Should benefits advisors encourage employers to play a role in organizing health care delivery systems in the markets where their employees receive care?
In the past, employers assumed they could leave that job to hospitals, doctors and, possibly, insurers. Today, health care costs are doubling every 6 years. Employers are looking for a way out of the trap, but existing cost control efforts have had disappointing results.
Many employees and doctors view efforts to limit costs through managed health maintenance organizations as being unfair and potentially harmful attempts to ration care.
Health plan competition has failed to hold down costs because most physicians and hospitals have joined most of the large plans in their communities. Providers in one plan have little incentive to lower prices to attract patients from the other plans they also belong to.
The typical employer is coping by increasing employees’ out-of-pocket costs. That strategy has not slowed the overall rate of increase for health care costs, and it may alienate employees and providers.
Some employers are adopting defined contribution health plans that offer a fixed annual contribution to employees’ health coverage expenses. The new DC plans give employees an incentive to hold down costs, but, due to a lack of genuine provider competition, they do little to affect the underlying cost of care.
Employers strategy choices include shifting the focus from what plan the employer will offer to how employees choose plans, how employees buy care, or how employees take care of themselves or receive care.
The Structured Offering
A company that adopts a structured offering tries to create true provider competition by organizing 2 or more completely separate blocks of physicians and hospitals.
A few physicians might belong to more than one block, but, in general, the list of providers in one block should be different from the list of providers in the other blocks.
The physicians and hospitals in a provider block do not have to share health care risk. But the collective performance of a provider block should affect the market growth of each provider in the block.
If this approach works, competition between the provider blocks can help hold down prices.
One challenge is to keep a provider block from drawing the healthiest employees away from competing blocks. Plan administrators can control this tendency by using a rating methodology that adjusts for employees’ health status and demographics.
The Consumerist Model
Most defined contribution health plans try to be consumerist plans, but the terms are not entirely synonymous.
A company that sets up a DC health plan pays a fixed contribution for health coverage costs for each employee.
A consumerist plan tries to give employees far more information about health care purchasing decisions than an ordinary plan provides.
Both a consumerist plan and a structured offering try to increase the level of competition between providers, but a pure structured offering tries to increase competition between big blocks of providers. A pure consumerist plan tries to increase competition by increasing individual health care buyers’ ability to control overall costs by making smarter purchasing decisions.
The Customized Delivery System
Some employers, especially those with employees with unusual health care needs, might decide to tackle rising costs by building a customized health care delivery system.
Employers who adopt this approach may try to manage overall costs by using a carefully selected but narrow provider network to increase their ability to bargain with providers.
These employers might scrap the idea of keeping every employee’s doctor in the network. Plan administrators could base network design on the number of high-quality primary care providers and specialists needed to serve employees in each geographic area.
Simply reducing the number of providers could cut utilization. If participating physicians expect a narrow network to send them a large number of new patients, they might offer the network better rates. (Physicians may be quicker to lower rates to attract new business than to lower rates for current patients.)
Employers also might consider offering only the “best hospitals,” but one problem with that approach is the difficulty of establishing which hospitals are “best” and the fact that hospitals that are good at one thing are not necessarily good across the board.
Bradley C. Engel is principal and national health & welfare product leader with Human Resources & Investor Solutions, a unit of Mellon Financial Corp., Pittsburgh.
Reproduced from National Underwriter Edition, October 14, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.