r s more e f f i c i e n t , then A l l i a n c e s may be able to generate
t r u e c o s t reductions.
Cost-conscious Consumer Choice and Switching
to Lower-cost Plans
We can expect t h a t savings from a cost-conscious consumer
choice mechanism w i l l be greater to the extent t h a t :
•
More consumers a r e offered such a choice
•
Lower c o s t plans a r e seen as roughly equal i n q u a l i t y
and s e r v i c e
•
The p r i c e d i f f e r e n t i a l s --as seen by the i n d i v i d u a l
consumer-- between plans being o f f e r e d i s g r e a t e r .
•
Consumers a r e paying f o r more expensive plans with
a f t e r tax d o l l a r s . (See a n a l y s i s of tax cap, below).
Lewin/VHI estimates that 50% of the labor f o r c e works i n a
firm t h a t o f f e r s a choice of plans, and estimates (from a Small
Business Administration survey of medium and l a r g e employers)
t h a t 36% of those employees who a r e o f f e r e d a choice a r e o f f e r e d
a c o s t - c o n s c i o u s choice. Combining these estimates, i n the
c u r r e n t environment, approximately 18% of employees may already
be o f f e r e d a cost-conscious choice.
Moreover, not a l l h e a l t h a l l i a n c e s w i l l o f f e r a choice of
plans; we assume t h a t 77% of the population w i l l l i v e i n an area
i n which h e a l t h a l l i a n c e s do o f f e r a choice of plans ( t h i s i s
approximately the percentage of employees i n firms with 1,000 or
more workers who a r e c u r r e n t l y offered a c h o i c e ) . Assuming t h a t
a l l of these 77% of the population that i s o f f e r e d a choice i s
o f f e r e d a cost-conscious choice, the percentage of employees
o f f e r e d a cost-conscious choice w i l l i n c r e a s e from 18% to 77%-an i n c r e a s e of 59% of the labor f o r c e . I n addition, the 19
m i l l i o n (1992 CPS estimate) persons c u r r e n t l y covered by nongroup insurance w i l l j o i n the cost-conscious choice contingent.
Combining the non-group and employer sponsored group, an
a d d i t i o n a l 67% of the population w i l l gain a cost-conscious
choice of plans under h e a l t h reform.
-37-
�(The 67%,/ i t should be—noted, should not—assume t h a t no
savings would be generated^y^AlliaTrce~-struetures s e r v i n g the
other 33% of the population. Those ^14^r^es'^miglit^be_expep„ted-'to
approach cost-contalrynefit from a l t e r n a t i v e d i r e c t i o n s than
managed comp&tltigFtfT^
^
(However, the c a p a c i t y of the system to generate savings
would be reduced i f low-income i n d i v i d u a l s are o f f e r e d higher, or
average, c o s t plans at no a d d i t i o n a l c o s t . These i n d i v i d u a l s
would have l e s s , or no, i n c e n t i v e s to choose lower-cost p l a n s )
With regard to evidence of q u a l i t y and se'rvice, while
i t i s c l e a r t h a t some members of the population w i l l continue to
r e s i s t j o i n i n g i n t e g r a t e d , managed c a r e systems,/the a v a i l a b l e
evidence a l s o suggests that such systems, i n general, provide a t
l e a s t equal q u a l i t y care, and, at l e a s t over time, high l e v e l s of
consumer s a t i s f a c t i o n .
As f o r p r i c e d i f f e r e n t i a l s , the da£a presented above
( P a r t I I I A) suggest that they may be s u b s t a n t i a l , a t l e a s t i n
terms of the d i f f e r e n t i a l between indemnity and managed c a r e
p l a n s . T h i s would seem to be p a r t i c u l a r l y t r u e where HMO
p e n e t r a t i o n has been only modest, and whete indemnity plan p r i c e s
have not be forced to a d j u s t to competit/on from those more
integrated plans.
How
many consumers w i l l switch?
Any e f f o r t to a s s e s s p o t e n t i a l outcomes from s w i t c h i n g
behavior on the b a s i s of the A l l i a n c e proto-types analyzed above
must be t r e a t e d with caution. Each faced or f a c e s s p e c i a l
circumstances; there has been l i t t l e or no data c o l l e c t e d on the
question of which consumers (healtl/y or s i c k , o l d or young) may
be s w i t c h i n g .
Nevertheless, some of "Jrhe experiences d e s c r i b e d above
suggest t h a t the l e v e l s of switching could be high, approaching
and sometimes going beyond 5 0 % . / ( I . e . there was a 50% or more
i n c r e a s e i n the numbers of i n d i v i d u a l s e n r o l l i n g i n lower c o s t
plans.
The best academic reseasfch evidence on changes i n h e a l t h
expenditures due to consumey s h i f t s to lower c o s t plans comes
from Feldman and Dowd (1993/j. Analyzing Minneapolis data, they
show t h a t enrollment changes to lower p r i c e d plans reduced h e a l t h
expenditures by approximately 6% over the 1988-1993 time period.
Some may argue t h a t t h i s / i s l a r g e r than the reduction than we
should expect, s i n c e the Twin C i t i e s i s a r e l a t i v e l y mature
market f o r HMOs. Howe/er, as noted e a r l i e r , the r e l a t i v e
maturity of the HMO market i n the Twin C i t i e s may j u s t as e a s i l y
lead to an underestimate of the nationwide changes to be
expected; the f e e - f o r - s e r v i c e market has already l a r g e l y adjusted
-38-
�to the competition of HMOs by the l a t e 1980s i n the Twin C i t i e s ,
and l a r g e r changes might be expected i n areas where HMOs are
newer.
Although more evidence i s c e r t a i n l y to be d e s i r e d , t h e
Feldman and Dowd 6% estimate i s the best we have. I f we assume,
as d i s c u s s e d above, t h a t 67% of the population w i l l gain a c o s t
conscious choice, and t h a t as a r e s u l t of switches t o lower
p r i c e d plans h e a l t h expenditures for these persons d e c l i n e by 6%,
then an o v e r a l l reduction of 4% (.67 x .06) would be expected.
T h i s estimate assumes no saving from changes i n provider
( ....Lewin/VHI estimates t h a t
add Kronick a n a l y s i s to
end of paragraph on p. 16... begins on bottom p. 15)
Another e f f o r t t o estimate c o s t savings i n a managed
completion environment was undertaken by the Cost Audit Group,
t h a t was asked t o review working group papers. T h e i r a n a l y s i s
y/ suggests t h a t a managed competition system w i l l reduce spending
by four percent a year below trend i n s t a t e s with modest l e v e l s
of HMO p e n e t r a t i o n (72% of the n a t i o n a l population) and by two
percent a year below trend i n s t a t e s with high l e v e l s of HMO
p e n e t r a t i o n (18% of the population), and t h a t these reductions
w i l l continue i n d e f i n i t e l y - - a t l e a s t a t the 2% l e v e l .
An a d d i t i o n a l e f f o r t t o estimate savings from s w i t c h i n g
was undertaken by HCFA. That e f f o r t drew a more c o n s e r v a t i v e
c o n c l u s i o n , estimating t h a t switching would produce about $4
b i l l i o n i n 1994 d o l l a r s , savings of between 1 and 2 per cent. The
lower e s t i m a t e s are based on d i f f e r e n t assumptions regarding: the
r e l a t i v e c o s t s of indemnity and HMO products; the p r i c e
d i f f e r e n t i a l s t h a t may e x i s t i n new marketplace; numbers of
i n d i v i d u a l s ; r e l a t i o n s h i p s between s e l e c t i o n b i a s and s w i t c h i n g
t h a t may r e s u l t i n p r i c e d i f f e r e n t i a l s that do not r e f l e c t a c t u a l
c o s t s ; c a p a c i t y of managed care plans to accommodate p o t e n t i a l
switchers.
F i r i n g the " S t a r t i n g Gun"
for National Health Reform
F i n a l l y , i t should be noted t h a t while managed
competition theory p r e d i c t s that switching t o lower-cost plans
w i l l be an ongoing process, the p o t e n t i a l for switching may be
g r e a t e s t i n the year i n which c o n t r i b u t i o n p a t t e r n s are f i r s t
a l t e r e d . Such a " s t a r t i n g gun" e f f e c t may have p a r t i c u l a r l y
important i m p l i c a t i o n s i n the context of n a t i o n a l h e a l t h c a r e
reform.
While there i s some experience on switching by s i n g l e
employer groups, there i s no a n a l y s i s a v a i l a b l e t h a t i s capable
of a s s e s s i n g the p o t e n t i a l for savings t h a t might r e s u l t from
one-time s w i t c h i n g on a r e g i o n a l or n a t i o n a l s c a l e a s h e a l t h care
reform i s implemented.
-39-
�I f c e r t a i n proposals a r e adopted, n a t i o n a l h e a l t h c a r e
reform might c r e a t e :
•
A l l i a n c e s that c o n t r o l 50-80% of each market
Unprecedented amounts of information on the p r i c e and
q u a l i t y of competing plans made a v a i l a b l e t o consumers
through v a r i o u s p u b l i c and p r i v a t e means of
communication
•
A two-year time frame during which h e a l t h plans,
networks (and those not a f f i l i a t e d with them) w i l l have
to prepare f o r a bidding period i n which enormous
market shares w i l l be a t stake, and a f t e r which the
l i k e l i h o o d of switching h e a l t h plans might
s i g n i f i c a n t l y decline.
Under these unprecedented circumstances, i t should
expected t h a t marketing s t r a t e g i e s invoked by d i f f e r e n t h e a l t h
w i l l vary widely. But those circumstances a l s o suggest t h a t a t
l e a s t some new, and e x i s t i n g , h e a l t h care plans and networks may
adopt very aggressive bidding p r a c t i c e s .
Such a conclusion suggests, i n turn, t h a t while bids of
many plans may not vary d r a m a t i c a l l y from what otherwise might be
a n t i c i p a t e d , bids of some plans may be d r a m a t i c a l l y lower than
what might be a n t i c i p a t e d . That being the case there may be a
s i z a b l e d i f f e r e n c e --to payors, and to government subsidy c o s t s - between a system t h a t pegs c o n t r i b u t i o n s t o the low-cost plan,
and one t h a t pegs c o n t r i b u t i o n s to average c o s t plans, a t l e a s t
i n the e a r l y years of the new system. Over time, a s markets
adjusted, those d i f f e r e n c e s might diminish.
Managed Competition
and CBO Scoring
Much of the above information suggests t h a t tjtfe CBO' s
estimates of spending reductions due to enrollment ("switching"
of consumers t o managed care d e l i v e r y systems and t o the adoption
of managed competition i n general a r e very c o n s e r v a t i v e . A more
thorough examination of CBO s c o r i n g i s d e t a i l e d i n Appendix I ,
but a b r i e f review of some major c o n s i d e r a t i o n s may be r e l e v a n t
here.
CBO estimates t h a t only s t a f f and group model HMOs
r e l i a b l y reduce h e a l t h care^expenditures, and then only
by about 10-15%. Yet there i s a t l e a s t some evidence
t h a t some HMO's are producing more s u b s t a n t i a l savings,
and t h a t l a r g e r numbers/of managed c a r e o r g a n i z a t i o n s ,
i n c l u d i n g IPAs and some PPOs are reducing u t i l i z a t i o n
and producing a t l e a s t some savings.
-40-
�Trends i n HMO premiums have been edging downward
suggesting that some, at l e a s t , / m a y be a c h i e v i n g the
c a p a c i t y to produce more than/one-time s a v i n g s .
•
By i n c r e a s i n g the p r i c e d i f f e r e n t i a l s between
i n t e g r a t e d and non-integrated systems, d e c l i n i n g HMO
premiums may i n c r e a s e the l i k e l i h o o d of "switching" i n
a managed competition/framework.
There i s an expanding body of data to be gathered from
systems already implementing aspects of managed
competition thepry that suggests t h a t the system does
i n f a c t promote cost-conscious consumer choice,
switching to lower cost plans, and o v e r a l l s a v i n g s .
Managed Competition and the Tax Cap I s s u e
Some advocates of managed competition b e l i e v e t h a t
e l i m i n a t i n g the tax e x c l u s i o n for h e a l t h c a r e b e n e f i t s i s an
a b s o l u t e l y e s s e n t i a l element i n the c o s t conscious, consumer
choice equation.
That viewpoint i s probably overstated. But to the extent
t h a t consumers get tax breaks - - i n the form of tax d e d u c t i b l e
employer c o n t r i b u t i o n s - - f o r h e a l t h c a r e spending such spending
i s encouraged. The tax advantages conferred on h e a l t h c a r e
\
spending mean, i n e f f e c t , that the average individual/employer
\ can purchase $1 worth of h e a l t h care f o r .60 c e n t s . The tax
I—-advantage, of course, appears p a r t i c u l a r l y l a r g e to higher income
i n d i v i d u a l s who are more l i k e l y to purchase more expensive
p o l i c i e s and who gain the most from the tax advantaged nature of
the b e n e f i t . I n f a c t
of the c u r r e n t tax expenditure of ....
goes to .///////
The key to the tax cap i s s u e i n the managed competition
c o n s t r u c t i s not whether a l l b e n e f i t s are tax advantaged; i t i s
whether or not the e x t r a d o l l a r s consumers may spend --those
d o l l a r s spent purchasing more than what may be deemed necessary-are tax advantaged.
A tax cap could be imposed i n a v a r i e t y of p l a c e s .
Each
would have a d i f f e r e n t impact on government tax expenditures.
Some would e f f e c t the nature of the cost-conscious consumer
choice mechanism embodied i n managed competition. Obviously, the
impact of each cap would vary with the nature of the b e n e f i t s
being guaranteed.
