Coalition America, Inc.

How do we pay for health care? Outside the threat of terrorism, this may be the greatest single challenge facing the United States in the first decade of the 21st Century. For two decades, businesses have grappled with how to provide their employees with the healthcare they expect while keeping the costs affordable.

When corporations turned to managed care to slow the spiral in insurance costs during the 1980s, it worked - for a while. Soon, however, a backlash developed as patients and politicians began reacting to tactics occasionally used by HMOs to control costs.

Over the past five years, Preferred Provider Organizations (PPOs), which offer more flexibility and choice, have emerged as an alternative and large corporations have been migrating to the PPO option.

Last year, 75 percent of U.S. employers with 500 or more employees offered a PPO plan compared to 51 percent that offered an HMO choice. Even so, costs for all insurance types are rising again. (See Exhibit A).

When the International Society of Certified Employee Benefit Specialists polled corporate human resource departments about their top five priorities for 2001, controlling health costs was the number one goal for 71% of those surveyed.

No wonder, most companies are beginning to rethink their employee health care plans again in light of 21st Century realities. As they reevaluate their health benefit programs, most employers will find at least six important trends influencing their decisions: 1) a grater reliance on cost containment specialists, 2) the need to involve employees in cost-cutting; 3) .the growth in defined benefit programs, 4) avoiding the health care wars: 5) ensuring a high quality care and 6) using technology to reduce health care costs.

Cost Containment Specialists

Major corporations have not been shy in pushing their health insurers to cut costs. Consequently, self-insurers, Preferred Provider Organizations (PPOs) and other managed care providers are looking to new cost-cutting techniques.

Accordingly, more organizations are looking to specialized health care cost-containment companies to generate every possible saving.

Out-of-network employee claims are a major factor in the high cost of health care today. If a company has a significant number of employees living and working in areas not covered by their PPO, the health care costs can be enormous.

Cost-containment companies save money by offering self-insured organizations and local or regional managed care companies three cost-containment services: 1) developing a primary PPO management program across multiple locations; 2) offering access to supplemental networks for managing out-of-network costs and 3) direct negotiations with health care providers where no PPO network exists. Most cost-containment companies have contracts with hundreds of PPO networks nation-wide. Through these relationships, they can develop either primary or supplemental networks for true national coverage at much lower costs.

In addition, if the cost-containment company lacks a network in certain areas, they then negotiate directly with the doctor or hospital on behalf of the PPO or corporate self-insurer to obtain a discount.

These broad-based networks not only save money, but make life easier for employees. They receive a medical card with their name, the company name and the insurer’s logo, which means fewer problems and paper work for those out-of-network employees who need care.

Other employee-oriented services include information on available PPOs, an Internet provider look up and on-line provider listings, an automated patient referral line and paper directories, where needed.

Even if an insurer does not need a true national network, they can still benefit by having a cost containment company reprice their out-of-network claims. Working through a cost-containment company, insurers can use supplemental networks to lower their out-of-network claims or they can go obtain retrospective claim discounting after the claim is submitted.

Today, the repricing process is so simple that clients of cost-containment companies like Coalition America can go on line to access our networks and reprice their claims quickly and easily.

Claims sent by Internet, EDI, fax or mail are computer matched to the network delivering the best results. If no network match is found, the claim is automatically routed for negotiation.

Once the new prices is obtained, it is immediately transferred back to the payer for disbursement.

This Internet approach provides immediate discounting results and allows the customer to control the discounting process. It also provides for faster PPO repricing and negotiation.

Internet access also solves other problems. When dealing with thousands of paper claims, some inevitably drop through the cracks.

Through the Internet, the chance that claims will be lost or misplaced during transfer are practically eliminated. In addition, Internet systems allow the client to control the repricing process, eliminate delays and reduce the amount of rekeying required to process a claim.

Finally, once a claim is in the Internet system and if no network alternative exists, all the information the cost-containment company needs to negotiate the claim is instantly available on line.

The best cost-containment companies also offer unbiased analysis of networks so that self-insured companies or PPOs obtain the widest health care access at the lowest possible costs.

