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No Short Term Future for Defined Contributions
Expert Panel Expects No Major Shift In Employers' Health Benefit Strategies Given Tight Labor Market
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WASHINGTON, D.C. - Tight labor markets and consumer resistance to paying more for their health care mean that employers are expected to maintain their current health benefit strategies in the short run, according to a panel of experts convened by the Center for Studying Health System Change (HSC). In the meantime, e-marketeers are developing on-line health insurance markets that could take off if employers make the switch to defined contribution and other strategies.
The panel of employer and union experts and a panel of e-marketeers participated in a conference convened by HSC entitled "Defining Defined Contributions" on October 10th. Defined-contribution strategies discussed included the employer paying a fixed dollar amount for benefits or providing a cash-out or voucher for employees to purchase the services they need. Such approaches would enhance choice and, in some cases, shift risk and responsibility for health benefits to the employee.
Paul B. Ginsburg, HSC president, said that these issues are "very much on the minds of employers," although to date "few concrete steps have been taken - or even planned" to make them a reality. Defined contributions became a hot topic for major employers and policy makers last fall after a Xerox Corp. executive said Xerox was considering a switch to a cash-out defined-contribution approach for health benefits.
Sally Trude, HSC senior researcher and co-author of a new Issue Brief explaining defined contributions and exploring their pros and cons, said the idea was "the latest rage in employer-sponsored insurance," but it remains uncertain whether this is "the beginning of a new revolution in health insurance, or merely a reflection of employers frustrations with the current system."
Executives of three start-up companies that aspire to sell products that support defined contributions or to carve out a new role alongside the traditional health insurance business outlined their business plans - none of which is yet up and running. They were: Lee Newcomer, the executive vice president of Vivius, Inc.; Steve Wiggins, CEO and chairman of HealthMarket, Inc., and Ray F. Herschman, CEO of HealthSync.
Newcomer said Vivius has already enrolled 2,000 physicians in Kansas City and Minneapolis for a plan that will allow patients with a contribution amount set by their employer to choose from a "supermarket" of 22 different types of providers for the bulk of their health care needs, coupled with traditional indemnity coverage for services outside that network. There will be no medical management, and physicians with the best results will be able to command a premium price for their services, said Newcomer, a former executive of United Healthcare. Vivius expects to begin operations in the first quarter of 2001, and is also looking at the Denver market.
Wiggins, best known as the founder of Oxford Health Plans, said his new venture aspires to be "truly an alternative to all the managed care models." He said he was creating not a health plan, but "an operating system that any plan - indemnity, HMO and PPO/POS - can offer. Were trying to be the Intel inside insurance."
Wiggins said the plan is built around "self-direction of the health care dollar," with three levels of coverage: traditional insurance for the type of routine care that consumers typically need each year; an "episode allowance" for the more expensive acute and chronic care that accounts for most big bills, from hip replacements to pregnancies; and full catastrophic coverage for transplants and similar, big ticket emergencies.
Wiggins said HealthMarket would "deliver to you the purchasing power of an HMO" with deep discounts and give consumers access to the "secrets" of what providers charge. He said his company is marketing the self-directed plan with insurers and aims to be in 11 states on January 1, 2001 and in all 50 states by the end of 2001.
Herschman called HealthSync "an employer-sponsored, electronic marketplace or exchange, where employees become consumers." He said the companys approach would preserve insurance pools, so that young workers still subsidize older workers, and healthy the sick. "Our company takes that money and distributes it to carriers based on who selected them. This is where the risk adjusting occurs," said Herschman, who said HealthSync is pilot planning in Atlanta and Cleveland, and will be enrolling customers by July 2001.
The audience of 150 - including business, labor, government and trade association representatives - heard a separate panel of purchasers and other experts offer their explanation of what is driving employers to consider defined contributions as well as their sense of the rewards and drawbacks of such approaches.
Helen Darling, a senior consultant with Watson Wyatt Worldwide noted that new models are coming forward but they wont necessarily be for everybody. "If you can provide a product - again, with the proper risk adjustment so that people who are seriously ill are not harmed in anyway - and others are given more choices and the ability to control the payment and go where they want and pay the difference, thats going to be very appealing to employees."
Darling said figuring out how to pool risk is just one of the challenges that defined contributions face. She noted that corporations would be discomfited if their employees discover how much more they are spending on employee health care in a high-cost area like Boston versus a low-cost area like Greenville, Mississippi. Darling also expressed deep reservations about turning the decision on whether to purchase insurance over to employees, as would be the case with the cash-out approach. "To assume that people will take the money and do the wise thing is a risk I personally would not want to take," she said.
David S. Blitzstein, director of the Negotiated Benefits Department for United Food & Commercial Workers International Union, said there has been a paradigm shift in society that now extols an almost libertarian approach: choice at any cost. He questioned what that holds for dealing with the problem of the nations 43 million uninsured.
"Theres sort of a desperation out there because we have not fixed the health system in this country," said Blitzstein. "Medical costs are coming back with a vengeance. The low-lying fruit has already been picked. The employers are looking for something, e.g., defined contributions, that would protect them for another four to five years."
Darling agreed, noting that employers are girding for more stiff increases after watching premiums go up 9 to 13 percent this year. "The worst news is still ahead," said Darling. "Nobodys managing care any more. Its going to be brutal." With the strong economy and companies in a "war for talent," Darling said, corporate executives want "whatever is going to make employees happy." And that is expensive.
Pamela Krol, director of health programs and benefits administration for Lucent Technologies, which has more than 200,000 employees and retirees in its health plans, said that as a high technology company, they are examining strategies that help them recruit and retain workers. Krol saw the advantages in employees having the ability to earmark bonuses and stock options to reinvest into a medical savings account, like a 401(k) for medical expenses, that was portable. She said she also likes the idea of greater consumer involvement, predicated on better information. Right now, consumers are not given enough information about costs and quality, Krol said.
G. Lawrence Atkins, president of Health Policy Analysts, observed, "Employers now see themselves in the middle between plans and providers and are looking for ways to move themselves out." But, the former staff director of the U.S. Senate Special Committee on Aging, added, "its wishful thinking" to suggest that you can just give employees a voucher and let them sort this all out on their own.
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