S e v e r a l p o s s i b l e approach are o u t l i n e d below. Each approach
assumes t h a t , as i s the case today any d o l l a r s spent by the
employee a r e a f t e r - t a x d o l l a r s . ( P o l i t i c a l a n a l y s i s of these
options i s not undertaken here. Obviously, s t i f f e r tax caps may
-41-
�be p e r c e i v e d as h a v i n g h i g h e r p o l i t i c a l
liabilities).
E l i m i n a t e the tax d e d u c t i b i l i t y of h e a l t h belief i t s :
T h i s would e l i m i n a t e a l l o f t h e c u r r e n t goyernment t a x
e x p e n d i t u r e X From t h e perspectlve-Of--eop^unier^choice
i t i s no b e t t e r t h a n more modest approaches~T2~~or~3-; "
below) which wfc^jld ^ t i l l — f o r c e t h e cofisumer t o pay t h e
f u l l c o s t o f any p l a n c o s t i n g more / t h a n t h e l o w e s t c o s t
plan.
2.
Set t h e cap a t t h e employer's share (80%) o f t h e l o w e s t
c o s t p l a n a v a i l a b l e . Spending above t h a t amount by
employer o r employee would n o t be t a x advantaged. T h i s
would s t i l l s i g n i f i c a n t l y reduce t h e c u r r e n t t a x
e x p e n d i t u r e . I t would meet t h e consumer c h o i c e t e s t .
7
/
Set t h e cap a t up 100% o f t h e l o w e s t c o s t p l a n
a v a i l a b l e . Employers c o u l d pay t h e f u l l 100%, t a x advantaged. ( I f employers p a i d o n l y t h e mandated 80%,
the consumer's p o r t i o n would be p a i d w i t h a f t e r - t a x
d o l l a r s . But i t i s g e n e r a l l y presumed t h a t under t h i s
s c e n a r i o , most employees and employers would a r r a n g e t o
have t h e employer pay t h e 100%/). T h i s approach would
do l e s s t o reduce c u r r e n t t a x / e x p e n d i t u r e s t h a n
approaches 1 o r 2. But i t would no l e s s c o m p a t i b l e w i t h
the managed c o m p e t i t i o n approach.
The consumer would
s t i l l be p a y i n g f o r t h e a d d i t i o n a l c o s t s o f a more
expensive h e a l t h p l a n w i t h / a f t e r t a x d o l l a r s .
Set t h e cap a t t h e employers share (80%) o f t h e
w e i g h t e d average c o s t p l a n . Spending above t h a t
amount, by t h e employer o r t h e employee would n o t be
tax advantaged. Depending on premium c o s t s , t h i s
approach might have more o r l e s s impact on c u r r e n t t a x
e x p e n d i t u r e s t h a n o p t i o n 3. ( I n any g i v e n s i t u a t i o n ,
80% o f t h e weighted average p l a n might be more o r l e s s
t h a n 100% o f t h e low-dost p l a n ) . The consumer c h o i c e
mechanism would be i n / t a c t ( e x c e p t perhaps i n t h o s e
i n s t a n c e s where a p l a n c o u l d be purchased f o r l e s s t h a n
80% o f t h e weighted average p l a n ) . I n t h e g r e a t
m a j o r i t y o f cases t h e i n d i v i d u a l would be p a y i n g t h e i r
share w i t h a f t e r - t a x d o l l a r s .
Set t h e cap a t 100% o f t h e w e i g h t e d average p l a n . T h i s
approach would have l e s s impact on c u r r e n t t a x
e x p e n d i t u r e s than/ any o f t h e above s c e n a r i o s . I t
would a l s o impact t h e consumer c h o i c e mechanism, i n
t h a t some p l a n s above t h e l o w - c o s t p l a n would be
purchased w i t h / a f t e r - t a x d o l l a r s .
6.
Set the cap a t /the l e v e l s proposed i n options 3 or 5,
above, but force the employer paying 100% of the
-42-
�mandated premium t o o f f e r the 20% employee share t o the
employee i n cash, as opposed t o benefi/ts. This approach
might lower government tax expenditures, as more h e a l t h
d o l l a r s might be spent w i t h a f t e r - t a x d o l l a r s by
employees than w i t h pre-tax d o l l a r s / b y employers. I t
would come closer, than o p t i o n 5, x.o s a t i s f y i n g the
consumer choice goal. I t would orobably be no b e t t e r
than o p t i o n 3 i n t h i s respect. 7
7.
Set the cap a t 100% of any plan o f f e r i n g the guaranteed
b e n e f i t s through the A l l i a n c e / s t r u c t u r e . This would
produce less government revenues than any of the above
options. I t would also run/Counter t o the costconscious managed competition approach.
8.
Allow of h e a l t h b e n e f i t s paid by the employer t o be
tax-advantaged: the present system. This approach
y i e l d s the highest government cost i n tax expenditures.
I t i s the o p t i o n most o u t - o f - l i n e w i t h the cost
conscious consumer choice approach of managed
competition.
/
Estimates of the costs of
savings t o be derived from each
of these approaches awaits analysis by Treasury.
-43-
�Aru
JL £]
PART I I I C.
ADMINISTRATIVE SAVINGS
A d m i n i s t r a t i v e savings might be expected i n two areas.
F i r s t , reduced a d m i n i s t r a t i v e costs f o r small/^nd mid-sized
employers. Second, reduced a d m i n i s t r a t i v e costs f o r p r o v i d e r s .
lyzed by Rick Kronick
(These issues have been previously
and HCFA. No e f f o r t i s made t o review th&t m a t e r i a l o r t h e issue
here. Their analyses are attached). (Appendix 2).
Based on estimates o f a d m i n i s t r a t i v e costs o f d i f f e r e n t
d e l i v e r y systems f o r d i f f e r e n t sized/employers Kronick estimates
t h a t reduced h e a l t h expenditures due t o the e l i m i n a t i o n o f small
group and non-group coverage w i l l he i n the range o f $5-18
b i l l i o n . HCFA estimates those savings a t approximately $9
b i l l i o n . $9 b i l l i o n i n savings would represent a r e d u c t i o n from
c u r r e n t spending ($38 b i l l i o n ) 6 f 24%.
Kronick estimated reductions i n provider costs a t $4 b i l l i o n
f o r h o s p i t a l s and $6 b i l l i o n / f o r physicians. The HCFA estimate i s
$2 b i l l i o n o f h o s p i t a l s and/S3 b i l l i o n f o r physicians. The midp o i n t between t h e two estimates ($7 b i l l i o n i n h o s p i t a l and
physician savings) would reduce current p h y s i c i a n / h o s p i t a l
a d m i n i s t r a t i v e costs ( $ 9 0 / b i l l i o n ) by 7.7. %.
While t h e p o t e n t i a l / f o r a d m i n i s t r a t i v e savings under a
managed competition sysycem may be s u b s t a n t i a l i t should be
emphasized t h a t other jfeform approaches probably have t h e same,
and i n some cases greater, p o t e n t i a l t o achieve a d m i n i s t r a t i v e
savings. Managed competiton, then, may not be unique i n i t s
p o t e n t i a l f o r reducing a d m i n i s t r a t i v e costs.
-44-
�PART I I I D.
SAVINGS FROM REDUCTIONS
IN CLINICAL UNCERTAINTY AND INAPPROPRIATE CARE
Reforms i n the marketing and purchasing of h e a l t h insurance
are c r i t i c a l components of the managed competition model, ana the
l i k e l y source of y n a t short term savings iythat model might
achieve. By c o n s o l i d a t i n g purchasing power, and by focusing
consumer a t t e n t i o n on the p r i c e d i f f e r e n t i a l s between mor^ and
l e s s e f f i c i ^ f r t h e a l t h care plans d e l i v e r i n g V t h e same b e n e f i t s , i t
i s a n t i c i p a t e d t h a t more consumers w i l l choos^lQwer/cost, more
efficierj-t plans reducing o v e r a l l h e a l t h care expenditures.
I n t h i s r e s p e c t market r e s t r y c t u r i n g and c o n s o l i d a t i o n of
purchasing power can be ends-^in and\£>f themselves.
But, i n f a c t ,
they are more means than^ends. Over the long term, s a v i n g s A ^ i l l
come not j u s t by a one-time s h i f t from consumers to lower/cost
plans, but from a competition between those plans to n o t / s i m p l y
cut c o s t s and weed out i n e f f i c i e n c y , but\t:o improve t h ^ q u a l i t y
and economy of the/nealth care d e l i v e r y .
Short-term Savings, then, may come with the e l i m i n a t i o n of
inefficiency;
long-term and ongoing savings w i l l come only as we
t r u l y improve the q u a l i t y of the product.
Today there i s i n c r e a s i n g evidence to suggest t h a t high
l e v e l s of c l i n i c a l u n c e r t a i n t y and inappropriate c a r e e x i s t , and
t h a t they r e s u l t i n higher than necessary l e v e l s of h e a l t h c a r e
spending. I f i t i s to produce long-term savings, managed
competition (and other reform approach) w i l l have to reduce these
levels.
Evidence on extent of c l i n i c a l u n c e r t a i n t y and i n a p p r o p r i a t e c a r e _
i
<
There i s an accumulating body of evidence suggesting t h a t
much of the h e a l t h care d e l i v e r e d i s of l i m i t e d or questionable
value and t h a t there are wide d i s c r e p a n c i e s i n how c a r e i s
d e l i v e r e d between providers and communities. For example: ^
/
A RAND corporation a n a l y s i s concluded t h a t 25% of
\>
xt
procedures ( i n c l u d i n g 17% of
coronary arteriograms, J l ^ y JL>P
32% of c a r t o t i d endarterectomies and 17% of upper GI
/ / i ^
endoscopies) 25% of admissions ( h o s p i t a l ? ) and 40% of 7 '
medications are unnecessary or of questionable v a l u e . /
^
n
Stanford Ujniyersity professor V i c t o r Fuphs ( c i t e ) has
estimated <bhat as muchx.as/SOiXo^/na^ionalOrieal.tiji
expenditures i s the r e s u l t of i n a p p r o p r i a t ^ A r t i l i z a t i o n
of s e r v i c e s .
V...y
I
Residents of Boston r e c e i v e approximately twice as much
c a r e ( c o s t i n g about $300 m i l l i o n more a n n u a l l y ) as
4 it i f ^
9
45
•-
^
C
? 1< L I
^ ^
/,
-A
�residents of New Haven, but are not significantly
sicker and do not have significantly better outcomes,
(cite)
(L44 -Ui>?p.
(L^HK^
One f o u r - s t a t e s t u d y showed a t h r e e - f o l d v a r i a t i o n i n
c o r o n a r y bypass, t h y r o i d and p r o s t a t e s u r g e r y ; a f i v e ,
f o l d v a r i a t i o n i n back and abdominal s u r g e r y ; and a 20y j ^ f o l d v a r i a t i o n i n c a r o t i d endarterectomy.
The Office of Technology Assessment estimated that only
10-20% of "routinely accepted and frequently used"
Q
procedure^
have
been
adequately
evaluated.
.
_
g
es have been adequately evaluated,
t
Causes of the C l i n i c a l Uncertainty
Uncertainty and/Inappropriate Care Problem
There would appear t o be a v a r i e t y o f causes f o r these
conditions, including high levels o f legitimate uncertainty.
M e d i c i n e , a f t e r a l l , remains as much a r t as s c i e n c e . I f managed
competition i s t o a s s i s t i n reducing the l e v e l s o f c l i n i c a l
u n c e r t a i n t y , v a r i a t i o n s i n p r a c t i c e p a t t e r n s , and i n a p p r o p r i a t e
c a r e , i t w i l l need t o address these causes.
Ongoing p r e v a l e n c e o f f e e - f o r - s e r v i c e m e d i c i n e y F e e - f o r s e r v i c e payment p o l i c i e s , c r e a t e i n c e n t i v e s f o r and p r e s s u r e s on
d o c t o r s t o o f f e r more s e r v i c e s .
T h i s may be p a r t i c u l a r l y t r u e
r . y i n t h e f a c e o f c l i n i c a l u n c e r t a i n t y and may be f u r t h e r compounded
by t h e f a c t t h a t many p h y s i c i a n s m a i n t a i n f i n a n c i a l i n t e r e s t s i n
a n c i l l a r y services.
S t u d i e s i n F l o r i d a have shown t h a t over ^4p%^of^
p h y s i c i a n s have such f i n a n c i a l i n t e r e s t s .
P h y s i c i a n s / w i t h such i n t e r e s t s — r e f e r p a t i e n t s for.
s t u d i e s more f r e q u e n t - l y ^ t h a n o t h e r p h y s i c i a n s - ^ a t
much h i g K ^ r _ _ c o s t \ T c i t e )
The p r e v a l e n c e o f fee,-'for-service^medicine a l s o enhances
easy access t o s p e c i a l i s l f s , who p e r f o r m mofe~p"rocedures, and
whose f e e s \ a r e h i g h e r ^ / o v e r t i m e , t h e r a t i o o f s p e c i a l i s t s t o
p r i m a r y c a r e ^ p h y s l c i c t n s w i l l need t o reduced.
Lack of coordination
providers
and information dissemination
amongst'
Research e f f o r t s have n o t c o n c e n t r a t e d on
promoting e f f e c t i v e p r a c t i c e p a t t e r n s . Most nonp r o p r i e t a r y research i s i n basic science r a t h e r
than evaluations research. P r i v a t e sector
research i s v i r t u a l l y a l l d i r e c t e d a t developing
p r o f i t a b l e drugs, d e v i c e s , and o t h e r b i o t e c h n o l o g y
--most o f which w i l l d r i v e c o s t s up-- and n o t on
i m p r o v i n g and "smartening" c a r e d e l i v e r y .