"Unbiased analysis" is the operative word when it comes to network selection. PPOs may rely on their own or affiliated networks when handling out-of-network claims. However, those networks may or may not offer the best results. An unbiased approach means the cost-containment company selects the PPO network from the hundreds in its portfolio that offers the best results for a particular situation or need.

Further PPO contracts are constantly changing. Since cost-containment companies are always updating their own network data, they can provide access to the best coverage at all times.

Because the need to reduce health care costs is so great, PPOs and self-insurers are now turning even their small claims over to cost-containment firms for repricing or negotiation. In high-volume situations, significant savings are possible by better managing even small dollar claims.

As government policy makers, health care providers and employees continue to object to some cost-cutting tactics used by managed care organizations, corporations and their PPOs must find new approaches to lowering coverage costs.

Specialized cost-containment organizations are already playing an essential role in controlling health care costs today and that role will grow in the future.

Empowering Employees

As companies look for new ways to rein in their health insurance costs, they should consider adding a new member to the management team - their employees.

The biggest criticism of managed care - and in fact most current insurance options - is that the health care consumer has little financial stake in their treatment decisions. Today’s typical patient consumes as much health care as they wish and someone else pays for it.

In fact, consumers today have almost no control over their health care dollars and less choice among benefits or providers. Health care remains the only segment of the economy where consumers have no idea or interest in the true cost of the services they use.

Employees see health benefits as a free perk, though businesses spend between $4,000 and $6,000 annually per employee for health care.

Further, if employees save money, they do not get to keep it and if they waste it, there is no penalty.

As Sally Trude, senior health researcher at Washington, D.C.’s Center for Studying Health System Change remarked, most patients believe a doctor visit costs only ten dollars.

Because health care is artificially cheap, people often overuse it and as any Economics 101 graduate understands, cost containment in that scenario is hopeless. Breaking that cycle is the puzzle facing corporations and policymakers.

What will drive employees to understand and act responsibly in their health care decisions?

First, employers should empower employees with better health care information. After all, an informed consumer is a better consumer. Employees should understand that health benefits are part of their income and that increasing health care costs truly affects them financially.

Fortunately, the new economy ushered in both innovative technologies and changing attitudes to facilitate this process. Health care is one area of the economy that not only survived, but also thrived amid the "dot com" collapse.

Thus, health-related sites are among the most popular on the Internet, so many employees are already comfortable dealing with health issues on-line. The Internet delivers real-time data right to employees’ fingertips. Empowered with unprecedented access to health care information, consumers can easily explore the options and make wiser health care decisions.

Further, employees want to help. A recent study released by Deloitte Research shows that more than one-third of employees are willing to pay a monthly fee to manage their benefits on line, while 25 percent would actually switch health care plans to do so.

Simultaneously, the Internet is also helping with cost containment features such as administration services, online enrollment and Internet claims repricing. As the Internet permeates the health services industry, companies can involve employees even more.

How else can employers empower their workers? Following are six ways employers can help.

Defined Contribution

Once employees are empowered, give them to tools to act. That is why defined contribution programs are gaining popularity. For employers, defined contribution programs are attractive because they reduce the burdens companies carry in managing employee health coverage.

The buzz around this option comes because it ties the employees’ physical well being to their fiscal well being, which is the first realistic step in containing costs.

In practice, defined contribution health care resembles popular 401(k) retirement programs, which are familiar to and popular among employees. With defined contribution programs, companies commit a specified dollar amount toward health coverage instead of a specified package of health care benefits with open-ended costs.

Each employee receives a medical allotment that can be used for co-payments or discretionary medical costs, such as eyeglasses or contact lenses. If a plan costs more than the company’s contributions, employees make up the difference with pre-tax dollars.

A separate catastrophic health insurance plan may supplement an employee’s primary coverage. By giving employees more responsibility for their own health care decisions, they become managers instead of "the managed."

After years of double-digit health premium increases, Forbes Magazine in 1990 was among the first companies to implement a defined contribution program. Forbes gives its employees $1,500 a year to spend on routine health expenses, while providing catastrophic coverage for every employee.

Employees then use the money to buy regular insurance or pay their routine medical costs directly from their account. Meanwhile, the more money they save, the more they keep. Each year, more than 40 percent of Forbes employees receive bonus checks for the unused amounts in their health care accounts.