- UliK CM. CM-
(
��•
P h y s i c i a n ' s t r a d i t i o n a l sources o f i n f o r m a t i o n a r e
s u b o p t i m a l . Medical l i t e r a t u r e i s more l i k e l y t o
p u b l i s h s t u d i e s showing what new t r e a t m e n t s work
t h a n s t u d i e s p r o v i n g them i n e f f e c t i v e . ( F o r
example, t h e Agency f o r H e a l t h P o l i c y and Research
reviewed between 7,000 and 18,000 m e d i c a l a r t i c l e s
f o r each p r a c t i c e g u i d e l i n e i t developed. Only
0.7% t o 4.6% were s u i t a b l e f o r use as a b a s i s f o r
t r e a t m e n t recommendations.
(cite)
P h y s i c i a n Fears o f M e d i c a l M a l p r a c t i c e Lawsuits:. P a t i e n t
e x p e c t a t i o n s and f e a r s o f m a l p r a c t i c e l a w s u i t s may encourage some
p h y s i c i a n s , i n t h e face o f u n c e r t a i n t y , t o do more. The a c t u a l
c o s t s o f d e f e n s i v e medicine i s w i d e l y d i s p u t e d , b u t Lewin-VHI,
I n c . e s t i m a t e s t h e p r i c e a t about $25 b i l l i o n a n n u a l l y .
Lack of coordination among providers:
•
The p r e v a l e n c e o f s o l o and s m a l l group p r a c t i c e s
and t h e l a c k o f p h y s i c i a n i n t e g r a t i o n w i t h
h o s p i t a l s and n o n - p h y s i c i a n h e a l t h p r o f e s s i o n a l s
may d i s c o u r a g e e f f i c i e n t d i s s e m i n a t i o n o f
i n f o r m a t i o n and c o o r d i n a t i o n o f c a r e .
•
Continued r e s i s t a n c e by many p h y s i c i a n s ,
e s p e c i a l l y i n some r e g i o n s , t o c o o r d i n a t e d
d e l i v e r y o f c a r e l i m i t s t h e a b i l i t y t o share
p r o t o c o l s , i n f o r m a t i o n , equipment, r i s k , e t c . .
HOW MANAGED COMPETITION MIGHT ADDRESS THE LEVELS OF CLINICAL
UNCERTAINTY, INAPPROPRIATE CARE AND UNJUSTIFIED PRACTICE
VARIATION
By r e w a r d i n g h e a l t h plans t h a t p r o v i d e q u a l i t y c a r e a t lower
c o s t s , managed c o m p e t i t i o n woula hope t o encourage t h e
development o f i n t e g r a t e d h e a l t h c a r e systems t h a t , presumably,
would have a g r e a t e r c a p a c i t y t o use t h e advantages o f
i n t e g r a t i o n and o r g a n i z a t i o n - - i n f o r m a t i o n s h a r i n g , o r g a n i z a t i o n
commitment, s e l e c t i v e r e c r u i t m e n t , e t c . t o improve m e d i c a l
p r a c t i c e , improve t h e q u a l i t y o f care delivered/, and g e n e r a t e
more t h a n one-time h e a l t h care savings.
/
S p e c i f i c a l l y , managed c o m p e t i t i o n might address t h e l o n g term q u a l i t y and economy o f care i s s u e s i n t h e f o l l o w i n g f a s h i o n .
/
/
1. U n d e r w r i t i n g r e f o r m aimed a t f o r c i n g c o m p e t i t i o n along
t h e l i n e s o f q u a l i t y and p r i c e ( i . e . e f f i c i e n c y ) as opposed t o
r i s k s e l e c t i o n . R i s k - a d j u s t e d payments t p p l a n s t o assure them o f
a level playing
field.
/
2.
Improved consumer i n f o r m a t i o n d i s s e m i n a t i o n and
-47-
�implementation of consumer cost consciousness/so t h a t consumers
are b e t t e r able to choose and reward those plans t h a t a r e more
e f f i c i e n t ; i . e , those plans that are, among other things, doing a
b e t t e r job a t managing care, and reducing l e v e l s of inappropriate
/
care.
/'
3. Encourage the development of more i n t e g r a t e d systems of
care t h a t a r e b e t t e r able to produce quali-ty/and economy.
Such i n t e g r a t e d systems of care would' have s i g n i f i c a n t
advantages over l o o s e l y organized or unorganized means of
d e l i v e r i n g c a r e . For example, integrated systems should
g e n e r a l l y have g r e a t e r c a p a c i t i e s to: s e l e c t p h y s i c i a n s and
develop system norms and c u l t u r e ; review performance and p r a c t i c e
p a t t e r n s ; encourage peer review; e s t a b l i s h p r a c t i c e protocols;
enhance communication between providers, i n c l u d i n g communication
between primary care p h y s i c i a n s a n d / s p e c i a l i s t s ; make
appropriate and greater use of a l t e r n a t i v e care providers;
provide continuing education and information dissemination on
technology, p r a c t i c e patterns, outcomes, e t c . ; b u i l d
o r g a n i z a t i o n a l commitment by l i n k i n g f i n a n c i a l i n t e r e s t s of plans
and p r o v i d e r s .
/
I n short, integrated systems can^take advantage of
o r g a n i z a t i o n a l t o o l s ; while non-integrated systems s u f f e r from an
i n a b i l i t y to take c o l l e c t i v e apti<5n.
And while the evidence isr' not c o n c l u s i v e there may be
i n c r e a s i n g reason to b e l i e v e / t h a t integrated, managed c a r e
systems a r e capable of generating and promoting ongoing - f f / } improvements i n q u a l iity
t y and economy .^p^
jj^Oi?
*
IM
>
As d e t a iLied
l e d above, r a t e s of i n c r e a s e f o r /HMO
premiums have been d e c l i n i n g r e l a t i v e / t o those of
indemnity pirans.,_perhaps ind^icat-lng—a p o t e n t i a l to
achieve ongoing r e d u c t l o n s ^ i r T c o s t .
The RAND h e a l t h insurance experiment found t h a t
u t i l i z a t i o n r a t e s i n a group model HMO were
s u b s t a n t i a l l y below u t i l i z a t i o n under conventional
insurance.
X
•
K a i s e r Permanente of Southern C a l i f o r n i a has
./f prepared a guideline f o r managing p a t i e n t s a t r i s k
w\\-* f o r c a r d i o v a s c u l a r events t h a t i t expects w i l l
save $35 m i l l i o n annually.
/
I n t e r a c t i v e video d i s k s have been employed
s u c c e s s f u l l y by Kaiser-Permanente Colorado to
inform consumers about options on p r o s t a t e
surgery, reducing surgery r a t e s by 45%.
LMdl^€^
�9'ml
. -
„
,
I Mathematica P o l i c y Research_e5i^aJ;e^that_HMQs_
reduced u t i l i z a t i o n i n / t h e Medicare program By
10.5% a f t e r c o n t r o l l i n g for s e l e c t i o n .
The Medical Outcomes Study (JAMA, 3/25/92) found
that, a d j u s t i n g for case-mix, h o s p i t a l u t i l i z a t i o n
r a t e s for s o l o - p r a c t i t i o n e r s or s i n g l e s p e c i a l t y
groups i n IPA model HMOs were 30% below those f o r
solo p r a c t i t i o n e r s and s i n g l e p r o p r i e t a r y groups
i n the f e e - f o r - s e r v i c e system.
4
I n Northern C a l i f o r n i a , K a i s e r Permanente members
have 25% fewer h o s p i t a l days per c a p i t a than other
r e s i d e n t s . (And i t appears that t h i s d i f f e r e n c e
i s a t t r i b u t a b l e to management, not r i s k s e l e c t i o n .
Ongoing research at Northwestern U n i v e r s i t y
/
( S h o r t e n ) suggests that i n c o n t r a s t with nonintegrated f e e - f o r - s e r v i c e ^ d e l i v e r y systems/
integratedxsystemS/O
systems.of care may achieve: twice as
sharing^ofr^co
much sharing^of^records
between p h y s i c i a n and
h o s p i t a l s ; and at l e a s t twice as much use of
c l i n i c a l protocols.
4. C a p i t a t i o n of h e a l t h plans to encourage the growth of
i n t e g r a t e d h e a l t h plans and managed care; c a p i t a t e d payments
encourage plans to managed care, provide c o s t - e f f e c t i v e
preventive care, and reduce c l i n i c a l u n c e r t a i n t y and unnecessary
utilization.
C a p i t a t i o n i n a consumer choice, r a t h e r than an
employer choice mechanism may o f f e r an a d d i t i o n a l
value. When employers choose plans, those plans
may view many e n r o l l e s as short-term members,
' l i k e l y to leave the plan when or i f they change
jobs. Under consumer choice, plans may view
e n r o l l e s as longer-term members and may be see
more advantages i n greater consumer education and
preventive health e f f o r t s .
f)^ *A ft *
&
Research by C a l i f o r n i a professor Jaime Robinson
(UCB) supports such a contention. Robinson found
that, over a four year period, between 20-40% of
employees of one l a r g e employer were forced to
switch h e a l t h plans due to employment changes.
Such high l e v e l s of enrollment change may reduce
i n c e n t i v e s for capitated, i n t e g r a t e d systems to
improve preventive care e f f o r t s .
5. Reduction of fraud and abuse, which i s f a r l e s s
to occur i n c a p i t a t e d and integrated h e a l t h care plans.
-49-
likely
�Two s i g n i f i c a n t caveats should be added to the above
analysis. First,
i f the integrated system holds g r e a t e r promise
for reducing o v e r u t i l i z a t i o n , i t may a l s o o f f e r the r i s k of
u n d e r u t i l i z a t i o n . Any comprehensive reform scheme w i l l have to
b u i l d i n mechanisms to assure q u a l i t y . Monitoring of
disenrollment and consumer s a t i s f a c t i o n surveys, as envisioned i n
many Health A l l i a n c e plans, w i l l be of value i n t h i s regard. But
broader, and more systemic a c c o u n t a b i l i t y mechanisms w i l l
probably be required.
Second, the reduction of high l e v e l s of inappropriate c a r e
and c l i n i c a l u n c e r t a i n t y w i l l be harder to achieve so long as
consumers a r e not b e t t e r educated as to the nature of these
problems. Indeed, mafiy providers a f f i l i a t e d with i n t e g r a t e d
h e a l t h c a r e plans report that consumer pressure --and the need to
maintain p a r i t y with expected s e r v i c e s i n the f e e - f o r - s e r v i c e
s e c t o r - - o f t e n injpose pressures to do more t h a t cannot be
resisted.
SUMMARY: SAVIN6S FROM REDUCTIONS IN CLINICAL UNCERTAINTY AND
I N A P P R O P R I A T E / UTILIZATION
I t i s / a l m o s t impossible to attempt to r e l i a b l y estimate what
reductions i n c l i n i c a l uncertainty and inappropriate u t i l i z a t i o n
might save. Determining e x a c t l y how much u t i l i z a t i o n could be
reduced and what i t might save are both beyond the scope of t h i s ,
or perhaps any, a n a l y s i s .
However, i t i s p o s s i b l e to p r o j e c t what a s p e c i f i c l e v e l of
reduction i n u t i l i z a t i o n would generate i n savings. Given a 1994
base of $400 b i l l i o n and a n t i c i p a t i n g reductions of 2% annually
due to decreases i n u t i l i z a t i o n , savings i n 1994 would be $8
b i l l i o n . Savings i n 1995 would be $55 b i l l i o n .
Given the wide v a r i a t i o n s i n p r a c t i c e p a t t e r n s the
acknowledged l e v e l s of c l i n i c a l u n c e r t a i n t y and the accumulating
data on o v e r u t i l i z a t i o n , a 2%/year reduction i n that u t i l i z a t i o n
seems a c h i e v a b l e .
The i n a b i l i t y to a c c u r a t e l y estimate savings, however,
should not d e t r a c t from the r e a l i t y that savings, over time,
might be very s u b s t a n t i a l . As i s g e n e r a l l y acknowledged, more
i n t e g r a t e d systems have a demonstrated c a p a c i t y to reduce
u t i l i z a t i o n and expenditures.
Currently,
•
Only about 10% of a l l insureds a r e e n r o l l e d a r e i n the
most i n t e g r a t e d of systems, ( s t a f f and group model
HMOs).
•
Another 15-20% a r e i n more moderate i n t e g r a t e d HMO
systems (IPAs, P o i n t - o f - S e r v i c e plans, e t c . ) .
-50-
�Another approximately 25% are i n what might be termed
loosely integrated, or managed systems, p a r t i c u l a r l y
PPOs.
•
And about 50% are i n very loosely integrated or
unintegrated conventional fee-for-service plans.
Here the issues of switching to lower cost plans and of how
plans improve their own efficiency levels may come together. Our
health care delivery system i s marked by: an ongoing prevalence
of non-integrated systems; a wide variety i n practice patterns;
high l e v e l s of c l i n i c a l uncertainty and inappropriate care; and
the proven a b i l i t y of more integrated systems to reduce --and,
perhaps continue to reduce-- expenditures.
Given these r e a l i t i e s , the room for improvement,
s p e c i f i c a l l y improvement i n terms of lower health care
expenditures, must be viewed as nothing l e s s than very
substantial.
-51-
�PART IV: CONCLUSION
As the foregoing a n a l y s i s suggests managed competition
hold p o t e n t i a l to reduce h e a l t h care expenditures i n the
following ways.
may
Force c u r r e n t l y e x i s t i n g and newly forming h e a l t h c a r e
plans to compete on p r i c e , s e r v i c e and q u a l i t y .
•
Consolidate purchasing power of employers i n t o one
stronger, smarter,
and l a r g e r purchaser.
•
Remove the choice of h e a l t h care plans from employers,
and give i t to consumers.
•
Improve the c a p a c i t y of consumers to choose --on the
b a s i s p r i c e and o v e r a l l value-- between competing
h e a l t h c a r e plans.
•
Provide consumers with a c o s t conscious choice i n which
they a r e asked to pay the f u l l d i f f e r e n c e i n p r i c e
between l e s s and more expensive plans t h a t a r e
d e l i v e r i n g the same b e n e f i t s package with acceptable
l e v e l s of q u a l i t y .
•
Reduce a d m i n i s t r a t i v e c o s t s to small and mid-sized
employers and to providers
•
Encourage the use of c o s t - e f f e c t i v e preventive
•
Reward those h e a l t h plans, p r i m a r i l y more i n t e g r a t e d
h e a l t h c a r e d e l i v e r y systems, that a r e able to d e l i v e r
q u a l i t y c a r e a t a lower p r i c e .
•
Encourage providers to i n c r e a s e the extent of
i n t e g r a t i o n and organization i n h e a l t h c a r e d e l i v e r y
•
Reduce, through g r ^ a t e r ^ l e v e l s of e f f i c i e n c y provided
by more integrated h e a l t h plans, the l e v e l s of c l i n i c a l
u n c e r t a i n t y and inappropriate care now prevalent i n the
d e l i v e r y system.
•
Over time, generate more competition --based on p r i c e
and q u a l i t y - - between more e f f i c i e n t , i n t e r g r a t e d
h e a l t h care d e l i v e r y systems with the goal of
generating ongoing improvements i n the d e l i v e r y of
health care.
-52-
care
�APPENDIX ONE
THE CONGRESSIONAL BUDGET OFFICE ANALYSIS OF MANAGED COMPETITION
For some t i m e i s has been assumed t h a t t h e C o n g r e s s i o n a l
Budget O f f i c e (CBO) would n o t l o o k v e r y f a v o r a b l y on managed
c o m p e t i t i o n , a t l e a s t w i t h r e g a r d t o i t s c a p a c i t y t o reduce
n a t i o n a l spending on h e a l t h c a r e .
T h i s assumption stemmed l a r g e l y from two c o n s i d e r a t i o n s .
1.
The CBO has been v e r y c o n s e r v a t i v e i n a t t r i b u t i n g
s a v i n g s t o managed c a r e . I t suggests t h a t t h e movement
of i n d i v i d u a l s from i n d e m n i t y t o managed c a r e p l a n s
would save o n l y v e r y minimal amounts, except when t h a t
managed c a r e i s d e l i v e r e d by a group o r s t a f f model
HMO. Savings a t t r i b u t e d t o t h i s form o f managed c a r e
a r e o n l y 10-15%, a c c o r d i n g t o CBO. Since t h e s e forms o f
HMOs t a k e more c a p i t a l and t i m e t o e s t a b l i s h , and s i n c e
o n l y about 10% o f i n s u r e d s a r e c u r r e n t l y e n r o l l e d i n
such p l a n s i t i s n o t l i k e l y t h a t s i z a b l e i n c r e a s e s i n
s t a f f and group models c o u l d occur i n t h e near t e r m .
Thus, i t i s n o t l i k e l y , a c c o r d i n g t o CBO a n a l y s i s , t h a t
system s a v i n g s from i n c r e a s e d e n r o l l m e n t i n t h e s e p l a n s
can amount t o v e r y much.
2.
An i n a b i l i t y t o p r e d i c t o r "score" t h e s a v i n g s t h a t
might r e s u l t from i m p l e m e n t a t i o n o f managed c o m p e t i t i o n
c o n s t r u c t s , i n l a r g e p a r t because a v a i l a b l e d a t a i s
e i t h e r i n c o n c l u s i v e o r , i n many cases, n o n - e x i s t e n t .
Thus, CBO can a t t r i b u t e l i t t l e s a v i n g s t o managed
c o m p e t i t i o n , except f o r t h e modest s a v i n g s a t t r i b u t a b l e
t o expansions i n s t a f f and group model HMOs, as
mentioned above.
I n i t s r e p o r t , i s s u e d i n May, t h e CBO s t i l l d e c l i n e s t o
e s t i m a t e s a v i n g s a s s o c i a t e d w i t h major changes, t h e e f f e c t s o f
which cannot a c c u r a t e l y be c a l c u l a t e d . I t s t i l l speaks o n l y i n
the most c a u t i o u s terms about t h e a b i l i t y o f managed c o m p e t i t i o n
t o "over t i m e ... [ r e d u c e ] t h e r a t e o f i n c r e a s e i n n a t i o n a l
h e a l t h c a r e spending."
However, t h e r e p o r t a l s o o u t l i n e s , i n a c l e a r l y p o s i t i v e
f a s h i o n , a d e t a i l e d s e t o f managed c o m p e t i t i o n concepts. The
i m p l i e d i f n o t t h e express c o n c l u s i o n o f t h e r e p o r t , i s t h a t a
comprehensive managed c o m p e t i t i o n p r o p o s a l c r a f t e d a l o n g t h e
l i n e s CBO advocates c o u l d e x e r t s i g n i f i c a n t downward p r e s s u r e on
h e a l t h c a r e spending. The l o g i c o f t h e CBO r e p o r t i s v e r y s i m i l a r
i n most r e s p e c t s t o t h e t h r e e p a r t - - p u r c h a s i n g , m a r k e t i n g ,
d e l i v e r y system-- a n a l y s i s o f f e r e d above, and might be summarized
as f o l l o w s .
-53-
�Managed competition has potential for reducing health
costs by:
•
care
Strengthening consumer purchasing power by
creating Health Alliances, enabling consumers to
see price d i f f e r e n t i a l between competing health
care plans, and improving the consumers a b i l i t y to
choose between those plans on the basis of price,
quality and service.
Restructuring the insurance market place to reduce
the a b i l i t y of health insurers to compete on r i s k
selection and encourage them to compete on t h e i r
a b i l i t y to deliver more quality at a lower price.
•
Encouraging providers to form more integrated
delivery systems that can more e f f e c t i v e l y manage
care, reduce the incidence of inappropriate care,
and improve efficiency and quality i n the delivery
of health care.
-54-
�II.
CBO'S PROPOSAL FOR MANAGED COMPETITION
CBO l i s t s e i g h t " s p e c i f i c " f e a t u r e s i n managed c o m p e t i t i o n
p r o p o s a l s t h a t would " g r e a t l y enhance t h e p r o s p e c t s f o r a c h i e v i n g
the f u l l s a v i n g s p o t e n t i a l l y a v a i l a b l e under t h a t (managed
c o m p e t i t i o n ) approach":
1.
Create r e g i o n a l p u r c h a s i n g o r g a n i z a t i o n s ( A l l i a n c e s ) ,
which would:
"help consumers make b e t t e r i n f o r m e d c h o i c e s "
r e s t r u c t u r e the insurance
marketplace
determine which i n s u r e r s c o u l d o f f e r p l a n s
p r o v i d e consumers w i t h i n f o r m a t i o n about t h e
q u a l i t y o f the plans o f f e r e d
" r e i n t e g r a t e and e n l a r g e t h e c u r r e n t segmented
market f o r h e a l t h i n s u r a n c e "
c r e a t e c o u n t e r v a i l i n g power f o r purchasers
" i n h i b i t i n s u r e r s from p u r s u i n g n o n - p r i c e
c o m p e t i t i o n based on f a v o r a b l e s e l e c t i o n o f r i s k s "
increase the incentives f o r i n s u r e r / p r o v i d e r
networks t o reduce premiums by d e l i v e r i n g h i g h q u a l i t y c a r e t o t h e i r e n r o l l e s i n more c o s t e f f e c t i v e ways
Require employers t o c o n t r i b u t e no more t h a n a f i x e d
d o l l a r amount toward h e a l t h b e n e f i t s . Set t h a t amount
a t t h e c o s t o f t h e l e a s t expensive p l a n i n t h e
A l l i a n c e , and r e q u i r e t h e c o s t o f p u r c h a s i n g
more
expensive p l a n s t o be p a i d by consumers w i t h a f t e r - t a x
income ( i . e . , s e t a t a x cap a t t h e l o w e s t - c o s t p l a n ) .
S t a n d a r d i z e b e n e f i t s by a l l o w i n g t h e A l l i a n c e t o o f f e r
o n l y two packages, which would be i d e n t i c a l i n s e r v i c e s
p r o v i d e d b u t would v a r y i n c o s t - s h a r i n g t o accommodate
HMO and i n d e m n i t y p l a n approaches.
A l l o w i n d e m n i t y p l a n s t o have h i g h e r c o s t - s h a r i n g
t h a n HMOs i n o r d e r t o a v o i d t h e h i g h e r u t i l i z a t i o n
t h a t would r e s u l t i f i n d e m n i t y p l a n s were o f f e r e d
w i t h HMO c o s t - s h a r i n g arrangements.
•
P r o h i b i t balance b i l l i n g and supplemental
i n s u r a n c e c o v e r i n g s t a n d a r d co-payments.
-56-
�a d d i t i o n a l s e r v i c e s o r a l t e r n a t i v e coverage
o u t s i d e t h e managed c o m p e t i t i o n framework.
4.
Make a v a i l a b l e u n i f o r m , r e l i a b l e data on t h e " c o s t s ,
outcomes, and q u a l i t y o f care f o r i n d i v i d u a l p r o v i d e r s
and each i n s u r e r . "
5.
Enact i n s u r a n c e market reforms: community r a t i n g , a
on e x c l u s i o n s f o r p r e - e x i s t i n g c o n d i t i o n s , and
guaranteed issuance and renewal.
ban
Make i n d i v i d u a l s , n o t employers, choose t h e i r
health plan.
•
O f f e r open e n r o l l m e n t i n o r d e r t o r e s t r i c t
i n s u r e r s ' a b i l i t y t o s e l e c t r i s k s and "induce
i n s u r e r s t o compete by o r g a n i z i n g more c o s t e f f e c t i v e systems f o r d e l i v e r i n g c a r e . "
6.
I n s u r e everyone (which assumes t h a t some w i l l have t o
be s u b s i d i z e d ) . " U n i v e r s a l access would a l s o h e l p t o
c o n t a i n c o s t s because t h e s t r e n g t h e n e d appeal f o r
consumers o f basing t h e i r c h o i c e among i n s u r e r s on
p r i c e would a p p l y t o t h e e n t i r e p o p u l a t i o n . "
7.
Develop an a c c u r a t e r i s k - a d j u s t m e n t methodology, which
would " e l i m i n a t e t h e i n c e n t i v e f o r i n s u r e r s t o pursue
e n r o l l e s who are h e a l t h i e r than average."
8.
Reduce t h e number o f insurance o r g a n i z a t i o n s t h a t have
s u b s t a n t i a l l y non-overlapping networks o f a f f i l i a t e d
primary care physicians.
I n o t h e r words, encourage
physicians, e s p e c i a l l y primary care physicians, t o
a f f i l i a t e w i t h o n l y one h e a l t h p l a n . T h i s would make
them more conscious o f p l a n needs and p r a c t i c e s .
With the p o s s i b l e exceptions of features (2) and ( 8 ) , and
perhaps the supplemental insurance aspect of feature ( 3 ) , the
proposals l i k e l y to emerge i n the Administration's h e a l t h reform
p l a n very c l o s e l y p a r a l l e l those advocated by
CBO.
III.
OTHER ISSUES/REFORMS THAT CBO
MANAGED COMPETITION PROPOSAL
1.
MIGHT VIEW POSITIVELY IN A
A BUDGET ON MANAGED COMPETITION
•
The CBO r e p o r t o n l y b r i e f l y mentions t h e debate over
whether o r n o t budgets should be imposed on a managed
c o m p e t i t i o n system. I t takes no p o s i t i o n on t h e i s s u e .
•
However, p r e v i o u s CBO
r e p o r t s have i n d i c a t e d a
-57-
�w i l l i n g n e s s to "score" savings from the imposition of
budgets. Presumably, a managed competition proposal
t h a t c l e a r l y l i m i t e d the r a t e of i n c r e a s e i n premiums
charged by A l l i a n c e s or s t a t e s would be viewed as a
p o s i t i v e , and "scorable," c o s t containment t o o l .
T h i s might be p a r t i c u l a r l y true i f the budget were t i e d
i n some way to an e f f o r t to c o n t r o l the growth i n c o s t s
a s s o c i a t e d with technology and inappropriate c a r e . (See
point 3 below).
2.
AN IN-PLACE MECHANISM FOR
PROVIDER RATE-SETTING
The report does not d i s c u s s any p o t e n t i a l r e l a t i o n s h i p
between r a t e - s e t t i n g and managed competition.
•
3.
However, as i n the case with budgets on h e a l t h care,
CBO has been w i l l i n g to "score" savings i n r a t e - s e t t i n g
proposals.
I t i s p o s s i b l e that a managed competition
proposal with a r a t e - s e t t i n g mechanism i n place -e i t h e r to c o n t r o l c o s t s i n indemnity plans from the
outset, and/or as a back-up to a s s i s t A l l i a n c e s i n
meeting budgets -- would be viewed as a p o s i t i v e ,
"scorable," c o s t containment t o o l .
MECHANISMS FOR
TECHNOLOGY AND
CONTROLLING COSTS ASSOCIATED WITH
WITH INAPPROPRIATE CARE
NEW
•
The report acknowledges that managed competition might
push "technological development i n a c o s t - s a v i n g
direction."
•
The report a l s o notes that "the s i n g l e most important
f a c t o r explaining the amount of inappropriate c a r e
seems to be the p r a c t i c e s t y l e of the i n d i v i d u a l
p h y s i c i a n , " a f a c t o r which might be p o s i t i v e l y a f f e c t e d
by a greater emphasis on managed care, c a p i t a t e d
payments to h e a l t h plans and more i n t e g r a t e d plans.
•
The report makes c l e a r that CBO would look very
favorably on l e g i s l a t i o n or r u l e s that impose " c l i n i c a l
e f f i c a c y , " " c o s t - b e n e f i t , " or " c o s t - e f f e c t i v e n e s s "
c r i t e r i a on the adoption and/or continuing use of
expensive treatments.