According to publisher Steve Forbes, the company’s health care expenses are no higher today per person than they were when the program started.

With successes like this, defined contribution programs will gain momentum. A recent survey by Hewitt Associates reported that 25 percent of the country’s major corporations are now considering defined contribution alternatives.

Some experts predict that defined contribution plans will evolve rapidly in the next five years and be the norm within ten years.

While some critics argue that a defined contribution approach allows employers to opt out of benefits administration, that is unlikely. The competitive pressure to recruit top quality people will keep employers involved in employee health care.

Meanwhile, because it so resembles the corporate 401(k) programs, defined contribution plans let employers sell flexibility, individual control and other long-term advantages in terms that employees will easily understand and accept - particularly if there are financial incentives for cost control.

In addition, defined contributions will subject the medical profession to market forces and consumer demand. This new wrinkle will produce a major change in the way providers deliver their services, though doctors and hospitals that offer high quality care can also command higher prices in a consumer-driven system.

Likewise, defined contribution healthcare requires consumers to be good stewards of their health care dollar. Physicians also like this system because it removes any barriers between the doctor and patient in making treatment decisions.

Yet, with all the changes expected from defined contribution programs, employers will still serve an essential role. Companies will still set minimum performance standards and offer employees information on insurance policies, prices and provisions.

Simultaneously, insurers will assume new roles, including advisory and management services similar to those offered by financial houses that support corporate 401(k) programs.

The Lurking Challenges

Nevertheless, companies considering a defined contribution health program must consider several important issues. First, what are the tax consequences? Some tax experts have argued that there is no tax deduction for employers who simply pay cash directly to an employee for benefits.

Further, because employees are neither taxed on employer-paid premiums nor insurer-paid claims, some experts worry about the tax consequences of providing cash to employees for health coverage.

However, a 1961 IRS ruling (Rev Ruling 61-146) shows that employers and employees can both retain their tax exclusions in a properly designed defined contribution program.

Another concern is how employees are pooled. Under a defined contribution plan, will employees be buying group or individual insurance? If it is group insurance, what is the risk pool mechanism?

How would the system work with sicker patients who need more health care services? Any of these factors might inhibit a broader acceptance of defined contributions as a viable health care delivery model.

Finally, a major challenge is giving employees the tools and information to evaluate and choose the benefits offered by a variety of health plans. Everyone agrees the Internet is the only feasible way to secure, store, manage, distribute and administer the vast amounts of information about various plan features.

Breaking out the Gloves

Another key concern for employers is how to disengage from the health care wars.

Employers frequently are drawn into disputes between their employees and their insurance providers. "Employers are tired of being the monkey in the middle in disputes between employees and health plans," says Greg Scandlen, senior fellow with the National Center for Policy Analysis (NCPA) and a leading defined contribution expert.

According to Scandlen, this aspect alone helps make defined contribution plans "the wave of the future for employer-based health care."

An even more troublesome trend for employers and employees alike is the growing number of health care contract disputes. For the past five years, The Center for Studying Health System Change has tracked medical trends in 12 communities and in that time contract showdowns went from "not on the radar screen" to a very big issue in half those markets.

Whether it is hospitals versus insurers or physicians and hospital/networks duking it out, prickly negotiations are now a recurring fact of the medical world. Not only do these battles scare the public, they often cause service disruptions.

Because of their affect on employees, companies frequently are intervening in these disputes, too. Large employers have pressured insurers to maintain broader provider networks by threatening to drop plans that lose key provider groups.

Some employers have also established performance guarantees that include minimum doctor turnover, adequate choice among providers and contract termination notifications. Violating those guarantees invoke financial penalties against the insurer.

As long as they provide health coverage, employers will always be combatants in the health care wars. Fortunately, large companies often have the clout to negotiate cease-fires before things get too out of hand.

Quality of Care

The quest to reduce medical costs has affected not only the private sector, but public insurance as well. Health care is a major expense item for state and federal government, too.

To reduce its outlays, government has always been stingy in what it pays providers, so Medicaid and Medicare patients are not very profitable for the American medical profession. Combined with the number of uninsured who receive treatment, hospital and doctors have a large number of users who are paying less than the cost of service.