Governance mechanisms might a l s o be used to approach
the technology and inappropriate care i s s u e s . For
example, a National Health Board might include an
independent auditing function that would r e g u l a r l y
i s s u e reports r e l a t i n g p o t e n t i a l changes i n b e n e f i t s ,
new technologies and ongoing p r a c t i c e patterns to
-58-
�budget r e a l i t i e s and t h e c o s t s o f h e a l t h c a r e (CBO does
n o t d i s c u s s these governance q u e s t i o n s ) .
Such a mechanism might n o t be " s c o r a b l e , " b u t
might be viewed as something t h a t would h e l p
r e s t r a i n tendencies t o add b e n e f i t s and
t e c h n o l o g i e s w i t h o u t proper c o n s i d e r a t i o n b e i n g
g i v e n t o t h e i r e f f e c t s on budgets and c o s t
containment g o a l s .
4.
AN ALLIANCE WITH A LARGE MARKET SHARE (ACHIEVED BY SETTING
THE EMPLOYER THRESHOLD AT A HIGH NUMBER AND INTEGRATING
GOVERNMENT PROGRAMS I N THE NEW SYSTEM).
The r e p o r t o n l y touches on t h i s i s s u e , b u t seems t o
suggest t h a t l e a v i n g l a r g e employers and some
government programs o u t s i d e t h e new system might weaken
managed c o m p e t i t i o n ' s c a p a c i t y t o c o n s t r a i n c o s t s .
The l o g i c o f t h e CBO r e p o r t suggests t h a t i t would l o o k
more f a v o r a b l y on an A l l i a n c e t h a t : ( 1 ) had a l a r g e
market share; ( 2 ) i n c l u d e d employees from as many
employers as p o s s i b l e ; and ( 3 ) i n c l u d e d -- over t i m e a t
l e a s t -- Medicaid and Medicare r e c i p i e n t s .
IV. OTHER QUESTIONS/CIRCUMSTANCES THAT CBO BELIEVES MIGHT AFFECT
THE SAVINGS POTENTIAL OF MANAGED COMPETITION
1.
The e x t e n t t o which p r i c e s f o r HMO and i n d e m n i t y p l a n s
d i f f e r now and i n t h e f u t u r e . Wider d i f f e r e n t i a l s ,
presumably, would i n c r e a s e t h e p o t e n t i a l o f a consumer
c h o i c e mechanism t o reduce spending on h e a l t h c a r e .
•
2.
While CBO p r e s e n t s no data here, evidence suggests
t h a t v e r y wide p r i c e d i f f e r e n t i a l s e x i s t i n many
markets today. (See P a r t I I I A . ) .
The e x t e n t t o which consumers, g i v e n a p p r o p r i a t e i n f o r m a t i o n
and i n c e n t i v e s , would choose t o purchase l o w e r - c o s t p l a n s
t h a t might r e s t r i c t c h o i c e o f p r o v i d e r s .
•
Again, CBO p r e s e n t s no i n f o r m a t i o n here.
•
However, a growing body o f data suggests t h a t
g i v e n t h e c h o i c e under managed c o m p e t i t i o n - t y p e
circumstances, many consumers do s h i f t t o l o w e r c o s t p l a n s . (See P a r t I I I B)
•
The b e s t such i n f o r m a t i o n comes from p u b l i c
employee h e a l t h plans i n s e v e r a l s t a t e s , and from
s e v e r a l l a r g e employers who o f f e r managed
c o m p e t i t i o n - t y p e choices t o t h e i r employees.
-59-
�I.
Trends in HMOs and Managed Care in the Nation
flA/^d
f
The r e s u l t s from F o s t e r - H i g g i n s Survey and GHAA annual r e p o r t
show t h a t HMOs a r e i n c r e a s i n g i n b o t h e n r o l l m e n t and market
p e n e t r a t i o n i n t h e 57 l a r g e s t M e t r o p o l i t a n S t a t i s t i c a l Areas
(MSAs) i n t h e c o u n t r y . 87% o f a l l HMO e n r o l l m e n t and 56% o f t h e
US p o p u l a t i o n a r e i n these 57 MSAs.
A.
Terminology:
HMO: Prepaid health plan with comprehensive h e a t l h c a r e from
a panel of providers t o an e n r o l l e d population.
Indemnity Plan: T r a d i t i o n a l health insurance plan where
insured chooses any provider and i s reimbursed f o r expenses.
Model Type HMOs:
S t a f f : p r e p a i d by s a l a r i e d p h y s i c i a n s employment by
health plan
Group: c o n t r a c t w i t h one independent group p r a c t i c e
Network:Contract w i t h two o r more "
IPA:
Prepaid c o n t r a c t i n g w i t h p h y s i c i a n s independent
p r a c t i c e , associations f o r h e a l t h care services
PPO: Open ended HMO where consumer can s e l e c t e i t h e r
p r i m a r y care o r s p e c i a l t y p h y s i c i a n from panel
POS: Consumer must seek care t h r o u g h p r i m a r y c a r e
provider f i r s t before c o n s u l t i n g a s p e c i a l i s t
B. Enrollment and HMO penetration
rates
Total HMO enrollment nearly doubled in the last six years.
1992, enrollment increased 3-5% over 1991, including
approximately 40 million members.
/
^{[^oJt
In
I n 1992, t h e r e was -a-73% growth, 24% d e c l i n e and 2% unchanged HMO
membership a c r o s s — t h e c o u n t r y (Table 1 ) .
I n 1991, HMO e n r o l l m e n t grew b y j ^ ^ m i l l i o n i n t h e M i d A t l a n t i c and
P a c i f i c Regions,__and—by-^S^TTiTlIon i n t h e S o u t h A t l a n t i c Regions.
T h i s ggrcentagg^Shange f o l l o w s a change o f e n r o l l m e n t i n t h e
P a c i f i c r e g i o n \ o f 1 m i l l i o n e n r o l l e e s i n t h e p r e v i o u s two y e a r s .
( T a b l e 2)
± 1 dL
^
C.
Growth b y Model Type ( F o s t e r - H i g g i n s )
The g r e a t e s t percentage o f employers o f f e r i n d e m n i t y p l a n s ,
f o l l o w e d by HMOs, PPOs t h e n POS p l a n s . Since 1991, t h e number o f
employers o f f e r i n g i n d e m n i t y p l a n s have been s t e a d i l y d e c r e a s i n g .
HMO
PPO
POS
Indemnity
1991
60%
31%
11%
76%
iA
'C~^ j^~'
1992
61%
39%
11%
70%
Less t h a n one q u a r t e r o f those surveyed o f f e r an i n d e m n i t y p l a n
e x c l u s i v e l y (decrease from 27% i n 1991).
�30 p e r c e n t o f t h e respondants o n l y o f f e r HMOs.
Use o f POS p l a n s appears t o be a f u n c t i o n o f s i z e o f t h e
employer. Employers w i t h g r e a t e r t h a n 5,000 employees a r e
t w i c e as l i k e l y t o o f f e r POS p l a n s t h a n those w i t h fewer
t h a n 1,000.
F o s t e r - H i g g i n s noted t h e s m a l l e r t h e o r g a n i z a t i o n , t h e l e s s
l i k e l y i t was t o o f f e r a managed c a r e p l a n .
only o f f e r indemnity plans
o n l y o f f e r HMO p l a n s
give a choice
>1000
<500 employees
36%
36%
28%
59%
E n r o l l m e n t i n each o f t h e model t y p e s v a r i e d by r e g i o n :
Regions
Total%
HMO %
PP0%
POS %
Pacific
82
47
34
2
Mid
35
23
9
3
Atlantic
D. Market
Penetration
The trend from 1988-1991 was an increase in HMO penetration in
every region, except the Mid Atlantic Region where it remained
unchanged. Penetration ranged from 29.8% to 6.4%, the highest
being in CA and New England, and the lowest being the South
J)
Central Region (GHAA Table 2).
J ^ s r ; vftitts? ^ ^ ^ ^ ^ ^
n
j
The g r ^ w t h i j v m a n a g e d p l a n e n r o l l m e n t may be due t o t h e number o f
newt^lfespofiB^nts* r a t h e r t h a n i n c r e a s e d e n r o l l m e n t i n managed c a r e
plaits—where ~'employers a l r e a d y o f f e r e d them. When c o n t r o l l e d f o r ,
e n r o l l m e n t showed o n l y s l i g h t i n c r e a s e s i n HMOs and PPOs, and no
change i n POS p l a n s over 1991.
-
The percentage of employers which o f f e r managed care options
v a r i e s by region (FH).
1. P a c i f i c Region
94% o f a l l employers o f f e r a t l e a s t one managed c a r e
o p t i o n and 54% o f f e r o n l y HMOs
• 65% o f employers o f f e r a PPO i n 1992 ( 5 5 % i n 1991)
2. New England
• 12% o f employers o f f e r o n l y HMOs i n New England.
• 26% o f employers o f f e r a PPO i n 1992 ( 1 8 % i n 1991)
Ten L a r g e s t Metro Areas were ranked by population s i z e and
p e n e t r a t i o n r a t e f o r 1991.
• San F r a n c i s c o and Los Angeles, C a l i f o r n i a had t h e l a r g e s t
S/J^JP
�HMO p e n e t r a t i o n r a t e s ( 5 6 % and 4 7 % ) , and were t h e f o u r t h and
second l a r g e s t MSAs r e s p e c t i v e l y .
• I n c o n t r a s t . New York (NY-NJ-CT) had one o f t h e l o w e s t
p e n e t r a t i o n r a t e s (15%) and t h e l a r g e s t MSA. ( T a b l e 3 )
In general, t h e ' l a r g e r the s t a t e , the l a r g e r the number of
e n r o l l e e s i n HMOs; the enrollment seems to c o r r e l a t e with the
length of time that HMOs have been^tfe^edr-^ I n the nine markets
i n e x i s t a n c e longer than 30 v g a r ^ t h a t GHAA analyzed, a r e where
[J6% of t h e HMO members reside?^(GHAA Table 4)
E.
Pricing
The H e a l t h Care B e n e f i t s Survey ( F o s t e r - H i g g i n s 1992) showed
t h a t t h e c o s t o f HMOs i n c r e a s e d 8.8%, PPOs 10.5%, POS 8.4%
compared w i t h i n d e m n i t y plans which had a 14.2% i n c r e a s e i n c o s t .
Average c o s t p e r employee from 1991-1992
cost($)
% increase
Indemn
4080
14.2%
PPO
3708
10.5%
POS
3566
8.4%
HMO
3313
8.8%
y
-
1
r
T~r;
• indemnity plans averaged 23.2% more than HMOs.") . JL
• indemnity plans averaged 14.4% more than POS <
• indemnity plans averaged 10% more than PPOs / ^Jt_
C
c^*^ /
p
r
?
<
'
I
A
C-I^l&t
^^ ^^jl
/ u^.x ^ ^fM
^
^ey^ctl^l
r
iP
While employer s i z e was n o t a f a c t o r i n h e a l t h b e n e f i t ? ' c o s t , ^ p ^ H~^t^ ^
s m a l l employers w i t h a 9.6% i n c r e a s e and l a r g e employers w i t h ^ ^ I M ^ t ^
10.8%.
\t&*Gy
Costs i n Geographic r e g i o n s :
'
H e a l t h b e n e f i t s c o s t s and managed care model t y p e c o s t s v a r i e d
regionally.
The r e g i o n s w i t h t h e l o w e s t HMO p e n e t r a t i o n i n t h e N a t i o n seemed
t o have a h i g h e r r a t e o f b e n e f i t s c o s t i n c r e a s e t h a n any o t h e r
r e g i o n (FH) and lower c o s t i n c r e a s e s i n i n d e m n i t y p l a n s .
Regions w i t h h i g h e r HMO p e n e t r a t i o n had lower t o t a l h e a l t h
b e n e f i t s c o s t i n c r e a s e s and much h i g h e r c o s t i n c r e a s e s i n
indemnity plans.
1. South C e n t r a l r e g i o n
•
•
6% HMO p e n e t r a t i o n
PPO and POS c o s t s were s l i g h t l y l e s s c o s t l y t h a n i n d e m n i t y
p l a n s (around 2 % ) , and HMOs r o u g h l y 8% (GHAA).
Rate o f i n c r e a s e i n average c o s t i n d e m n i t y p l a n s 11.8%, and
r a t e o f i n c r e a s e i n PPOs o f 23.5%.
2. Mid A t l a n t i c r e g i o n
y
x
'
�•
HMO and POS were 26.5 and 21.5% l e s s expensive t h a n i n d e m n i t y
plans, respectively.
3. P a c i f i c r e g i o n
• T r a d i t i o n a l i n d e m n i t y p l a n c o s t rose f a s t e r t h a n any o t h e r
r e g i o n ( 1 8 . 3 % ) . Average c o s t i n c r e a s e i n PPOs was 1.9% and
HMOs 7.4%.
Average Costs
• Average c o s t p e r employee by Plan Type:
New York
Philadelphia
Houston
Indem
$4852
$4696
$3627
HMO
$3448
$3319
$3576
e f
/
L^r
'
lO-ft
^ C C
1
- ^ ^
yye^J?
( U ^ y ^ f i ^ ^
M J ^ ^
d ^ f ^ ^ ^
Foster Higgins claims that the most significant factor in
reducing the rate of increase of total health benefits from
1991-1992 was attributed to the use of managed care
^
organizations, [^^l
-fv^_ a c~hM& ^ <t
f
l
Copayments, D e d u c t i b l e s and Coinsurance (Table 1 3 ) :
Coinsurance (1991)
I n d e m n i t y coinsurance was t y p i c a l l y 20% i n 1991 f o r
h o s p i t a l i z a t i o n and p r i m a r y care v i s i t s .
Of i n d e m n i t y p l a n s , 73% had coinsurance f o r i n p a t i e n t
expenses i n 1991.
• PPO c o i n s u r a n c e was 10% f o r i n - n e t w o r k PPOs and 20%
f o r o u t o f network PPOs.
• Of HMOs, o n l y 13% had coinsurance f o r i n p a t i e n t
expenses i n 1991.
D e d u c t i b l e s (1991)
• Of i n d e m n i t y p l a n s , 97% employees faced d e d u c t i b l e s i n
1991.
Of PPO p l a n s , 66% o f employees faced d e d u c t i b l e s i n
1991.
• Of HMOs, a t l e a s t 7 1 % o f members do n o t have
deductibles.
Additional
Tables:
HMO Monthly Premiums and Annual I n c r e a s e , 1991 ( T a b l e 11)
HMO Monthly Premiums by Region, 1991 (Table 12) and I n c r e a s e s
by Region (Map)
Mean Monthly HMO Premiums and I n c r e a s e , 1991 ( T a b l e 14)
I n d e m n i t y Plan Costs v s . Managed Care Plan Costs ( T a b l e 17)
�I I . What do plans c o s t ? How do HMOs compare against indemnity
plans? How do p r i c e s vary by region?
A. ALCOA
• ( F o r System overview, see I n n o v a t i o n s s e c t i o n . )
• 1991 managed care s i t e s averaged 5% i n f l a t i o n v s . 14% i n
t r a d i t i o n a l indemnity plan s i t e s .
Trend c o n t i n u e d i n 1992.
• ALCOA Table 1
• T h i s t a b l e e x h i b i t s t h e lower i n c r e a s e i n t o t a l
h e a l t h c a r e c o s t s f o r ALCOA as compared t o an Employer
Survey Group from 1989-1992.
C. D i g i t a l Equipment Corporation
• ( F o r System overview, see I n n o v a t i o n s s e c t i o n . )
• D i g i t a l Table IA, Graph 1. Graph 2 shows p r i c e
d i f f e r e n t i a l s f o r t h e f a m i l y p l a n employee c o n t r i b u t i o n
between HMO and i n d e m n i t y p l a n s . I n 1991, D i g i t a l
implemented i t s managed c o m p e t i t i o n s t r a t e g y .
• Employees w i t h t h e i n d e m n i t y p l a n p a i d 506% more i n 1993
t h a n i n 1990.
• Employees i n HMOs p a i d 29% l e s s i n 1993 t h a n i n 1990.
M i g r a t i o n t o HMOs:
• I n 1991, D i g i t a l implemented i t s managed c o m p e t i t i o n
strategy.
• E n r o l l m e n t decreased 34% i n i n d e m n i t y p l a n s and
i n c r e a s e d 39% i n HMOs.
• I n d e m n i t y p l a n s c o n t i n u e d t o decrease e n r o l l m e n t by
5 1 % and 4 1 % t h e next two years, w h i l e HMOs saw
i n c r e a s e d e n r o l l m e n t , 26% and 4% from 1991-1993.
• From 1991-1993, HMOs were c o n s i s t e n t l y l e s s e x p e n s i v e t h a n
i n d e m n i t y p l a n s (Table 1 ) . The lowest c o s t HMO was $308 i n
1992, v e r s u s t h e h i g h e s t i n d e m n i t y p l a n o f $3068.
• From 1990-1993, i n d e m n i t y p l a n s e x h i b i t e d i n c r e a s e s i n
premiums anywhere from 375-812%, compared w i t h v e r s u s 12.534% decreases f o r HMOs.
» Q u e s t i o n s / I n f o S t i l l Needed:
•Unknown whether D i g i t a l uses a f i x e d d o l l a r c o n t r i b u t i o n o r
a f i x e d percentage.
�D. FEHBP
• ( t h i s data has y e t t o be summarized / a n a l y z e d )
• 1. Graphs on:
• Comparisons between Boston, Chicago, L.A., New
York, P h i l a d e l p h i a , S.F., Washington, D.C. f o r :
• h e a l t h p l a n premiums f f s v s . hmo
• g o v t , share premiums f f s v s . hmo
• employee share premiums f f s . v s . hmo
• n a t i o n a l average p l a n v a l u e
• e n r o l l e e plan preferences
• premiums and b e n e f i t s
• 2. Data f o r years 1987-1993 f o r s e l e c t e d p l a n s i n
each r e g i o n served by K a i s e r
• R e f l e c t i n g e s t i m a t e s o f t o t a l o u t o f pocket
c o s t s i n c l u d i n g copays, d e d u c t i b l e s , and non
covered s e r v i c e s .
• a. t o t a l c o s t s f o r s i n g l e employees and f a m i l i e s
• b. d i f f e r e n c e s between K a i s e r c o s t s and
competing p l a n c o s t s
• c. d i f f e r e n c e s i n c o s t s as a percentage o f
Kaiser costs.
E.
GTE
• ( F o r System overview, see I n n o v a t i o n s s e c t i o n . )
• 1992-1993 h i o p t i o n i n d e m n i t y p l a n annual employee
premium expense i n c r e a s e d 12.5% t o $4177.
• 1992-1993 average HMO premium expense i n c r e a s e d 7.3%
t o $3190, a d j u s t e d f o r changes i n b e n e f i t s .
F. K a i s e r
• K a i s e r C o m p e t i t i v e Rate Study
• P r o j e c t e d 1994 HMO c o m p e t i t o r r a t e i n c r e a s e s
• 1993 Graphs f o r Washington and B a l t i m o r e Area
Groups
• Membership and HMO marketshare c h a r t
• F i n a n c i a l Charts and Graphs f o r S e l e c t e d
Competitors
H. The S t a t e of Minnesota
• See Appendix B f o r a l l Minnesota i n f o r m a t i o n
• Tables and Graphs:
• Employee Coverage Premiums 1988-93 t a b l e and
graph.
• HMO Premiums v s . S e l f - I n s u r e d Premiums Employee Coverage
• Employee Coverage and Market Share 1988-93 t a b l e
and graph.
�K. The State of Wisconsin
• (For System overview, see F i n a n c i a l Tools s e c t i o n . )
• 1983=base year, trend f o r premiums i n conventional
h e a l t h plans were double d i g i t increases f o r t h i s and
previous several years.
• 1984= f i r s t year using competitive model (see
F i n a n c i a l Tools s e c t i o n ) . Increase i n average h e a l t h
premium was 2.1%.
• 1984-1987 increase i n average h e a l t h premium was
5.88%. Medical i n f l a t i o n r a t e f o r t h i s period was
6.66%. I n adjusted d o l l a r s , the state's h e a l t h care
costs were reduced.
•1987-1988 increase i n average premium was 15.6%
compared t o r e g i o n a l increase o f 24.5%. 1988-1989
increase peaked a t 23.8%. 1989-1992 increases
stabilized.
• Factors c o n t r i b u t i n g t o 1987-1992 premium increases:
• New requirement t o reserve 6% o f paid claims.
• New s t a t e mandated b e n e f i t s i n c l u d i n g mental
health, mammograms, c h i r o p r a c t i c care.
• S h i f t t o greater f a m i l y plan enrollment.
• Subject t o assessments t o support the s t a t e ' s
high r i s k insurance pool.
• 1993 average premium increase drops t o lower
r a t e experienced during e a r l y years o f program.
�I I . What do plans c o s t ? How do HMOs compare against indemnity
plans? How do p r i c e s vary by region?
A. ALCOA
• ( F o r System overview, see I n n o v a t i o n s s e c t i o n . )
• 1991 managed care s i t e s averaged 5% i n f l a t i o n v s . 14% i n
t r a d i t i o n a l indemnity plan s i t e s .
Trend c o n t i n u e d i n 1992.
• ALCOA Table 1
• T h i s t a b l e e x h i b i t s t h e lower i n c r e a s e i n t o t a l
h e a l t h c a r e c o s t s f o r ALCOA as compared t o an Employer
Survey Group from 1989-1992.
C. D i g i t a l Equipment Corporation
• ( F o r System overview, see I n n o v a t i o n s s e c t i o n . )
• D i g i t a l Table IA. Graph 1. Graph 2 shows p r i c e
d i f f e r e n t i a l s f o r t h e f a m i l y p l a n employee c o n t r i b u t i o n
between HMO and i n d e m n i t y p l a n s . I n 1991, D i g i t a l
implemented i t s managed c o m p e t i t i o n s t r a t e g y .
• Employees w i t h t h e i n d e m n i t y p l a n p a i d 506% more i n 1993
t h a n i n 1990.
• Employees i n HMOs p a i d 29% l e s s i n 1993 t h a n i n 1990.
M i g r a t i o n t o HMOs:
• I n 1991, D i g i t a l implemented i t s managed c o m p e t i t i o n
strategy.
• E n r o l l m e n t decreased 34% i n i n d e m n i t y p l a n s and
i n c r e a s e d 39% i n HMOs.
• I n d e m n i t y p l a n s c o n t i n u e d t o decrease e n r o l l m e n t by
5 1 % and 4 1 % t h e n e x t two y e a r s , w h i l e HMOs saw
i n c r e a s e d e n r o l l m e n t , 26% and 4% from 1991-1993.
• From 1991-1993, HMOs were c o n s i s t e n t l y l e s s expensive t h a n
i n d e m n i t y p l a n s (Table 1 ) . The l o w e s t c o s t HMO was $308 i n
1992, versus t h e h i g h e s t i n d e m n i t y p l a n o f $3068.
• From 1990-1993, i n d e m n i t y p l a n s e x h i b i t e d i n c r e a s e s i n
premiums anywhere from 375-812%, compared w i t h versus 12.534% decreases f o r HMOs.
• Questions/ I n f o S t i l l Needed:
•Unknown whether D i g i t a l uses a f i x e d d o l l a r c o n t r i b u t i o n o r
a f i x e d percentage.
�D. FEHBP
• ( t h i s data has y e t t o be summarized / a n a l y z e d )
• 1. Graphs on:
• Comparisons between Boston, Chicago, L.A., New
York, P h i l a d e l p h i a , S.F., Washington, D.C. f o r :
• h e a l t h p l a n premiums f f s v s . hmo
• g o v t , share premiums f f s v s . hmo
• employee share premiums f f s . v s . hmo
• n a t i o n a l average p l a n v a l u e
• e n r o l l e e plan preferences
• premiums and b e n e f i t s
• 2. Data f o r y e a r s 1987-1993 f o r s e l e c t e d p l a n s i n
each r e g i o n served by K a i s e r
• R e f l e c t i n g e s t i m a t e s o f t o t a l o u t o f pocket
c o s t s i n c l u d i n g copays, d e d u c t i b l e s , and non
covered s e r v i c e s .
• a. t o t a l c o s t s f o r s i n g l e employees and f a m i l i e s
• b. d i f f e r e n c e s between K a i s e r c o s t s and
competing p l a n c o s t s
• c. d i f f e r e n c e s i n c o s t s as a percentage o f
Kaiser costs.
E. GTE
• ( F o r System overview, see I n n o v a t i o n s s e c t i o n . )
• 1992-1993 h i o p t i o n i n d e m n i t y p l a n annual employee
premium expense i n c r e a s e d 12.5% t o $4177.
• 1992-1993 average HMO premium expense i n c r e a s e d 7.3%
t o $3190, a d j u s t e d f o r changes i n b e n e f i t s .
F. K a i s e r
• K a i s e r C o m p e t i t i v e Rate Study
• P r o j e c t e d 1994 HMO c o m p e t i t o r r a t e i n c r e a s e s
• 1993 Graphs f o r Washington and B a l t i m o r e Area
Groups
• Membership and HMO marketshare c h a r t
• F i n a n c i a l Charts and Graphs f o r S e l e c t e d
Competitors
H. The S t a t e of Minnesota
• See Appendix B f o r a l l Minnesota i n f o r m a t i o n
• Tables and Graphs:
• Employee Coverage Premiums 1988-93 t a b l e and
graph.
• HMO Premiums v s . S e l f - I n s u r e d Premiums Employee Coverage
• Employee Coverage and Market Share 1988-93 t a b l e
and graph.
�K. The S t a t e of Wisconsin
• ( F o r System overview, see F i n a n c i a l Tools s e c t i o n . )
• 1983=base year, t r e n d f o r premiums i n c o n v e n t i o n a l
h e a l t h p l a n s were double d i g i t i n c r e a s e s f o r t h i s and
previous several years.
• 1984= f i r s t y e a r u s i n g c o m p e t i t i v e model ( s e e
F i n a n c i a l Tools s e c t i o n ) . I n c r e a s e i n average h e a l t h
premium was 2.1%.
• 1984-1987 i n c r e a s e i n average h e a l t h premium was
5.88%. Medical i n f l a t i o n r a t e f o r t h i s p e r i o d was
6.66%. I n a d j u s t e d d o l l a r s , t h e s t a t e ' s h e a l t h c a r e
c o s t s were reduced.
•1987-1988 i n c r e a s e i n average premium was 15.6%
compared t o r e g i o n a l i n c r e a s e o f 24.5%. 1988-1989
i n c r e a s e peaked a t 23.8%. 1989-1992 i n c r e a s e s
stabilized.
• F a c t o r s c o n t r i b u t i n g t o 1987-1992 premium i n c r e a s e s :
• New r e q u i r e m e n t t o r e s e r v e 6% o f p a i d c l a i m s .
• New s t a t e mandated b e n e f i t s i n c l u d i n g mental
h e a l t h , mammograms, c h i r o p r a c t i c c a r e .
• S h i f t t o greater family plan enrollment.
• S u b j e c t t o assessments t o s u p p o r t t h e s t a t e ' s
h i g h r i s k insurance pool.
• 1993 average premium i n c r e a s e drops t o lower
r a t e experienced d u r i n g e a r l y y e a r s o f program.
�III.