Traditionally, providers dealt with this through a mechanism known as "cost shifting." By overcharging patients with private insurance, providers could offset the losses incurred in treating public assistance and indigent patients.

Managed care ended cost shifting, so hospitals and physicians now face a reduction in reimbursements from all payers.

According to a survey conducted during April’s Healthcare Informatics & e.MD Expo and Conference, the most significant challenge facing the health care industry in the next two years is reduced reimbursements.

This becomes an issue for employers because it affects the type and quality of care an employee receives. With physicians receiving less reimbursement, the best doctors often opt out of managed care altogether and launch pay-for-service practices.

Since employees can no longer use their insurance to cover their doctor services, they must change providers. This causes emotional anguish, inconsistent care and a host of employer headaches.

While cost cutting is vital if companies are to continue offering health care benefits, employers must evaluate their plans rationally. Rationalizing health benefits involves looking at inconsistencies and anomalies. For example, some plans pay less for outpatient care than for a hospital stay involving the same procedure. Providers soon learn which options are most profitable.

In addition, rationality also involves looking for ways to keep quality providers in the network. Employers should monitor their plans to ensure that providers are paid promptly and fairly.

Emerging Technologies

One criticism of modern health care is that new technologies and treatments are often used to increase prices rather than increase efficiency.

One technology that has helped drive down costs, however, is, again, the Internet. Just as the "net" empowers employees with better decision-making information, it offers employers a revolutionary tool for managing their benefit programs.

Harris Interactive completed a study for the Health Technology Center, Price/Waterhouse/Coopers and the Institute for the Future, which found that many physicians believe the Internet will play a growing role in medicine.

According to the study, 96 percent of the surveyed physicians predicted the Internet would revolutionize health care by reducing administrative costs, minimizing reimbursement delays, facilitating information exchange and giving patients more control over their treatment.

One-third of those doctors believes the Internet will lead to new health-related businesses and clinical services. A majority now use the Internet to increase their effectiveness, with 35 percent now processing claims on-line and 34 percent using the web for diagnostic reporting and for collecting pharmaceutical information.

Companies, too, are using the Internet to reduce their health care costs. Cost containment companies like Coalition America rely heavily on the Internet to help companies save money on health benefits.

Through the Internet, companies can gain access to multiple PPO network choices and achieve cost savings that are unavailable with access to just one PPO. The typical single PPO network offers limited cost comparison and analysis to other PPOs.

The Internet allows companies to tap into custom-built networks for each claim payer or carrier based on the preference and requests of its employees. This system saves companies time and money on their PPO healthcare administration and claims repricing. Through technology and cost-containment programs, employers can realize significant savings while reducing administration.

The Internet also helps employers practice the three A’s of PPO network management:

Analyses of numerous PPOs ensuring the best match for the company;

Access to as many PPO networks as necessary to achieve aggressive savings;

Administration of all PPOs through a single source.

To date, the primary barrier to adopting Internet technologies has been a lack of system compatibility across among health care organizations. Ninety-three percent of the physicians and medical professionals surveyed agreed that creating an industry-wide on-line standard is the most effective way to drive universal use of the Internet.

Regardless, the Internet is a powerful tool for companies looking to reduce their employee benefit costs without sacrificing quality of care. By working with a leading-edge cost-containment firm with experience and know-how, employers can save real money on employee health coverage.

Summary

What will the 21st Century mean for corporate benefits managers? Without question, the first decade of the new millennium will see a total reshaping of the American health care delivery system and the corporate role within that system.

Further, the days are numbered for one-size-fits-all programs as companies realize that employee-driven health care is the only way to bring costs into line. Double-digit premium hikes are unsustainable in good economic times, much less when markets are weakening.

It will take cooperation from all interested parties - associations, practice groups, providers, insurers, policy-makers, employees and employers - to form a more rational approach to health care.

Meanwhile, legal disputes will continue and defined contribution programs will be tested. A move to any new model will demand adjustments by all partners in the process.

Regardless, the problems and challenges of modern health care cannot be solved without active employer involvement because Corporate America has the most to gain from a more rational system - and the most to lose from the status quo. Therefore, it is incumbent upon employers to promote and actively participate in open dialogue that will reshape the way we think about employee health care.

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