F i n a n c i a l Tools To Manage Costs
Experience has shown t h a t consumers a r e p r i c e s e n s i t i v e , and
when o f f e r e d f i n a n c i a l i n c e n t i v e s w i l l e n r o l l i n a lower
c o s t h e a l t h p l a n . The f o l l o w i n g companies, p l a n s , and
s t a t e s have r e a l i z e d i n c r e a s e s i n HMO e n r o l l m e n t by u s i n g
t o o l s o f managed c o m p e t i t i o n . Examples o f t o o l s used a r e
t i e i n g t h e employer c o n t r i b u t i o n t o t h e low c o s t p l a n ,
f l e x p l a n approach, and t h e use o f a benchmark p l a n .
I n t h e 1991 GHAA survey ( p l 7 ) , t h e methods used by t h e
employer t o s e t t h e i r c o n t r i b u t i o n s were t h e f o l l o w i n g :
Equal D o l l a r Amount
Equal Percentage
Negotiated
FEHBP
Other
% o f Employers
32.8%
14.6%
14.2%
16.8%
21.6%
For v a r i o u s reasons, employers have chosen t o use v a r i o u s
t o o l s t o c o n t a i n c o s t s . The m a j o r i t y o f those surveyed by
GHAA o f f e r e d a f l a t d o l l a r amount t o t h e employee and
r e q u i r e d t h a t t h e y pay t h e d i f f e r e n c e between t h e low c o s t
p l a n and t h e p l a n o f t h e i r c h o i c e .
Of t h e employers o f f e r i n g equal percentages t h a t we
analyzed, many employers were s w i t c h i n g t o u s i n g an equal
d o l l a r amount.
We analyzed t h e f o l l o w i n g employers based on whether t h e i r
f i n a n c i a l s t r u c t u r e g i v e s employees i n c e n t i v e s t o choose t h e
low c o s t p l a n . I n g e n e r a l , those u s i n g an equal d o l l a r
amount found t h e y were most s u c c e s s f u l i n i n f l u e n c i n g
employees t o s w i t c h t o t h e low c o s t p l a n s , and was t h e t r e n d
of most employers who found o t h e r methods f r u i t l e s s .
B.
American Express T r a v e l Related
Services
1
While American Express (TRS) c u r r e n t l y c o n t r i b u t e s more
money when employee chooses an HMO. Amex bases t h e employee
c o n t r i b u t i o n on t h e benchmark p l a n (most e f f i c i e n t / h i g h
quality).
Amex i s moving towards t h e g o a l o f o f f e r i n g a f i x e d employer
c o n t r i b u t i o n t i e d t o t h e lowest c o s t p l a n i n o r d e r t o b e t t e r
c o n t a i n c o s t s . They expect t h i s t r a n s i t i o n t o t a k e 3-5
years.
• Employees a r e c l u s t e r e d i n Phoenix, F t .
Lauderdale, S a l t Lake C i t y , J a c k s o n v i l l e , and NYC.
�1992.
• The company spent $94 m i l l i o n on medical c o s t s f o r
28,000 covered employees.
1993.
•Indemnity and PPO coverage are reduced, w h i l e
d e d u c t i b l e s and copays a r e i n c r e a s e d .
• Higher p a i d employees share e q u i t a b l y on c o s t s based
on t o t a l based s a l a r y w i t h no cap.
• HMO p l a n s approach a s t a n d a r d b e n e f i t d e s i g n .
3. F i n a n c i a l I n c e n t i v e s t o Choose HMOs
Because PPOs and t h e i n d e m n i t y p l a n a l s o have s i g n i f i c a n t
d e d u c t i b l e s and copays, t h e i n c e n t i v e i s even g r e a t e r f o r
t h e employee t o j o i n an HMO. (see a l s o Tables 3 and 4 ) .
The employees' share o f t h e premiums
HMOs, t h e n f o r PPOs, and h i g h e s t f o r
premiums f o r 1993 have decreased f o r
i n c r e a s e d f o r PPOs and t h e i n d e m n i t y
i n 1993 a r e l o w e s t f o r
t h e i n d e m n i t y p l a n . The
HMOs c o n s i d e r a b l y , and
p l a n compared t o 1992.
• American Express i s p a y i n g more per employee i n 1993
f o r t h e i n d e m n i t y p l a n t h a n t h e HMO, and p a y i n g t h e
l e a s t i n 1993 f o r t h e PPO
• American Express pays 19% more per employee f o r
an HMO i n 1993 t h a n i n 1992.
( T h i s i n c r e a s e c o u l d be due t o s t a r t up c o s t s o f a
new program. F u t u r e t r e n d s should be examined)
• Employees pay l e s s (premiums and o u t o f p o c k e t ) f o r
HMOs t h a n f o r PPOs and i n d e m n i t y o p t i o n s .
I n t e r p r e t a t i o n of American Express Tables:
• Amex Table 1 .
(These employee c o s t s do n o t i n c l u d e d e d u c t i b l e s
and copays)
• Amex Table 2.
• Plan Cost = employer c o s t (employer c o s t +
employee c o n t r i b u t i o n towards premium)
• Plan Cost - TRS Cost = employee c o n t r i b u t i o n t o
premium.
• Plan Value = r e p r e s e n t s t h e amount o f a t y p i c a l
p l a n charge covered by t h e p l a n and n o t by copays
o r d e d u c t i b l e s . (1.00 - p l a n v a l u e = amount p a i d
by copays o r d e d u c t i b l e s ) .
• The p l a n v a l u e column r e i t e r a t e s t h a t t h e
d e d u c t i b l e s and copays a r e minimal i n HMOs
compared t o PPOs and i n d e m n i t y p l a n s , and t h e
d i f f e r e n c e has widened s i n c e 1992.
• TRS% = p e r c e n t o f t o t a l h e a l t h b i l l t h a t TRS
pays.
�• American Express i s c o n t r i b u t i n g a l a r g e r percentage
towards t o t a l HMO c o s t s i n 1993 t h a n i t i s f o r PPO and
i n d e m n i t y c o s t s (change from 1992).
• D e s p i t e t h e l a r g e r percentage, i t s t i l l manages t o
c o n t i b u t e almost t h e same share o v e r a l l o f h e a l t h c o s t s .
(82% compared t o 81%)
4. Employee e n r o l l m e n t changes as a r e s u l t o f i n c e n t i v e s .
American Express Table 3.
• Since implementing f i n a n c i a l i n c e n t i v e s f o r employees
t o choose HMOs, HMO e n r o l l m e n t has grown
s i g n i f i c a n t l y i n a s h o r t span o f t i m e .
• HMO e n r o l l m e n t grew a f u l l 62%, w h i l e t h e
i n d e m n i t y p l a n and PPO l o s t 27% and 50% e n r o l l m e n t i n
t h e same year, r e s p e c t i v e l y .
5. Q u e s t i o n s / I n f o s t i l l needed.
• E s t i m a t e d c o s t savings 12 m i l l i o n - where i s t h i s
coming from?
• Why do HMOs seem more expensive? Could i t be i n i t i a l
investment o f new system?
• P r i c e s o f p l a n s and t y p e s o f p l a n s per r e g i o n ?
C.Bank o f America: n o t good i n c e n t i v e s
Bank o f America covers i t s employees by p a y i n g 75% o f t h e
c o s t o f t h e premium, and 25% shared by t h e employee.
Because t h e company pays t h i s percentage r e g a r d l e s s o f t h e
p l a n chosen, t h e r e i s a r e l a t i v e l y s m a l l d i f f e r e n c e between
an employee choosing t h e low c o s t HMO and h i g h e r c o s t PPO.
HMO
r e l a t i v e cost
per month
percent enrollment
POS
PPO
$0
$20
$30
60%
15%
25%
n o t e : PPO based on e x p e r i e n c e .
Rate w i l l i n c r e a s e more d r a m a t i c a l l y
B o f A has n o t i c e d t h e y c o u l d save almost 40% i f t h e
employee chose t h e low c o s t p l a n i n s t e a d o f t h e h i g h c o s t
p l a n ($143-$203). They have s i n c e changed t h e i r f i n a n c i a l
i n c e n t i v e s f o r t h e employee, under t h e assumption t h a t
consumers would make a c o s t conscious d e c i s i o n when g i v e n
t h e c h o i c e o f p a y i n g t h e d i f f e r e n c e o u t o f pocket.
�By p a y i n g a f l a t r a t e c o n t r i b u t i o n , t h e y expect t h e employee
w i l l choose t h e low c o s t p l a n t o a v o i d h i g h e r c o s t s h a r i n g .
The c u r r e n t d i s t r i b u t i o n shows t h a t t h e l o w e s t c o s t HMOs
have t h e h i g h e s t e n r o l l m e n t . They expect t h e e n r o l l m e n t i n
t h e HMO t o i n c r e a s e d r a m a t i c a l l y n e x t year.
Bank o f America a l s o covers 19,000 r e t i r e e s .
Consistent
w i t h o t h e r evidence t h a t o l d e r p o p u l a t i o n s do n o t make
h e a l t h c a r e d e c i s i o n s based on c o s t , these r e t i r e e s d i d n o t
use t h e f i n a n c i a l i n c e n t i v e s o f f e r e d t o them. B o f A o f f e r s
a f i x e d c o n t r i b u t i o n t h a t v a r i e s by p l a n t y p e . While t h e
HMO i s s u b s t a n t i a l l y l e s s expensive and i n d i v i d u a l must pay
t h e d i f f e r e n c e between t h e low c o s t p l a n and t h e
c o n t r i b u t i o n , t h e employees s t i l l choose t h e h i g h c o s t p l a n
often.
F.
Department o f Water and Power
LA,CA
• The DWP covers 11-12,000 a c t i v e employees, most o f whom
are u n i o n i z e d . DWP o f f e r s i t s own s e l f funded i n d e m n i t y
p l a n (a PPO as o f 1989) and f o u r HMOs. The Union b a r g a i n e d
t o choose K a i s e r Family Plan t o be t h e benchmark p l a n , t o
which t h e employers match t h e c o n t r i b u t i o n 100%.
• DWP pays 100% f o r any o f t h e HMOs f o r s i n g l e employee and
s i n g l e employee p l u s one dependent. I f t h e employee needs
f a m i l y coverage, t h e employee must pay t h e d i f f e r e n c e
between t h e i r chosen HMO and K a i s e r f a m i l y p l a n .
• When i n 1986, t h e i n d e m n i t y p l a n c o s t rose s u b s t a n t i a l l y ,
and e n r o l l m e n t dropped from 1000 t o 300 by 1988.
• Current enrollment:
K a i s e r 51.4%
Other HMOs 27%
S e l e c t Care 12%
• I n 1992, P a c i f i c a r e HMO covered DWP employees. While
K a i s e r was t r a d i t i o n a l l y t h e low c o s t p l a n , P a c i f i c a r e was
a b l e t o o f f e r even cheaper r a t e s .
• While DWP encourages employees who choose t h e f a m i l y p l a n
t o choose t h e HMO t h r o u g h a d r a s t i c p r i c e d i f f e r e n t i a l
($143.81 v s $0/month), i t does n o t encourage t h e employees
t o choose t h e low c o s t p l a n .
• Take, f o r example, t h e d i f f e r e n c e between K a i s e r and
P a c i f i c a r e . The employer pays $167.39 and $143
r e s p e c t i v e l y , a d i f f e r e n c e o f 18%.
I f t h e employer were
encouraged t o j o i n P a c i f i c a r e versus K a i s e r , t h e company
would be s a v i n g money.
�G. D i g i t a l Equipment Corporation
2
System Overview
• Since 1991, D i g i t a l ' s emphasis has been on
d e v e l o p i n g HMOs w i t h p o i n t o f s e r v i c e p l a n s t o
increase choice.
• G r e a t e s t c o n c e n t r a t i o n s o f employees a r e i n
Massachusetts, New Hampshire, and Colorado.
F i n a n c i a l I n c e n t i v e s i n System
D i g i t a l t i e s i t s c o n t r i b u t i o n towards an employee's
h e a l t h c a r e t o t h e most e f f i c i e n t p l a n i n t h e area.
• Most e f f i c i e n t p l a n i s d e f i n e d as "the p l a n t h a t
has t h e h i g h e s t p o t e n t i a l t o d e l i v e r
c o s t - e f f i c i e n t , q u a l i t y c a r e a t an
a f f o r d a b l e p r i c e . . . not n e c e s s a r i l y the
l e a s t expensive HMO i n a p a r t i c u l a r
area."
• I f an employee chooses a l e s s e f f i c i e n t
p r o v i d e r , he must pay a h i g h e r share o f t h e
premium.
• D i g i t a l Tables 1 and l a show f a m i l y c o n t r i b u t i o n s t o
premiums o f d i f f e r e n t p l a n s b e f o r e and a f t e r t h e
i m p l e m e n t a t i o n o f t h e managed care s t r a t e g y .
• While t h e employee's c o n t r i b u t i o n t o f a m i l y
i n d e m n i t y p l a n s has i n c r e a s e d an average o f 506%
s i n c e 1990, t h e c o n t r i b u t i o n t o t h e HMO has
decreased an average o f 29%, l e a v i n g t h e average
f a m i l y c o n t r i b u t i o n t o t h e i n d e m n i t y p l a n 6 times
h i g h e r t h a n t h e HMO c o n t r i b u t i o n .
• Copays and d e d u c t i b l e s are n o t c o n s i d e r e d i n
these t a b l e s .
3. E n r o l l m e n t Changes as a R e s u l t o f I n c e n t i v e s
• D i g i t a l Table 2 and Graph 1
• T h i s graph and t a b l e i l l u s t r a t e t h e d r a m a t i c
change i n e n r o l l m e n t from i n d e m n i t y p l a n s t o HMOs
as f i n a n c i a l i n c e n t i v e s from
D i g i t a l made HMOs more a t t r a c t i v e t o employees.
Most o f t h e s w i t c h i n g o f p l a n s was i n t h e i n i t i a l
two years b u t has a l s o c o n t i n u e d t h r o u g h 1993.
4. Questions / I n f o S t i l l Needed.
• I s D i g i t a l ' s c o n t r i b u t i o n a f i x e d d o l l a r amount o r a
f i x e d percentage?
�I . GTE
3
GTE uses a t e c h n i q u e c a l l e d v a l u e p r i c i n g t o r a t e i t s
p l a n s based on q u a l i t y and e f f i c i e n c y and t r a n s l a t e t h e
r a t i n g s i n t o employee p r i c e s .
1. System o v e r v i e w , (see I n n o v a t i o n s s e c t i o n ) .
2. F i n a n c i a l I n c e n t i v e s i n System
• Flexplan
• Value P r i c i n g , GTE Tables 1 and 2.
• Table 1. T h i s i l l u s t r a t i o n shows how t h e
e f f i c i e n c y f a c t o r i s d e r i v e d from I . D., and
how low q u a l i t y i s added t o t h e c o s t o f t h e
plans.
• Table 2. T h i s t a b l e shows how p r i c i n g f o r
t h e employee occurs r e l a t i v e t o t h e benchmark
HMO.
• Employer p r i c i n g i s f o r a percentage o f
p l a n chosen. GTE i s hoping t o move t o a
fixed dollar contribution.
3. E n r o l l m e n t Changes
. HMO e n r o l l m e n t grew from 40% t o 46% i n 1993.
GTE b e l i e v e s t h i s change was due m a i n l y t o p r i c i n g
d i f f e r e n c e s because m a r k e t i n g e f f o r t s remained
b a s i c a l l y t h e same.
�J . The State of Minnesota
• See Appendix B f o r a l l Minnesota i n f o r m a t i o n
• Tables and Graphs:
• Tables 1-5 - Premiums and Enrollments.
• Figures 2-7 - Enrollments State of Minnesota
Employees.
• Figures 2A-7A - Enrollments Univ. of Minnesota
Employees.
• Table 6 - Savings from Employee Choice.
�K. The S t a t e of Wisconsin
4
Wisconsin c o n t r i b u t e s a f i x e d d o l l a r amount towards
employees' premiums. They pay 105% o f t h e l o w e s t c o s t
i n t h e county o f r e s i d e n c e o r 90% o f t h e c o n v e n t i o n a l
i n s u r a n c e premium, whichever i s l e s s .
HMO
1. System Overview.
• 188,000 s t a t e and l o c a l employees, dependents, and
r e t i r e e s covered.
• Over 1/4 o f employees l i v e i n Dane County, o t h e r s
a r e spread t h r o u g h o u t a l l c o u n t i e s , r u r a l and urban.
• A l l employees a r e o f f e r e d a c h o i c e o f a t l e a s t two
competing p l a n s , and i n s e v e r a l areas, t h e r e a r e more
choices.
• B e n e f i t s : a l l p l a n s ' b e n e f i t l e v e l s must be
s u b s t a n t i a l l y e q u i v a l e n t t o t h e S t a t e ' s FFS p l a n which
ranked #1 o f a l l s t a t e s by Segal Co. e v a l u a t i o n .
2. F i n a n c i a l I n c e n t i v e s i n System
• B l i n d Premium B i d d i n g
• Premiums a r e s e t each y e a r t h r o u g h an annual
b l i n d b i d process from a l l p a r t i c i p a t i n g p l a n s .
Bids must be deemed q u a l i f i e d by a c o n s u l t i n g
actuary.
• Fixed C o n t r i b u t i o n
• As s t a t e d above, t h e s t a t e i s r e q u i r e d t o pay no
more t h a n 105% o f t h e l o w e s t c o s t b i d i n t h e
employee's county o f r e s i d e n c e , ( n o t t o exceed
100% o f t h e premium) and t h e employee w i l l pay
t h e d i f f e r e n c e up t o t h e f u l l premium c o s t i f a
more expensive p l a n i s chosen.
• The s t a t e advocates d e c r e a s i n g t h e employer
c o n t r i b u t i o n t o 100% o f t h e low c o s t p l a n , b u t has
met s t r o n g employee group r e s i s t a n c e .
3. E n r o l l m e n t Changes as a R e s u l t o f I n c e n t i v e s
•Table 1.
• T h i s t a b l e i l l u s t r a t e s t h r o u g h s e v e r a l examples
t h e impact o f an i n c r e a s e i n o u t o f pocket
employee premium expenses on e n r o l l m e n t i n h e a l t h
plans.
• 1988-89 P h y s i c i a n s Plus HMO: 1988 Employee
cost/month i n c r e a s e d from f r e e t o $12.53/month and
membership decreased by 7%. 1989 t h e premium was
decreased so employees had no oop premium expense,
and membership i n c r e a s e d by 10%.
• 1991 PrimeCare HMO: A l a r g e HMO who i n c r e a s e d
i t s premium r e s u l t i n g i n employee oop expense o f
$24.44/month and a decrease i n membership o f 16%.
Samaritan and Maxicare, t h e o n l y HMOs i n t h e
county t h a t o f f e r e d premiums a t t h e l e v e l o f t h e
�f i x e d c o n t r i b u t i o n g r e a t l y increased
enrollments.
their
• 1984: F i r s t open e n r o l l m e n t p e r i o d f o r new
system. 60% o f employees e n r o l l e d i n t o t a l o f 16
HMOs. P r e v i o u s l y had 15% o f employees i n t o t a l o f
8 HMOs.
• I n 1993 have over 85% o f employees i n HMOs, o n l y
15% a r e i n one o f two FFS p l a n s o f f e r e d .
4. Conclusions
• Through c l o s e d b i d d i n g , open e n r o l l m e n t , and t h e
employer c o n t r i b u t i o n t i e d t o t h e
low c o s t p l a n
i n an area, t h e S t a t e o f Wisconsin
has been s u c c e s s f u l i n p r o v i d i n g
i n c e n t i v e s f o r employees t o s w i t c h
i n t o HMOs.
• System has been i n p l a c e f o r 10 y e a r s .
�L. Xerox
s
Xerox has developed a benchmark p r i c e w i t h a h i g h e r
p a y r o l l d e d u c t i o n f o r t h e i n d e m n i t y p l a n v s . t h e HMO,
based on benchmarks i n each o f 160 s e l e c t e d markets.
• Assumes a l l p l a n s meet d e f i n e d l e v e l o f q u a l i t y .
H i g h e s t q u a l i t y and most c o s t e f f e c t i v e p l a n s e s t a b l i s h
t h e benchmark f o r t h e area.
1. System overview, (see I n n o v a t i o n s s e c t i o n . )
2. F i n a n c i a l I n c e n t i v e s and E n r o l l m e n t I n c r e a s e s .
• F a l l , 1991 Xerox implemented a modified employee
p a y r o l l deduction program based on a benchmark HMO i n
each of 160 s e l e c t e d markets. Annual family p a y r o l l
deduction f o r benchmark HMO was $228 v s . indemnity plan
of $1,200. Benchmark HMO enrollment doubled to 23% i n
Jan, 1992. T o t a l HMO membership grew from 52% to 59%.
• F a l l , 1992 annual family p a y r o l l deduction f o r
benchmark HM0= $251 v s . indemnity plan= $1654. T o t a l
HMO enrollment increased to 62%.
1. from American Express T r a v e l R e l a t e d S e r v i c e s M e d i c a l Program
S t r a t e g y 1992-96.
2. from John Hancock F i n a n c i a l S e r v i c e s
3. from GTE C o r p o r a t i o n
4. from S t a t e o f Wisconsin Department o f Employee T r u s t Funds
memos c o m p i l e d by Thomas Korpady.
5. from U.S.
H e a l t h c a r e packet
�
Dublin Core
The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/.
Title
A name given to the resource
Health Care Task Force Records
Creator
An entity primarily responsible for making the resource
White House Health Care Task Force
Is Part Of
A related resource in which the described resource is physically or logically included.
<a href="https://catalog.archives.gov/id/10443060" target="_blank">National Archives Catalog Description</a>
Description
An account of the resource
<p>This collection contains records on President Clinton’s efforts to overhaul the health care system in the United States. In 1993 he appointed First Lady Hillary Rodham Clinton to be the head of the Health Care Task Force (HCTF). She traveled across the country holding hearings, conferred with Senators and Representatives, and sought advice from sources outside the government in an attempt to repair the health care system in the United States. However, the administration’s health care plan, introduced to Congress as the Health Security Act, failed to pass in 1994.</p>
<p>Due to the vast amount of records from the Health Care Task Force the collection has been divided into segments. Segments will be made available as they are digitized.</p>
<p><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0885-F+Segment+1"><strong>Segment One</strong></a><br /> This collection consists of Ira Magaziner’s Health Care Task Force files including: correspondence, reports, news clippings, press releases, and publications. Ira Magaziner a Senior Advisor to President Clinton for Policy Development was heavily involved in health care reform. Magaziner assisted the Task Force by coordinating health care policy development through numerous working groups. Magaziner and the First Lady were the President’s primary advisors on health care. The Health Care Task Force eventually produced the administration’s health care plan, introduced to Congress as the Health Security Act. This bill failed to pass in 1994.<br /> Contains 1065 files from 109 boxes.</p>
<p><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0885-F+Segment+2"><strong>Segment Two</strong></a><br /> This segment consists of records describing the efforts of First Lady Hillary Rodham Clinton to get health care reform through Congress. This collection consists of correspondence, newspaper and magazine articles, memos, papers, and reports. A significant feature of the records are letters from constituents describing their feelings about health care reform and disastrous financial situations they found themselves in as the result of inadequate or inappropriate health insurance coverage. The collection also contains records created by Robert Boorstin, Roger Goldblatt, Steven Edelstein, Christine Heenan, Lynn Margherio, Simone Rueschemeyer, Meeghan Prunty, Marjorie Tarmey, and others.<br /> Contains 697 files from 47 boxes.</p>
<p><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0885-F+Segment+3"><strong>Segment Three</strong></a><br /> The majority of the records in this collection consist of reports, polls, and surveys concerning nearly all aspects of health care; many letters from the public, medical professionals and organizations, and legislators to the Task Force concerning its mission; as well as the telephone message logs of the Task Force.<br /> Contains 592 files from 44 boxes.</p>
<p><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0885-F+Segment+4"><strong>Segment Four</strong></a><br /> This collection consists of records describing the efforts of the Clinton Administration to pass the Health Security Act, which would have reformed the health care system of the United States. This collection contains memoranda, correspondence, handwritten notes, reports, charts, graphs, bills, drafts, booklets, pamphlets, lists, press releases, schedules, newspaper articles, and faxes. The collection contains lists of experts from the field of medicine willing to testify to the viability of the Health Security Act. Much of the remaining material duplicates records from the previous segments.<br /> Contains 590 files from 52 boxes.</p>
<p><strong><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0885-F+Segment+5">Segment Five</a></strong><br /> This collection of the Health Care Task Force records consists of materials from the files of Robert Boorstin, Alice Dunscomb, Richard Veloz and Walter Zelman. The files contain memoranda, correspondence, handwritten notes, reports, charts, graphs, bills, drafts, booklets, pamphlets, lists, press releases, schedules, statements, surveys, newspaper articles, and faxes. Much of the material in this segment duplicates records from the previous segments.<br /> Contains 435 files from 47 boxes.</p>
<p><strong><a href="http://clinton.presidentiallibraries.us/items/browse?advanced%5B0%5D%5Belement_id%5D=43&advanced%5B0%5D%5Btype%5D=is+exactly&advanced%5B0%5D%5Bterms%5D=2006-0885-F+Segment+6">Segment Six</a></strong><br /> This collection consists of the files of the Health Care Task Force, focusing on material from Jack Lew and Lynn Margherio. Lew’s records reflect a preoccupation with figures, statistics, and calculations of all sorts. Graphs and charts abound on the effect reform of the health care system would have on the federal budget. Margherio, a Senior Policy Analyst on the Domestic Policy Council, has documents such as: memoranda, notes, summaries, and articles on individuals (largely doctors) deemed to be experts on the Health Security Act of 1993 qualified to travel across the country and speak to groups in glowing terms about the groundbreaking initiative put forward by President Clinton in his first year in the White House. <br /> Contains 804 files from 40 boxes.</p>
Publisher
An entity responsible for making the resource available
William J. Clinton Presidential Library & Museum
Identifier
An unambiguous reference to the resource within a given context
2006-0885-F
Text
A resource consisting primarily of words for reading. Examples include books, letters, dissertations, poems, newspapers, articles, archives of mailing lists. Note that facsimiles or images of texts are still of the genre Text.
Original Format
The type of object, such as painting, sculpture, paper, photo, and additional data
Paper
Dublin Core
The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/.
Title
A name given to the resource
Zelman’s Drafts – MC [Managed Competition] [1]
Creator
An entity primarily responsible for making the resource
Task Force on National Health Care
White House Health Care Task Force
Lynn Margherio
Identifier
An unambiguous reference to the resource within a given context
2006-0885-F Segment 2
Is Part Of
A related resource in which the described resource is physically or logically included.
Box 29
<a href="http://clintonlibrary.gov/assets/Documents/Finding-Aids/2006/2006-0885-F-2.pdf" target="_blank">Collection Finding Aid</a>
<a href="https://catalog.archives.gov/id/12093088" target="_blank">National Archives Catalog Description</a>
Provenance
A statement of any changes in ownership and custody of the resource since its creation that are significant for its authenticity, integrity, and interpretation. The statement may include a description of any changes successive custodians made to the resource.
Clinton Presidential Records: White House Staff and Office Files
Publisher
An entity responsible for making the resource available
William J. Clinton Presidential Library & Museum
Format
The file format, physical medium, or dimensions of the resource
Adobe Acrobat Document
Medium
The material or physical carrier of the resource.
Preservation-Reproduction-Reference
Date Created
Date of creation of the resource.
2/6/2015
Source
A related resource from which the described resource is derived
42-t-12093088-20060885F-Seg2-029-016-2015
12093088